(m) Question 13: What can I do if the company includes in its proxy
statement reasons why it believes shareholders should not vote in favor
of my proposal, and I disagree with some of its statements?
(1) The company may elect to include in its proxy statement reasons why
it believes shareholders should vote against your proposal. The company
is allowed to make arguments reflecting its own point of view, just as
you may express your own point of view in your proposal's supporting
statement.
(2) However, if you believe that the company's opposition to your
proposal contains materially false or misleading statements that may
violate our anti-fraud rule, § 240.14a-9, you should promptly send to
the Commission staff and the company a letter explaining the reasons for
your view, along with a copy of the company's statements opposing your
proposal. To the extent possible, your letter should include specific
factual information demonstrating the inaccuracy of the company's
claims. Time permitting, you may wish to try to work out your differences
with the company by yourself before contacting the Commission staff.
(3) We require the company to send you a copy of its statements opposing
your proposal before it mails its proxy materials, so that you may bring
to our attention any materially false or misleading statements, under the
following timeframes:
(i) If our no-action response requires that you make revisions to your
proposal or supporting statement as a condition to requiring the company
to include it in its proxy materials, then the company must provide you
with a copy of its opposition statements no later than 5 calendar days
after the company receives a copy of your revised proposal; or
(ii) In all other cases, the company must provide you with a copy of its
opposition statements no later than 30 calendar days before its files
definitive copies of its proxy statement and form of proxy under §
240.14a-6.
§ 6.01 Background of the Provision
A company may include a statement in opposition to a shareholder
proposal in its proxy statement, although it is not required to do so.
Before delivering its proxy statement to shareholders, a company must
first send a copy of the disclosure it intends to make about the
shareholder proposal to the proponent within a specified time period.
This allows a proponent to complain to the staff if it believes that the
disclosure contains false and misleading information.
§ 6.01[A] History of the Provision
In 1978, the SEC adopted this provision, primarily as the result of
litigation by the Sisters of the Precious Blood against Bristol-Myers.[fn1]
In that case, the proponent claimed that the company had made a number of
false or misleading statements in its disclosure opposing a proposal on
infant formula. The district court held that there was no judicial remedy
under Section 14(a) for materially inaccurate statements made by
management in connection with shareholder proposals. The SEC stated that
it was adopting this provision on an "experimental basis" due to some
commentators' concerns that the provision might provide a forum for
unnecessary, extended debate on the merits of each proposal.[fn2] In
1997, the SEC proposed to eliminate this provision because it was rarely
invoked by proponents. After receiving negative comments on this
proposal, the SEC decided to maintain the right of proponents to review
statements in opposition before they are printed and delivered.[fn3]
[fn1] Sisters of the Precious Blood v. Bristol-Myers Co., 431 F. Supp. 385
(S.D.N.Y. 1977).
The purpose of the provision is to provide proponents with an
opportunity to alert the staff to potential misstatements about a
proposal. This is important because proponents frequently are more
knowledgeable about the subject matters of their proposals than the
staff. According to the SEC, "a number of witnesses during the hearings
indicated that under the [former] system a proponent [did] not have a
practical means of curing any misstatements which are made in the
discussion of his proposal."[fn4]
[fn4] Exchange Act Release No. 15,384, 1978 SEC LEXIS 159 (Dec. 6, 1978)
("The purpose of this proposal was to provide a shareholder-proponent
with the opportunity to bring materially inaccurate statements contained
in opposing statements to the attention of management and the Commission
before the proxy materials are mailed to shareholders.").
§ 6.02 Application of the Provision
§ 6.02[A] Identifying the Key Issues
Most companies elect to provide some type of disclosure opposing a
shareholder proposal, either describing why shareholders should vote
against a proposal or clarifying its position on the proposal's subject
matter. The most important issue in connection with this provision is
determining what constitutes false and misleading disclosure.
§ 6.02[B] Staff Review of Proposal Disclosure
If the proponent does not object to the company's statement in
opposition, the SEC staff reviews it only if the proxy statement is
selected for review in accordance with the staff's nonpublic screening
criteria. Most companies are eligible to deliver their proxy statements
to shareholders immediately after filing them in definitive form because
the matters to be voted on are considered to be routine under
Rule 14a-6(a). As a result, the SEC staff normally does not review
either the proposal or the company's statement in opposition.
If a proxy statement is selected for review, the SEC staff
will review the disclosure for compliance with the anti-fraud
provisions of Rule 14a-9.
§ 6.02[C] Company Not Liable for Proponent's Disclosure
Under Rule 14a-8(l)(2), the company is not directly or indirectly
liable for a proposal or supporting statement included in its
proxy statement. As a result, a company is not liable under Rule 14a-9 for
false or misleading information contained in a proposal or related
supporting statement included in its proxy statements.
