In 1998, for the first time, the SEC provided a definition of a
"shareholder proposal." In Rule 14a-8(a), the SEC defined a shareholder
proposal as a "recommendation or requirement that the company and/or its
board of directors take action, which you intend to present at a meeting
of the company's shareholders." The SEC also clarified in that provision
that "[u]nless otherwise indicated, the word `proposal' as used in this
section refers both to your proposal, and to your corresponding statement
in support of your proposal (if any)."[fn1]
A communication that seeks no specific action, but merely purports to
express shareholders' views, is inconsistent with the purposes of
Rule 14a-8 and is not a "proposal." In 1998, the SEC specifically
overturned a prior no-action letter in which the staff had not allowed a
company to exclude a "proposal" requesting that shareholders express their
dissatisfaction with the company's public position on a controversial
political referendum.[fn2]
[fn2] The overturned letter was Pacific Gas & Electric Company, 1997 SEC
No-Act. LEXIS 140 (Jan. 21, 1997).
§ 3.03 Request for Information Not Automatically Excludable
The SEC has cautioned that a request for information may qualify as a
proposal. In a 1998 release, the SEC stated, "In formulating the
definition, it was not our intention to preclude proposals merely because
they seek information, and the fact that a proposal seeks only
information will not alone justify exclusion under the definition."[fn3]
However, as a practical matter, companies receive and respond to numerous
requests for information from shareholders. The key factor is whether
there is any indication that the shareholder intends for other
shareholders to act on the request for information.
§ 3.04 Determining Whether Communication is a Proposal or Suggestion/Complaint
As a practical matter, it is not uncommon for a company to receive a
communication that may or may not be a shareholder proposal. The
shareholder typically does not state whether such a communication is a
proposal under Rule 14a-8 nor does the communication have the typical
"trappings" of a proposal, such as proof of ownership or a clear division
between a "proposal" and "supporting statement."
This problem has been compounded by the ability of proponents to submit
their proposals to companies electronically. Not long ago, the SEC
recommended in a Note to Rule 14a-8, but did not require, that proponents
submit their proposals by certified mail-return receipt requested. In
1998, the SEC deleted this Note in recognition of the fact that
electronic communications have become more popular, particularly the
submission of proposals by facsimile.
Electronic communications tend to be more informal, which makes the
analysis of whether a communication is intended to be a proposal
challenging. For example, an employee-shareholder may send an e-mail to
the corporate secretary recommending that the company take a certain
action — is the communication just an employee suggestion or
complaint, or is it a shareholder proposal?
As a practical matter, nearly all proposals still are submitted by
paper or facsimile, probably because the disclosure in proxy statements
provides this type of contact information for companies. However,
proponents increasingly are submitting proposals via e-mail, particularly
proponents who are employees, since they have access to the e-mail address
of the person within the company who handles proposals. The risk for
proponents using e-mail addresses is that there might be some uncertainty
regarding whether a proposal will be considered properly received if an
e-mail address is not provided in the proxy statement as a means to
submit proposals. For an example of a proposal submitted by e-mail, see
Anheuser-Busch Companies.[fn3.1]
§ 3.05 Determining Whether Communication is a Proposal or Nomination
When a shareholder communicates with a company with the apparent
intention to nominate himself or herself to the company's board, that
communication often is ambiguous regarding whether the shareholder seeks
to have a proposal included in the proxy statement or merely intends to
provide the company with notice of its intention to be nominated to the
board.
The bylaws of many companies permit shareholders to nominate themselves
orally for board membership at an annual shareholders' meeting. This
right is often coupled with a requirement that the shareholder provide
advance notice. The question then is whether a written communication from
a shareholder is intended to be a shareholder proposal governed under
Rule 14a-8 or a notice of nomination under the company's bylaws.[fn4] It
is not uncommon for a written communication to fail to address this
issue.
If the shareholder's intention clearly is to nominate herself pursuant
to the company's bylaws, the SEC staff normally declines to address a
no-action request. If there is no clear indication whether the
communication is a shareholder proposal, the SEC staff often couches its
response by allowing exclusion if the proponent's submission is deemed to
be a proposal, but the staff avoids making the determination about
whether the submission is indeed a proposal. The staff leaves this up to
the parties to debate.
EXAMPLES:
In Horizon Group Properties, Inc.,[fn4.1] the SEC staff did not
issue a definitive answer to the company's no-action request
after it determined that the so-called "proposal" related to
nomination procedures and therefore did not raise a Rule 14a-8
issue. The two shareholders who wrote the "proposal" argued that
their letter did not request or recommend that the company or
board of directors take any action. In addition, they argued that
they did not explicitly seek inclusion of their nomination letter in the company's proxy materials under
Rule 14a-8. Rather, they noted that they nominated themselves to
stand for election pursuant to the company's bylaws with that
nomination letter. Furthermore, they noted they later wrote to the
company to inform it that they intended to conduct a proxy
solicitation, including invoking Rule 14a-7 to ask for shareholder
information and asking the company to either mail their proxy
materials or to furnish mailing lists so as to enable them to do so
on their own.
In Lipid Sciences, Inc.,[fn4.2] the SEC staff agreed with the
company that, to the extent the proponent's submission purported
to be a shareholder proposal submitted pursuant to Rule 14a- 8,
it was excludable under Rule 14a-8(i)(8). The proposal stated,
"That a resolution be put to the stockholders to remove Phil
Radlick as a director of Lipid Sciences, Inc., without cause, and
I be nominated to fill the vacancy thereby created on the board
of directors if Mr. Radlick is removed."
In The York Group, Inc.,[fn5] after the SEC stated that it was
unclear whether the submission was a proposal, the company was
permitted to exclude a proposal nominating six persons for membership
on the company's board. The shareholder's submission to the company
stated, "The undersigned stockholders of The York Group, Inc. hereby
notify the Company of their intent to nominate for election to the
board of directors of the Company at the Company's 2001 annual
meeting of stockholders each of the persons set forth on Appendix A
hereto." The submission did not indicate whether the shareholder
intended his letter to be a proposal and the company argued that it
was one. The proponent did not submit a rebuttal.
