Rule 14a-8(i)(9) — former Rule — 14a8(c)(9)

Question 9(9): Conflicts with company's proposal: If the proposal directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting.

Note to paragraph (i)(9): A company's submission to the Commission under this section should specify the points of conflict with the company's proposal.

§ 22.01 Background of the Exclusion

This exclusion allows a company to exclude any proposals that would be counter to a company-sponsored proposal that will be raised at the upcoming stockholders' meeting. Since the provision generically applies to "meetings," the SEC staff conducts the same analysis for incoming requests under this exclusion regardless of whether the company's proposal will be presented at a special meeting or an annual meeting of shareholders.

§ 22.01[A] History of the Exclusion

In 1976, the SEC codified the staff's longstanding policy to exclude proposals that were counter to proposals placed on the ballot by management. Along with the policy regarding director elections (that became the election exclusion also in 1976 (See Chapter 21.)), this policy had been expressed in the last sentence of the paragraph relating to procedural requirements of the rule. The SEC decided to restate this concept by creating two separate exclusion bases.[fn1]

In 1998, the SEC added the word "directly" to this exclusion. Some commentators were concerned that the addition of the word "directly" would effectively narrow the availability of the exclusion. The SEC made clear that this addition was not intended to change the application of the exclusion because it did "not intend to imply that proposals must be identical in scope or focus for the exclusion to be available."[fn2]

[fn1] Exchange Act Release No. 12,598, 9 SEC Dock. 1030, 1034-35 (1976) (proposing release); Exchange Act Release No. 12,999, 10 SEC Dock. 1006, 1013 (1976) (adopting release).

[fn2] Exchange Act Release No. 40,018, 1998 SEC LEXIS 1001 at n. 27 (May 21, 1998).

§ 22.01[B] Purpose of the Exclusion

This exclusion is intended to prevent shareholder confusion as well as reduce the likelihood of inconsistent vote results (i.e., approval and rejection of the same issue at a meeting) that would provide a conflicting mandate for management. It also is intended to prevent opponents of company proposals — and dissidents — from using shareholder proposals to indirectly wage proxy contests.

In most cases, a counterproposal would be redundant because shareholders already can vote "for" or "against" a company's proposal. In other words, the exclusion is designed to ensure that shareholders consider matters proposed for action by a company in a well-organized and coherent way.

§ 22.01[C] Overlap with Other Exclusions

In seeking to exclude proposals relating to director eligibility criteria, some companies rely on this exclusion often cited in conjunction with the election of directors exclusion. Specifically, companies may argue that a proposal imposing a director eligibility requirement, which is not satisfied by one or more current directors, conflicts with management's proposal to elect those directors. The staff may allow companies to exclude such proposals in the form in which they are submitted, but provides proponents with an opportunity to revise their proposals so that they apply only to future director nominees. In these cases, the staff may base its decision on both the election of directors and the counterproposals exclusions.

§ 22.02 Application of the Exclusion

§ 22.02[A] Identifying the Key Issues

Normally, the determination of whether a proposal conflicts with a management proposal is relatively straightforward because the company's proposal calls for a specific action and the proponent seeks an action that would result in a conflicting mandate if both received sufficient support to pass. On the other hand, sometimes the application of the exclusion can be difficult because it may not be readily apparent that a shareholder's proposal runs "counter" to one proposed by management. The analysis focuses on whether the shareholder proposal could be characterized as an "alternative" to the company's proposal. If so, the staff is likely to allow the proposal to be included.

One way to apply this analysis is to consider whether a favorable vote on the shareholder's proposal would be inconsistent with a favorable vote on the company's proposal. If so, the staff likely will allow a company to exclude a shareholder proposal. In other words, the question is whether the shareholder proposal is sufficiently different so that both proposals theoretically could be implemented.

