Rule 14a-8(i)(11) — former Rule 14a-8(c)(11)

Question 9(11): Duplication: If the proposal substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company's proxy materials for the same meeting.

§ 24.01 Background of the Exclusion

This exclusion permits a company to exclude a proposal if it substantially duplicates another proposal that will be included in the company's upcoming proxy materials.

§ 24.01[A] History of the Exclusion

In 1976, the SEC adopted this exclusion to codify existing staff policy that permitted a company to exclude a proposal if it substantially duplicates another that will be included in its next proxy materials.[fn1]

In 1998, this exclusion was renumbered as 14a-8(i)(11). However, this change was purely stylistic, not substantive.[fn2]

[fn1] Exchange Act Release No. 12,598, 9 SEC Dock. 1030, 1035 (1976) (proposing release); Exchange Act Release No. 12,999, 10 SEC Dock. 1006, 1013 (1976) (adopting release).

[fn2] Exchange Act Release No. 39,093, 1997 SEC LEXIS 1962 (Sept. 18, 1997) (proposing release); Exchange Act Release No. 40,018, 1998 SEC LEXIS 1001 (May 21, 1998) (adopting release).

§ 24.01[B] Purpose of the Exclusion

The purpose of this exclusion is simple: to eliminate the possibility of shareholder consideration of — and confusion by — two or more substantially identical proposals submitted by proponents acting either in concert or independently. It also ensures that a company is not burdened with the need to include several versions of essentially the same proposal in its proxy materials. In the SEC's words, "The purpose of the provision is to eliminate the possibility of shareholders having to consider two or more substantially identical proposals submitted to an issuer by proponents acting independently of each other."[fn3]

[fn3] Exchange Act Release No. 12,598, 9 SEC Dock. 1030, 1035 (1976) (proposing release); Exchange Act Release No. 12,999, 10 SEC Dock. 1006, 1013 (1976) (adopting release).

§ 24.01[C] Overlap with Other Exclusions

By its nature, this exclusion does not directly overlap with any other exclusion base. As a result, it is not uncommon for it to be the sole basis raised by a company in its request to exclude a proposal.

§ 24.02 Application of the Exclusion

§ 24.02[A] Identifying the Key Issues

Interpretive issues occasionally arise because this exclusion permits the omission of proposals that are not identical — the standard is a broader "substantially duplicative" test, and the term "substantially" is not defined in Rule 14a-8. Most commentators view the test as whether the core issues addressed by the proposals are substantially the same, even though the proposals may differ somewhat in language and the scope of the intended action to be taken.

§ 24.02[B] First of Duplicate Proposals Cannot Be Excluded

If a company receives two or more "substantially duplicative" proposals, it must include the first one it received in the company's proxy statement. All other "substantively duplicative" proposals may be excluded. Thus, a company is forced to include the first qualifying proposal it receives. It cannot select the proposal it prefers to include.

The SEC believes this procedure provides the most objective and fair means of choosing between two duplicative proposals. A company is not required to notify the proponent of the first proposal about any attempt to exclude a similar proposal, but it must provide a copy of its no-action request to the proponent of the proposal that it is attempting to exclude.

§ 24.02[C] Second Proposal Excluded Entirely

There is no requirement that a proponent who submitted the initial proposal be permitted to amend it to ensure that all matters in the excluded proposal are covered. The second proposal is excluded in its entirety even though there may be some differences from the proposal that will be included.

§ 24.02[D] SEC Staff May Conduct Its Own Investigation

Based on the evidence it receives from the company and proponent, the SEC staff may make its own determination (and may disagree with the company) about which proposal was received first.

EXAMPLE:

In Baker Hughes Incorporated,[fn4] the company successfully excluded a proposal requesting that the board implement or increase activity on the nine MacBride Principles. The company had asked to exclude a proposal submitted by the Adrian Dominican Sisters. However, the SEC staff disagreed with the company about which proposal should be excluded and, by relying on the dates on the proposals sent to the company, permitted the exclusion of the other "substantially duplicative" proposal from the Minnesota State Board of Investment.

[fn4] 2001 SEC No-Act. LEXIS 63 (Jan. 16, 2001).

