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Chapter 8 One-Proposal Rule

§ 8.01 Background of the Exclusion

[A] History of the Exclusion

[B] Purpose of the Exclusion

§ 8.02 Application of the Provision

[A] Identifying the Key Issues

[B] Distinct Multiple Proposals

[C] Opportunity to Cure

[C][1] Failure to Provide Notice and Opportunity to Cure

[D] Relate to One Concept

[E] No Substitute Proposals

§ 8.03 Practice Pointers

Chapter 8 One-Proposal Rule

Rule 14a-8(c) — former 14a-8(a)(4)

Question 3: How many proposals may I submit?

Each shareholder may submit no more than one proposal to a company for a particular shareholders' meeting.

§ 8.01 Background of the Exclusion

§ 8.01[A] History of the Exclusion

Before 1976, a proponent could submit an unlimited number of proposals to a company. In 1976, the SEC adopted a provision limiting proponents to two proposals of no more than 300 words each. It noted that some proponents had "exceeded the bounds of reasonableness either by submitting excessive numbers of proposals to issuers (one proponent submitted 21 proposals to an issuer, and many have submitted ten or more) or by submitting proposals that are extreme in length (there have been two occasions in which proposals exceeding 3,000 words in length have been submitted)."[fn1]

In 1983, the SEC restricted each proponent to a single proposal at a given company. The SEC made this change as part of an effort "to reduce issuer costs and to improve the readability of proxy statements."[fn2] At this time, some commentators floated the idea of requiring proponents to pay a fee when they submitted a proposal, but the SEC never proposed such a fee.[fn3]

[fn1] Exchange Act Release No. 12,598, 9 SEC Dock. 1030, 1032 (1976) (proposing release); Exchange Act Release No. 12,999, 10 SEC Dock. 1006, 1009 (1976) (adopting release).

[fn2] Exchange Act Release No. 19,135, 26 SEC Dock. 494, 504-05 (1982) (proposing release); Exchange Act Release No. 20,091, 28 SEC Dock. 798, 801 (1983) (adopting release).

[fn3] Exchange Act Release No. 20,091, 1983 SEC LEXIS 1011 (Aug. 16, 1983).

§ 8.01[B] Purpose of the Exclusion

Like the limitation on proposal length, the purpose of this limitation is to control the costs of the shareholder proposal process, which ultimately are borne by all shareholders. In addition, the SEC has been mindful of the possibility that the other disclosure in proxy statements could be overwhelmed by multiple shareholder proposals, stating that submitting excessive numbers of proposals "are inappropriate under Rule 14a-8 not only because they constitute an unreasonable exercise of the right to submit proposals at the expense of other shareholders but also because they tend to obscure other material matters in the proxy statements of issuers, thereby reducing the effectiveness of such documents."[fn4]

[fn4] Exchange Act Release No. 12,598, 9 SEC Dock. 1030, 1032 (1976) (proposing release); Exchange Act Release No. 12,999, 10 SEC Dock. 1006, 1009 (1976) (adopting release).

§ 8.02 Application of the Exclusion

§ 8.02[A] Identifying the Key Issues

In some cases, the proponent may be ignorant of the "one proposal" restriction and clearly intend to submit more than one proposal. In such cases, the company must notify the proponent of the need to reduce the number of proposals as required by Rule 14a-8(f).

The more difficult situation is when a company and proponent disagree over whether a particular submission consists of more than one proposal. The SEC staff generally finds that a proposal made up of subparts joined by a unifying concept is a single proposal. If the purported proposal lacks such a unifying concept, it is treated as multiple proposals.

§ 8.02[B] Distinct Multiple Proposals

Sometimes a proponent submits multiple proposals because she is not aware of the limitation. In such cases, a company normally produces evidence that the proponent intended to submit multiple proposals, such as the proponent's statement to that effect in a transmittal letter or the proponent's submission of proposals on disparate topics, each containing its own "Resolved" language. Here, the analysis is straightforward and the proposals may be excluded.

EXAMPLES:

Multiple proposals clearly intended

In NCR Corporation,[fn5] the company was allowed to exclude three proposals that related to board composition, executive bonuses, and separating the roles of chairman and CEO, which the proponent clearly marked as three separate proposals.
In Citigroup Inc.,[fn6] the company successfully excluded a proposal requesting that the company change the wording of its proxy card to remove the word "EXCEPT" and reapply the word "AGAINST" in the "Vote for Directors column" and revise its proxy statement to remove the statement that management will use its discretion to vote all signed but not voted proxies. The company argued that these were two separate proposals because they were not related to a single specific concept beyond the proponent's broad assertion that they related to aspects of the proxy card that were "not fair to shareholders." The company explained that the concept of permitting an "against" vote (which has no legal effect under Delaware law in determining whether a nominee is elected as a director where directors are elected by a plurality vote) in lieu of a "withhold authority" vote is distinct from the concept of having all signed but unvoted proxy cards voted as management recommends. Here, the first proposal merely related to a shareholder's ability to express a greater degree of dissatisfaction with nominees for directors, while the second proposal related to how unvoted shares would be counted.