§ 22.02[B] Direct Conflicts with Company Proposals

Under this exclusion, a proposal cannot directly contradict a company's proposal. Such contradictory proposals clearly are the types of proposals that the SEC intended to allow companies to omit when it adopted the exclusion. Examples include a proposal that seeks a transaction when the company seeks shareholder approval for a pending merger, or a proposal that asks the company to hire a new independent auditor when the company intends to submit a specific auditor for ratification at the upcoming meeting.

EXAMPLE:

In Interlinq Software Corporation,[fn3] the company was permitted to exclude a proposal requesting that the company conduct a self tender offer for its outstanding shares. The company noted that at an upcoming special meeting, the company sought approval of a "going-private" merger, which, like a self tender, would have resulted in the company buying back its shares from shareholders. The proponent argued that the proposal was an alternative to the company's proposed merger — and was clearly labeled as such — and did not create a conflict.

[fn3] 1999 SEC No-Act. LEXIS 453 (Apr. 20, 1999).

§ 22.02[C] Company and Shareholder Proposals Can Co-Exist

The SEC staff normally allows a company to exclude a shareholder proposal only if the actions sought in the proposal would preclude the actions to be taken under the company's proposal. In other words, a shareholder proposal will be deemed includable if the proponent can show that the alternatives proposed by it and by management can co-exist if both are approved by shareholders.

EXAMPLES:

In Quality Systems, Inc.,[fn4] the SEC staff denied no-action relief with respect to a proposal seeking amendment of the company's bylaws to require an independent board of directors. The company argued that this proposal was counter to its election of directors because the slate to be proposed did not satisfy the requirements of the proposal. The proponent's rebuttal did not address this exclusion.
In US West, Inc.,[fn5] the company was required to include a proposal recommending that the board affairs committee nominate two candidates for each directorship to be filled at annual meetings. The company argued that the proposal would be counter to its own proposal because it sought to elect the most qualified directors pursuant to the nomination process already established in the company's restated certificate of incorporation. The proponent's rebuttal did not address this exclusion.
In General Electric Company,[fn6] the company unsuccessfully sought to exclude a proposal requesting that the board establish a policy that no executive would be compensated more than $1 million per year unless such compensation was paid in accordance with a performance-based plan approved by shareholders. The company argued that the proposal was counter to an incentive plan that it planned to amend and restate. The proponent noted that the proposal dealt with overall compensation levels, not just that particular incentive plan and that the two proposals were not inconsistent since shareholders could rightly assign discretion to the board to fix long-term compensation and then request that such discretion be exercised so as to avoid paying executives more than $1 million annually.

[fn4] 1999 SEC No-Act. LEXIS 558 (June 9, 1999).

[fn5] 1999 SEC No-Act. LEXIS 122 (Jan. 29, 1999).

[fn6] 1997 SEC No-Act. LEXIS 168 (Jan. 28, 1997).

§ 22.02[D] Company Actions Taken in Response to Shareholder Proposals

§ 22.02[D][1] Addition of Management Proposal for the Purpose of Excluding a Shareholder Proposal

Sometimes companies try to exclude a shareholder proposal by deciding to submit a proposal to shareholders regarding the same topic after it receives the proponent's submission. It is not uncommon for a company to place a proposal on the ballot that it would rather deal with on its own terms rather than through a shareholder referendum. As a result, the company may decide to include its own proposal on the matter.

The SEC staff normally does not object to this tactic as long as the company's proposal is drafted so that it sufficiently conflicts with the shareholder proposal to make application of this exclusion appropriate.

§ 22.02[D][2] Bona Fide Proposals

If the circumstances warrant, the SEC staff may agree with a proponent that the company does not truly intend to submit its own proposal to a shareholder vote. In essence, the proponent is complaining that the company's stated intention to submit a proposal is not true. To support its claim, a proponent must provide sufficient evidence of the company's true intentions. Since the staff will not conduct its own investigation, this evidence can be difficult for a proponent to uncover.