§ 24.02[E] Application to Co-Sponsoring Arrangements

Co-sponsors sometimes submit the same proposals to companies because they both want to be recognized as a sponsor. Companies sometimes seek to apply this exclusion and the SEC staff will allow these substantially duplicative proposals to be excluded unless the co-proponents make clear in their initial transmittal letters to the company that their proposals should be considered together as a cosponsored proposal.

EXAMPLE:

In Conseco, Inc.,[fn5] the company was allowed to exclude a proposal requesting that the board form an independent committee of outside directors to develop and enforce policies regarding predatory lending practices and prepare a report to shareholders. The proponent argued that it had intended to co-sponsor the proposal and had used language in its transmittal letter to reflect this intent. The company argued that the proposals were substantially duplicative and did not respond to the proponent's point that it was a co-sponsored proposal. In its response, the staff agreed that the second proposal was substantially duplicative of the first and apparently found that the intention to co-sponsor was not sufficiently clear in the correspondence with the company.
In Cypress Semiconductor Corporation,[fn6] the SEC staff granted no-action relief on a proposal asking that the board not only issue a report describing its efforts to encourage diversified representation on the board, but also issue a public statement committing the company to board inclusiveness. The proponent argued that only one shareholder proposal, not multiple substantially duplicative proposals, had been submitted because the proposal was to be co-sponsored by three organizations. However, the proponent neglected to make explicit reference to this co-sponsorship in its submission to the company.

[fn5] 2001 SEC No-Act. LEXIS 483 (Apr. 5, 2001).

[fn6] 1999 SEC No-Act. LEXIS 306 (Mar. 13, 1999).

§ 24.03 Definition of "Substantially Duplicative"

The SEC has made clear that a proposal does not need to be identical to one being included in a company's proxy statement for it to be considered excludable.

§ 24.03[A] Substantively Duplicative Proposals with Dissimilar Supporting Statements

Much of the conflict over the application of this exclusion revolves around the question of whether supporting statements should be taken into consideration when determining whether the proposals are substantially duplicative. Proponents often argue that their supporting statements are distinct enough so that their proposals cannot be considered substantively duplicative. However, the SEC staff focuses on the language of the proposals themselves, and does not consider the subjective intent reflected in supporting statements.

EXAMPLES:

In Electronic Data Systems Corporation,[fn7] the company successfully excluded a proposal urging that the board elect the entire board of directors annually. In its response, the SEC staff made a determination that the proposal the company sought to exclude was received first and permitted the exclusion of the second proposal. The proposals had vastly different supporting statements. The first proposal from an individual shareholder contained numerous statements that the company challenged under (i)(3) as false and misleading. The second proposal, which was submitted by the Teamsters, was more concise and better written.

[fn7] 1999 SEC No-Act. LEXIS 381 (Mar. 11, 1999).

§ 24.03[B] Inconsistent Outcomes of Substantially Duplicative Proposals

Although the issue seldom arises, the SEC staff allows companies to omit proposals as substantially duplicative, even though each might create inconsistent outcomes. In other words, the core issue is the subject matter of the proposals — and not the possible results of implementing them.

EXAMPLES:

In Monsanto Company,[fn8] the company received two proposals regarding the election of directors. The first proposal requested that the entire board be elected at every third annual meeting, while the second proposal asked for the election of all directors each year. The company argued that the core issues addressed by both proposals were substantially the same in that they both sought to replace the company's current timing for election of directors. In other words, each proposal sought to eliminate the company's classified board, either with elections of the entire board every year or every three years. The SEC staff, in granting no-action relief with respect to the second proposal, noted that shareholder approval of both proposals would require the board to choose between an annual and triennial timetable for election of candidates for seats on a declassified board. Implicit in the SEC staff's statement is that including both proposals would confuse shareholders and create a potentially inconsistent recommendation.

[fn8] 2000 SEC No-Act. LEXIS 187 (Feb. 7, 2000).

§ 24.03[C] Substance of Substantially Duplicative Proposals

The SEC staff focuses on the substance of the subject matters in each proposal to determine if they are "substantially duplicative." The manner in which the subject matter is addressed in the proposals is irrelevant, as is the length of the proposals.