EXAMPLES

Multiple proposals not clearly intended

In Fotoball, Inc.,[fn7] the company was permitted to exclude several proposals requiring minimum director shareholdings, paying directors in stock or options, and prohibiting nonemployee directors from performing other services for the company. The company argued that the proposals were numbered separately and covered different topics. The company also stated that it had given the proponent a number of opportunities to withdraw several of the proposals, but the proponent had insisted that the first three topics were part of the same proposal.
In Storage Technologies Corporation,[fn8] the SEC staff granted no-action relief with respect to a proposal concerning disclosure of information regarding the resignation of its chief executive officer and the immediate termination of his relationship with the company. The company stated that the proponent had originally submitted four numbered proposals; after the company sent notice of the deficiency to the proponent, he resubmitted a single unnumbered proposal containing the original first two issues. The company argued that although the proponent had revised his submission, it still contained two separate issues and was therefore excludable. The proponent countered that his submission dealt with a single topic-the resignation of the company's CEO-and that both the compensation the CEO had received and the effective date of the resignation pertained to this subject. The staff disagreed but gave the proponent an opportunity to remove one issue from the proposal.
In Edison International,[fn9] the SEC staff allowed the company to exclude a proposal relating to at least three issues: (i) the number, composition and qualifications of the board; (ii) the procedures for electing directors, including nomination and quorum procedures; and (iii) procedures governing the annual meeting, including how long board candidates should be allowed to speak. The company argued that the proposal contained six separate points and three separate concepts. Because it addressed multiple concepts, the company urged, the proposal could be excluded. The company noted that the proponent chose to have his proposal viewed as an "all or nothing" proposal, and that the entire proposal should therefore be excluded. In his rebuttal, the proponent was adamant that his submission was "all or nothing."

[fn5] 2002 SEC No-Act. LEXIS 212 (Feb. 13, 2002).

[fn6] 2002 SEC No-Act. LEXIS 253 (Feb. 26, 2002).

[fn7] 1997 SEC No-Act. LEXIS 577 (May 6, 1997).

[fn8] 1996 SEC No-Act. LEXIS 246 (Feb. 22, 1996).

[fn9] 1997 SEC No-Act. LEXIS 142 (Jan. 22, 1997).

§ 8.02[C] Opportunity to Cure

Under Rule 14a-8(f), a company must provide notice that the proponent has exceeded the "one proposal" rule and give the proponent 14 calendar days from notification of the defect to reduce the number of proposals to one. If the proponent fails to correct the problem (or disagrees with management's belief that the proposal exceeds the "one proposal" rule), the company may submit a no-action request to the SEC staff to exclude all of the proposals submitted.

If the staff agrees that the proponent has violated the "one proposal" rule, it sometimes gives the proponent additional time, typically seven calendar days from the date of the staff's response letter, to select a single proposal. This is particularly true if the violation of the "one proposal" rule is not obvious on its face. The staff may either provide this opportunity to cure without comment or it may specify precisely how many proposals there appear to be and how many the proponent needs to delete. For example, the company may allege that there are four proposals in one submission and the staff may disagree, but find instead that there are two proposals and give the proponent time to withdraw one. If the proponent does not reduce the number of proposals as required, all of her proposals can be excluded.

§ 8.02[C][1] Failure to Provide Notice and Opportunity to Cure

If a company fails to give a proponent the required notice and opportunity to cure under Rule 14a-8(f), it may forfeit the right to exclude any of the proposals in reliance on the "one proposal" rule.

EXAMPLES:

In Texaco Inc.,[fn10] the SEC staff required the company to include a proposal even though the staff stated that the proponent may have exceeded the one-proposal limitation. The staff noted that the company did not request that the proponent reduce the number of proposals, as required by Rule 14a-8(f). The company argued that the proponent had promised to withdraw an earlier proposal but had failed to do so.
In J.P. Morgan & Co., Incorporated,[fn11] the company asked for a waiver of Rule 14a-8(f) because the company had not realized until after the 14-day period had expired that the proponent's two proposals, although nearly identical, were actually distinct. In its response requiring inclusion, the staff noted that the company had not requested that the proponent reduce the number of proposals.

[fn10] 2001 SEC No-Act. LEXIS 82 (Jan. 16, 2001).

[fn11] 2000 SEC No-Act. LEXIS 58 (Jan. 24, 2000).

§ 8.02[D] Relate to One Concept

A proposal that asks a company to take several actions relating to a single issue differs from a proposal that is found to contain more than one proposal. The former is includable; the latter is not. The staff has been clear that proposals bearing only a general relationship to the same subject matter do not satisfy the "one concept" test. Occasionally, proponents attempt to circumvent the "one proposal"

rule by combining several distinct proposals into a single submission. A single proposal made up of several separate components will not be treated as multiple proposals for purposes of this exclusion where the components "are closely related and essential to a single well-defined unifying concept."[fn12] The SEC staff looks at all the facts and circumstances to determine whether a proposal's parts relate to a single unifying concept or actually constitute separate proposals.