EXAMPLE:

Proposal that was not bona fide

In Cypress Semiconductor Corporation,[fn7] the shareholder proposal asked the company to report on its efforts to encourage diversified representation on the board, its criteria for board qualification, and the process of selecting board nominees and committee members; issue a statement committing the company to a policy of board inclusiveness; and make a greater effort to locate qualified women and persons of color as candidates for nomination to the board of directors. The company argued that the proposal could be excluded because it conflicted with a proposal being presented by the company that would require the board to nominate the most highly qualified men and women for the job, regardless of race and gender. The proponent successfully argued that the company intentionally included its proposal to prevent shareholders from voting on the proponent's proposal — a similar proposal by the proponent that had garnered strong support in the prior year. The proponent noted that the only difference between the company's actions last year and its actions this year was that this year, the company had had more lead time to submit its own proposal to block the proponent's proposal.

EXAMPLE:

No intention to add a proposal

In BankAmerica Corporation,[fn8] the SEC staff denied no-action relief on a proposal recommending that the company compensate directors only in common stock at a specified price and that directors be required to hold that stock for a specified period of time. The company argued that the proposal was counter to a proposal being submitted by the company to the shareholders at the same meeting and therefore could be omitted. The proponent noted that he had spoken to someone at the company who represented that it was uncertain whether the company would present its proposal at the upcoming meeting.

[fn7] 1999 SEC No-Act. LEXIS 306 (Mar. 11, 1999).

[fn8] 1993 SEC No-Act. LEXIS 487 (Mar. 18, 1993).

§ 22.02[D][3] Proponent Solicitation Activities Irrelevant

A proposal may not be omitted solely on the ground that the proponent is independently soliciting against a company's proposal. In other words, a proponent is allowed to include its own proposal — so long as it is not counter to the company's proposal — and still independently solicit against any of the company's own proposals. The SEC staff will not exclude the proponent's proposal merely on the grounds that the proponent happens to oppose other matters that the company raises.

§ 22.03 Common Types of Proposals

§ 22.03[A] Director Eligibility Criteria

Companies often argue that proposals involving director eligibility criteria are counter to the company's proposal to elect its slate of directors. The SEC staff normally allows companies to exclude proposals that seek to impose one or more requirements that would apply to, and potentially disqualify, management's current nominees. However, proposals suggesting qualifications for future nominees are not generally excludable on this basis. The staff often affords proponents the opportunity to revise their proposals to apply prospectively to avoid exclusion.

EXAMPLES:

In Bank of America Corporation,[fn9] the SEC staff declined to grant no-action relief on a proposal urging the board to nominate at least two candidates for each open board position, and requiring that the names, biographical sketches, required disclosures and photographs of these candidates appear in the company's proxy materials to the extent that is required by law and the company's current practice. The company argued that this proposal was in direct conflict with its own slate of nominees. The proponent did not submit a rebuttal.
In PepsiCo, Inc.,[fn10] the company sought to exclude a proposal requesting that the chief executive officer be the only officer on the board and that he or she not serve as an officer or director of any other company. The company argued that the proposal directly conflicted with management's proposed nominations for re-election to the board of directors. The company further contended that the proposal would place shareholders in the position of voting for either the company's slate or the proposal, and that this conflict made the proposal excludable. The proponent argued that dissent is healthy, and that the same rights as given to the company should be given to shareholders to express their opinions in the open forum of the proxy statement. In its response, the SEC staff noted that implementation of the proposal could disqualify certain nominees for director at the upcoming annual meeting of shareholders but that this defect would be cured if the proposal were revised so that it applied only to nominees at subsequent meetings.
In Storage Technology Corporation,[fn11] the SEC staff found that a proposal requiring directors to acquire at least 2,000 shares of the company's stock and maintain ownership as long they served as directors was excludable, but gave the proponent an opportunity to revise the proposal to apply to future nominees. The company argued that several of its directors owned fewer than 2,000 shares of stock, and thus would be made ineligible for re-election by the proposal. The proponent argued that the proposal only had the effect of giving directors a vested interest in the success of the company and that it was not counter to any company proposals.
In Cypress Semiconductor Corporation,[fn12] the company unsuccessfully sought to exclude a proposal asking the company to make a greater effort to find qualified women and minority candidates for nomination to its board of directors, issue a public statement about a policy with a program to further these goals and prepare a report. The company argued that the proposal was inconsistent with its proposal to require that the board nominate men and women having the most desirable qualifications without regard to their race, gender, age, religion, national origin, sexual orientation or physical limitations because, to fulfill the shareholder proposal, the board would have to consider the gender and race of potential nominees.