Although the proponent is theoretically liable for the disclosure in
its proposal and supporting statement, there never has been a lawsuit
filed against a proponent for such "disclosure." Such an action is not
likely under the securities laws since the proxy statement is filed and
delivered by a company, but it is possible that a proposal could serve as
the basis for a lawsuit for defamation or other tort action against the
proponent.
§ 6.02[D] No Word Limitation
Unlike the 500-word limit imposed on shareholder proposals under Rule
14a-8(d), the length of companies' statements in opposition is not
limited. They can provide as much disclosure as they wish urging
shareholders to vote against a shareholder proposal. In fact, it is not
uncommon for a company's statement in opposition to exceed 500 words.
A company's latitude is only subject to antifraud concerns if the
statement in opposition is so long that it obscures the other disclosure
made in the proxy statement. The disparity in treatment is based on the
fact that companies are ultimately responsible for providing adequate
information to shareholders so that they can make an informed voting
decision.
§ 6.02[E] Advance Copy Must Be Provided to Proponent
Under Rule 14a-8(m)(3), if a company intends to provide disclosure
opposing the proposal in its proxy statement, it must send a copy of the
disclosure to the proponent not later than 30 calendar days prior to the
date that the company files its definitive proxy statement. If the
proposal must be revised by the proponent to be includable, the statement
in opposition must be furnished to the proponent not later than five
calendar days after receipt by the company of the revised proposal.
A common question is what a company should do if it needs to print and
deliver proxy materials in approximately 30 days but the SEC staff has
not yet ruled on its no-action request. The staff allows a company to
provide a proponent with an advance copy of the disclosure the company intends to use in the event the staff
denies its request for relief. In the staff's opinion, sending an advance
copy does not obligate a company to include a proposal; however,
a company should make clear to the proponent that it is sending a
proposed statement in opposition as a precaution to comply with the
rule and that the company has not withdrawn its request to the staff.
§ 6.02[F] Proponent's Belief that Disclosure Is False and Misleading
If a proponent believes that the company's statement in opposition is
materially false or misleading, it can complain to the SEC staff. Under
Rule 14a-8(m)(2), such a complaint must be lodged by promptly sending a
letter to the staff containing specific facts demonstrating the
inaccuracy of the company's statement, along with a copy of the company's
proposed statement of opposition. The proponent is required to submit a
copy of the company's statement of opposition because the staff does not
normally have it. A copy of the letter should also be sent to the company
because the SEC staff encourages the parties to try to resolve their
differences informally, as indicated in Rule 14a-8(m)(2).
If the staff agrees with a proponent's concerns, it normally will
direct the company to change the misleading portions of its disclosure.
This direction from the staff is conveyed orally rather than in writing.
§ 6.02[G] Who Has Standing to Challenge Disclosure
Under Rule 14a-8(m)(2), it is clear that the company's statement in
opposition is subject to the antifraud provisions of Rule 14a-9.
Accordingly, in addition to the proponent, the SEC staff has standing to
seek relief against the company for false and misleading disclosure.
EXAMPLE:
In United Paperworkers International Union v. International Paper
Co.,[fn5] the Court of Appeals for the Second Circuit held
that the company's recommendation in its proxy statement that
shareholders should vote against a shareholder proposal on an
environmental issue was misleading because it inaccurately described the
company's environmental record and failed to disclose its
non-compliance. The proponent sued because the company's statement in
opposition contained a glowing description of the company's environmental
record despite considerable evidence to the contrary. In a strongly
worded opinion, the court required the company to include the proposal
and supporting statement in the company's next proxy statement, including
a description of the court's judgment as well as quoted portions of the
court's opinion.
[fn5] 985 F.2d 1190 (2d Cir. 1993).
§ 6.03 Practice Pointers
Company Practice Pointers
Send copy of the proposed disclosure while waiting on the staff.
Often, a company needs to print and deliver proxy materials soon but does
not yet know how the SEC staff will decide its no-action request. The
staff allows a company to provide the proponent with an advance copy of
its proposed statement of opposition that it would use if the staff ruled
against it. Companies should make clear to proponents that they have not
withdrawn their request to the staff. If a company is worried that the
proponent will prematurely publicize its proposed statement, it should
hesitate to hand over the proposed disclosure. However, the company then
faces a dilemma about how to comply with this exclusion since the staff
has not fashioned any other avenues of relief. It is worth noting that
the staff does not like to cause delays in a company's printing schedule
and will make every effort to settle disputes about statements in
opposition in an expeditious manner.
Proponent Practice Pointers
Attempt to negotiate claims of false and misleading disclosure. As
recommended by the SEC, the parties should try to work out disclosure
issues on their own. Since a company probably is under a tight deadline
to print and deliver its proxy materials, it may be willing to acquiesce
and make reasonable changes requested by a proponent.
Attach a copy of the company's proposed statement. If a proponent
decides to complain about the false and misleading nature of the
company's proposed disclosure, it must submit a copy of the company's
statement of opposition to the staff. This is required by the rule
because the staff normally does not have this disclosure.
Company Practice Pointers