EXAMPLES:

One proposal

In AT&T Corp.,[fn12.1] the SEC required the company to include a proposal asking the company to "unbundle" matters presented for a shareholder vote in any future restructuring involving the creation of a new corporation. The matters to be voted on separately were board classification, limitations on shareholders' right to act by written consent or call a special meeting, and supermajority voting requirements to amend the charter or bylaws. The company unsuccessfully argued that each matter for separate vote was itself a separate proposal, while the proponent responded that the proposal related to the single well-defined unifying concept of unbundling.
In American Power Conversion Corp.,[fn13] the SEC staff required inclusion of a proposal over the company's objection that the proposal contained three separate and distinct elements. According to the company, the first proposal requested that the board make a greater effort to locate women and persons of color as nominees to the board; the second proposal requested that the board develop a plan and issue a public statement committing the company to a policy of board inclusiveness; and the third proposal requested that the board issue a report relating to the diversity of its board and general nominating criteria by September 2000. The company argued that these were clearly separate and distinct proposals each requiring specific actions by the company or its board. The proponent argued that there was only a single subject matter set forth in the proposal: the inclusiveness of the board.
In Alltel Corporation,[fn14] the SEC staff denied no-action relief on a proposal requesting that stock splits only be considered when the stock price exceeds a certain level and that splits be approved by shareholders. The company argued that the proponent had submitted two distinct proposals with differing purposes: a "Price Limit Proposal" that involved a matter of substantive business judgment regarding the economic conditions justifying a stock split and a "Shareholder Approval Proposal" involving a matter of corporate governance, which sought to limit the power of the board to implement a stock split. The proponent did not submit a rebuttal.

EXAMPLES:

Multiple proposals

In Bob Evans Farms, Inc.,[fn16] the company was permitted to exclude two proposals, one relating to replacing the company's board and another relating to the company's hiring an investment banker. The company argued that these were two distinct proposals and they were not related to a single specific concept. The proponent did not submit a rebuttal.
In Enova Corp.,[fn17] the company claimed that the proponent's submission consisted of four proposals requiring the following: that all directors be elected every year, that the board appoint an "independent lead director," that future changes relating to the election of directors be submitted to a shareholder vote as "a stand-alone" issue, and that these principles apply to any successor of the company. The proponent failed to submit a rebuttal. The SEC staff disagreed with the company's contention that the proponent had submitted four proposals, but found that the submission consisted of two separate proposals.

[fn12] Exchange Act Release No. 12,999, 1976 SEC LEXIS 326 (Nov. 22, 1976).

[fn12.1] 2002 SEC No-Act. LEXIS 576 (Apr. 10, 2002).

[fn13] 2000 SEC No-Act. LEXIS 437 (Mar. 10, 2000).

[fn14] 2000 SEC No-Act. LEXIS 157 (Feb. 7, 2000).

[15] [Reserved.]

[fn16] 2001 SEC No-Act. LEXIS 591 (May 31, 2001).

[fn17] 1998 SEC No-Act. LEXIS 169 (Feb. 9, 1998).

§ 8.02[E] No Substitute Proposals

In the event that a proposal is found by the SEC staff to be excludable under a substantive basis or a procedural basis other than the one-proposal rule, a proponent is not allowed to submit an alternative proposal without violating the one-proposal rule.[fn18] In other words, any subsequent or alternative proposal would be considered a second proposal and would be excludable under the one-proposal rule. However, proponents are free to modify their existing proposals so long as the modification is not so extensive as to render it effectively a new proposal.

EXAMPLE:

In Motorola, Inc.,[fn18.1] the SEC staff permitted the company to exclude a proposal that related to the company's bonus plans for key employees and board members. The company noted that the SEC staff had already granted a no-action request for an earlier proposal from the same proponent in September 2001, for the same annual meeting, because the proponent had failed to timely supply proof of ownership.

§ 8.03 Practice Pointers

Company Practice Pointers

Increasing use of exclusion. In recent years, institutional proponents have become more sophisticated in the use of Rule 14a-8 and tend to submit complex multi-part proposals. As a result, companies more frequently rely on this basis to attempt to exclude proposals.

Proponent Practice Pointers

Difficult evidentiary burden. If a proponent submits a proposal that it claims contains multiple subparts, it is difficult for a company to prove that there are multiple proposals. It is quite challenging to find evidence that a proponent is attempting to submit more than one proposal. As a result, few companies have met this burden of proof.

[fn18] In addition, a shareholder cannot use an alter ego to submit a proposal on his behalf. See infra Chapter 9.

[fn18.1] 2001 SEC No-Act. LEXIS 865 (Dec. 31, 2001).

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