[fn9] 2001 SEC No-Act. LEXIS 232 (Feb. 16, 2001).

[fn10] 2000 SEC No-Act. LEXIS 26 (Jan. 13, 2000).

[fn11] 1997 SEC No-Act. LEXIS 390 (Feb. 26, 1997).

[fn12] 1998 SEC No-Act. LEXIS 398 (Mar. 11, 1998).

§ 22.03[B] Business Combinations and Extraordinary Corporate Transactions

The SEC staff consistently has permitted companies to omit proposals that urged them to consider or take actions to merge or sell or otherwise dispose of their assets if they intend to ask shareholders to approve a pending business combination or other extraordinary transaction at an upcoming meeting of shareholders.

This position is based on the determination that voting on two conflicting courses of action could result in a confusing mandate for management. In addition, the SEC has made clear that proponents should not be permitted to use the company's proxy materials to engage in their own counter-solicitation against the company's proposal.

Even if a shareholder proposal does not directly urge shareholders to vote against a company's proposal, the staff will analyze whether the proposal could affect the company's obligations under the agreement for the transaction or could delay — and perhaps ultimately prevent — the completion of the transaction for which the company will be seeking shareholder approval. The staff primarily focuses on whether the main objective of a proposal is to oppose a transaction being submitted for shareholder approval by the company.

§ 22.03[B][1] Mergers

In Unicom Corporation,[fn13] the SEC staff allowed the company to exclude a proposal recommending that the board reject a proposed merger. The company noted that it intended to solicit proxies to approve a merger agreement at its upcoming shareholders' meeting. The proponent's rebuttal did not address this exclusion.

In PECO Energy Company,[fn14] the company successfully excluded a proposal that mandated that the company not merge with another company. The company did not address the exclusion at length because "the proposal so clearly falls within Rule 14a-8(i)(9)." The proponent countered that the proposal actually complemented the company's proposal because shareholders had the right to express reasons why they believe a merger is not in the best interests of the shareholders, employees and customers.

In Northern States Power Company,[fn15] the proposal requested that the board require management to negotiate a more equitable merger agreement. The company successfully argued that the shareholder proposal was directly contrary to the company's proposal because it would require the renegotiation of a board-approved merger for better terms. The proponent did not submit a rebuttal.

[fn13] 2000 SEC No-Act. LEXIS 192 (Feb. 14, 2000).

[fn14] 2000 SEC No-Act. LEXIS 85 (Jan. 31, 2000).

[fn15] 1995 SEC No-Act. LEXIS 592 (July 25, 1995).

§ 22.03[B][2] Tender Offers

In Interlinq Software Corporation,[fn16] the SEC staff granted no-action relief on a proposal requesting that the company conduct a self-tender offer for its outstanding shares. The company noted that at an upcoming special meeting, the company sought approval of a "going-private" merger agreement. The proponent argued that the proposal was an alternative to the company's proposed merger — and was clearly labeled as such — and did not provide a conflict.

[fn16] 1999 SEC No-Act. LEXIS 453 (Apr. 20, 1999).

§ 22.03[B][3] Sale of Substantially All Assets

In Eastern Stainless Corporation,[fn17] the company unsuccessfully sought to exclude a proposal that mandated that the company establish an independent committee to investigate the activities of the board regarding intercompany transactions, special charges and business strategy; review future transactions; and report the results to Class B shareholders. The company argued that the proposal would require the formation of a committee to find alternatives to the sale of all assets and eventual liquidation of the company, which put the shareholder proposal in direct conflict with the company's proposal to take those actions. The proponent argued that the proposal did not directly contradict the company proposal, and that the company had not yet filed any proxy materials.

[fn17] 1995 SEC No-Act. LEXIS 161 (Jan. 24, 1995).

§ 22.03[B][4] Report on Effects of Pending Transaction

In BankBoston Corporation,[fn18] the company successfully sought exclusion of a proposal requesting that the company report on the effects of a particular merger on its employees and the communities in which it does business. The company argued that the proposal contradicted the purpose of its merger proposal and undoubtedly would cause confusion among shareholders if they were asked to vote on both proposals, even if the proponent was not seeking to delay the merger. The company was concerned that shareholders would erroneously conclude that the merger closing would be delayed pending completion of the report. The proponent failed to submit a rebuttal.

[fn18] 1999 SEC No-Act. LEXIS 560 (June 7, 1999).

§ 22.03[B][5] Removal of Anti-Takeover Measures

In American Medical Electronics, Inc.,[fn19] the proposal recommended that the company amend its articles of incorporation to opt out of state anti-takeover provisions and to limit the board's ability to adopt new anti-takeover measures which would have the effect of deterring potential bidders. The company argued that it planned to submit a merger proposal to shareholders at an upcoming special meeting. The proponent responded that a favorable vote on the proposal would not be counter to a favorable vote on the proposed merger, as well as the fact that it would have no effect on the merger proceedings and therefore should not be excluded. The SEC staff granted no-action relief. Although the SEC staff did not articulate its reasoning, the shareholder proposal may have been viewed as an attempt to elicit competing bids and derail the company's merger plans.

[fn19] 1995 SEC No-Act. LEXIS 591 (July 27, 1995).

§ 22.03[B][6] Reorganization

In Benihana National Corp.,[fn20] the company was permitted to exclude a proposal asking the board to combine the company's two classes of stock. In its response, the SEC staff noted the company's representation that the company's plans for a share-exchange merger, which was the subject of an executed "Agreement and Plan of Reorganization," was to be voted on by shareholders at the next meeting. The company argued that the proposal could be omitted because of its inconsistencies with the proposed Reorganization Agreement.

[fn20] 1995 SEC No-Act. LEXIS 418 (Jan. 20, 1995).

§ 22.03[B][7] Authorization of Additional Shares for Issuance

In Boston Edison Co.,[fn21] the company successfully excluded a proposal that related to the determination by the company's shareholders of the price of certain issuances of stock. The company noted that it intended to submit a proposal to amend its articles of organization to increase the number of shares of authorized common stock, including a provision that would allow the company's board to issue shares without further shareholder action. The company further argued that the proposal was directly counter to the company's goal of increasing the amount of common stock outstanding. The proponent did not submit a rebuttal.

[fn21] 1981 SEC No-Act. LEXIS 2959 (Jan. 21, 1981).

§ 22.03[B][8] Stock Repurchases

In Executive Industries, Inc.,[fn22] the company successfully sought exclusion of a proposal that asked the company to repurchase up to one million shares of its common stock. The company contended that it planned to submit a proposal at the upcoming meeting regarding a pending merger, and that the shareholder proposal was a direct alternative to the proposed merger. The proponent did not submit a rebuttal. In its response, the SEC staff stated that the proposal would contravene management's purpose in submitting its merger proposal and that "there appears to be some basis for the view that the primary purpose of the proposal is to oppose stockholder approval of the merger."

[fn22] 1981 SEC No-Act. LEXIS 2770 (June 26, 1981).

§ 22.03[C] No Solicitation of Offers to Merge or Sell

The SEC staff normally allows companies to exclude proposals asking them to consider conducting a business combination if they intend to submit their own proposal asking shareholders to authorize not conducting a transaction.

Unlike the "sell or merge" proposals, the company does not have a contract with a third party in these situations, so the staff likely will not bend over backwards to exclude these proposals. In addition, there is greater potential for the company's proposal to not be bona fide since there is no contract involved.

EXAMPLE:

In Bureau of National Affairs,[fn23] the proposal asked the board to retain a qualified independent advisor for the purpose of soliciting offers to acquire the company by sale or merger and promptly take action on the resulting offers consistent with its responsibilities under applicable law. The company planned to submit a proposal at an upcoming special meeting authorizing it to not hire an advisor to consider a merger or sale nor solicit such offers. The proponent argued that the company only submitted a proposal after the original shareholder proposal had been submitted in order to counter it.

[fn23] 1995 SEC No-Act. LEXIS 317 (Feb. 21, 1995).

§ 22.03[D] Executive Compensation

One of the most common types of requests under this exclusion is to exclude proposals addressing executive compensation issues. The SEC staff consistently permits companies to exclude proposals that attempt to restrict the ability of companies to set executive compensation levels if a related plan or arrangement is to be presented by the company for approval at the same shareholders' meeting. The staff's analysis is the same for proposals relating to directors' compensation.

§ 22.03[D][1] Stock Option Grants

In Osteotech, Inc.,[fn24] the company successfully sought exclusion of a proposal requesting that no additional options be granted to certain officers or directors under the company's stock option plan. The company argued that the stock option plan was to be voted on at the upcoming shareholders' meeting and that the proposal had terms and conditions that conflicted with those set forth in the proposal. The company noted that if shareholders approved both proposals, they would grant the committee broad discretion to determine the recipients of awards under the plan, while eliminating a class of otherwise eligible participants for some period of time. The proponent responded that the proposed stock option plan gave a board committee of outside directors discretion to issue options and that the proposal merely recommended the manner in which the committee should exercise that discretion.

In Crown Cork & Seal Company, Inc.,[fn25] the company successfully excluded a proposal asking the board to consider discontinuing all benefits, such as options, rights and SARs, to officers and directors after existing benefit packages have terminated. The company argued that the proposal could be excluded because the approval of both the shareholder proposal and a company proposal seeking approval of a new stock option plan would produce an inconclusive mandate. The proponent did not address the exclusion in its rebuttal.

In General Electric Corporation,[fn26] no-action relief was granted regarding a proposal recommending that the company modify its stock option plan so that unexercised and future options were granted at the market price indexed for inflation. The company argued that the proposal conflicted with a new employee stock option plan to be voted upon whose terms and conditions for the issuance of options conflicted with those set forth in the proposal. The proponent did not submit a rebuttal.

[fn24] 2000 SEC No-Act. LEXIS 577 (Apr. 24, 2000).

[fn25] 1997 SEC No-Act. LEXIS 279 (Feb. 10, 1997).

[fn26] 1997 SEC No-Act. LEXIS 192 (Jan. 28, 1997).

§ 22.03[D][2] Other Types of Compensatory Plans

In Phillips-Van Heusen Corporation,[fn27] the proposal requested the immediate discontinuance of all bonuses and the elimination of options, rights and SARs after termination of any existing programs for top management, as well as the discontinuance of severance contracts. The company successfully argued that it planned to ask shareholders to approve a performance incentive bonus plan, a long-term incentive plan, and a stock option plan at the upcoming shareholders' meeting and that these plans' terms and conditions conflicted with those set forth in the proposal. The proponent responded only that the company had sought exclusion well after the proposal had been submitted.

In Mattel, Inc.,[fn28] the SEC staff permitted the company to exclude a proposal that requested the immediate discontinuance of all bonuses, and the elimination of options, rights and SARs after termination of any existing programs for top management. In a brief two-paragraph argument, the company noted that it planned to submit its long-term incentive plan for shareholder approval for an additional three-year period and that this plan provided for the payment of bonuses to members of management. The proponent argued that the company only submitted a proposal to counter his proposal after it had been submitted, and that this practice was unfair.

In Texaco Inc.,[fn29] the company was allowed to exclude a proposal that required shareholders to approve all bonuses over $30,000 awarded to executive officers. The company argued that the proposal could be omitted because it set different bonus caps for different employees and was therefore contrary to the company's proposed incentive plan. The proponent did not address the exclusion in its rebuttal. In its response, the SEC staff noted that it relied on the company's representation that a matter to be voted on at the upcoming shareholders' meeting consisted of a company's proposal seeking approval of an incentive bonus plan with terms and conditions for determining bonuses that conflict with those set forth in the proposal.

[fn27] 2000 SEC No-Act. LEXIS 580 (Apr. 21, 2000).

[fn28] 1999 SEC No-Act. LEXIS 260 (Mar. 4, 1999).

[fn29] 1997 SEC No-Act. LEXIS 312 (Feb. 12, 1997).

§ 22.03[E] Hiring Auditing Firms

If the company intends to ask shareholders to approve or ratify the company's independent auditors at the same shareholders' meeting, the SEC staff consistently permits companies to exclude proposals recommending that new independent auditors be hired. The staff's analysis is the same regardless of whether the company intends to ask shareholders to "approve" or "ratify" the auditors.

EXAMPLE:

In General Electric Company,[fn30] the SEC staff granted no-action relief with respect to a proposal that suggested that the company replace its current independent auditor with another auditing firm for the next fiscal year. The company argued that the proposal requested the removal of the current independent auditor who the board was already recommending for reappointment, thus creating a situation where the shareholder proposal directly countered that of the company. The proponent did not submit a rebuttal.

[fn30] 1995 SEC No-Act. LEXIS 1011 (Dec. 28, 1995).

§ 22.04 Practice Pointers

Company Practice Pointers

Concise analysis typically possible. In most cases, a company merely has to show that it already has a proposal on the same subject matter. Provided a company would be faced with a dilemma of having a conflicting mandate if both its proposal and the shareholder proposal were supported by shareholders, a company's request probably can accomplish its goal in a few short paragraphs.

Include copy of own proposal. As evidence that a shareholder proposal is counter to a planned management proposal, companies should provide copies of their draft proxy statement disclosure. Since companies have not yet filed their proxy materials at the time they seek no-action relief, the SEC staff does not have access to this disclosure when considering a request.

Preempt a shareholder proposal after receiving it. If a company receives a shareholder proposal that it finds problematic, it may be worthwhile to submit its own proposal on the same topic as a way to omit the shareholder proposal. The company's proposal can even be formulated after the company attempts to have the proponent withdraw or modify its proposal. By preempting a shareholder proposal, a company can address a sensitive topic on its own terms rather than through a shareholder proposal with a troubling supporting statement. The SEC staff normally does not object to this tactic as long as the company's proposal is drafted so that it is sufficiently counter to the shareholder proposal.

Proponent Practice Pointers

Research what a company intends to propose. Proponents may want to find out if a company intends to submit its own proposal on the same topic before it exerts the effort to draft its own proposal. However, a company may not be willing to share its proposal plans, and even could place its own proposal on the ballot that is counter to a shareholder proposal after it receives the proponent's submission. It may be possible to tell from a company's existing disclosure whether the unawarded shares under an equity compensation plan are running low, which could indicate that a management compensation plan may be put up for a shareholder vote at the next annual meeting.

Modify proposal. One technique to avoid exclusion is to modify a shareholder proposal so that it pertains to a different subject matter that is not counter to a company's proposal. Tying the subject matter to another subject matter, such as executive compensation, also can accomplish this goal. The company may — but does not have to — allow such a modification after the submission deadline. If the company does not, and the modification is significant, it may be deemed to constitute a new proposal that violates the "one-proposal" provision. In that case, the proposal will not be includable in the current year's proxy materials.

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