EXAMPLES:

In Huntington Bancshares Incorporated,[fn9] the company was permitted to omit a proposal requesting that the board hire an investment banking firm to evaluate the company's strategic alternatives, including a merger or sale. Although the proponent agreed that his 497-word proposal was substantially the same as a previously submitted 47-word proposal, he contended that the proposals were not substantially duplicative when the supporting statements were taken into consideration.
In UAL Corporation,[fn9.1] the company was allowed to exclude a proposal that requested that the board amend the company's certificate of incorporation to allow for a shareholder vote on airline acquisitions that would exceed more than 5% of the company's total assets. The company argued that the only difference between the two proposals was that the first proposal asked that the board amend the company's certificate of incorporation to provide for shareholder approval of any airline acquisition, not just acquisitions in excess of 5% of the company's consolidated total assets as specified in the second proposal.

[fn9] 2001 SEC No-Act. LEXIS 69 (Jan. 11, 2001).

[fn9.1] 2002 SEC No-Act. LEXIS 96 (Jan. 22, 2002).

§ 24.03[D] Differences Between Mandatory and Precatory Proposals

The SEC staff consistently considers proposals to be substantively duplicative even if one is precatory and the other mandatory. Unlike the analysis under Rule 14a-8(i)(1)[fn10] in this context the SEC staff disregards the form of the proposal, focusing instead on the subject matters of the proposals.

EXAMPLE:

Mandatory proposal submitted after a precatory proposal

In Emcor Group, Inc.,[fn11] no-action relief was granted on a proposal mandating the amendment of the company's bylaws to prohibit adoption or retention of any shareholder rights plan absent shareholder approval for the plan. The staff disagreed with the proponent's argument that a binding or "mandatory" bylaw does not substantially duplicate an earlier-filed precatory proposal because a binding proposal would create a legally binding mechanism.

EXAMPLE:

Precatory proposal submitted after a mandatory proposal

In USG Corp.,[fn12] the SEC staff allowed the company to exclude a proposal requesting that the board redeem a rights agreement and refrain from instituting any other form of "poison pill." Unlike this precatory proposal, the first proposal mandated a bylaw amendment that required the company to redeem its existing rights agreement.

[fn10] See supra Chapter 14.

[fn11] 2000 SEC No-Act. LEXIS 643 (May 16, 2000).

[fn12] 2000 SEC No-Act. LEXIS 487 (Apr. 7, 2000).

§ 24.03[E] Determination of Which Proposal Received First

§ 24.03[E][1] Proper Evidence to Show Which Came First

A company can rely on any evidence bearing on when it received a proposal, including automatic date stamps on facsimiles or e-mails or one manually affixed by mailroom personnel. However, oral conversations or written communications about the possibility of a future proposal submission or other communications "holding" a place for a proposal by a proponent are not sufficient evidence of the date of receipt.

Proposals are not considered received until they reach headquarters. So if a proposal is received at another corporate location, it is not considered received until and if it is forwarded to corporate headquarters.

EXAMPLES:

Determining which proposal came first

In Huntington Bancshares Incorporated,[fn13] the SEC staff granted no-action relief on a proposal requesting that the board hire an investment banker to evaluate strategic alternatives, including a merger or sale. While the proponent argued that his proposal had been "constructively received" first, the company indisputably received it on October 23, 2000. The proponent's "constructive receipt" argument was based on his sending a letter on October 12, 2000, requesting a meeting with senior management, which was held on October 18, 2000. At this meeting, the proponent told management that a formal proposal would be submitted soon and the company ultimately received the proposal on October 23, 2000. However, the company had received a substantially duplicative proposal from another proponent in the interim.
In Airborne Freight Corporation,[fn14] exclusion was permitted of a proposal relating to declassification of the board. The proponent argued that his proposal sent via fax arrived before another proponent's proposal sent via fax (followed by a hard copy sent via U.S. post office). The proponent claimed that the company had submitted inadequate evidence of the date of the other proponent's letter because it did not have a facsimile date-stamp. The company responded by offering other evidence that supported its assertion regarding the date of the other proponent's submission.

[fn13] 2001 SEC No-Act. LEXIS 69 (Jan. 11, 2001).

[fn14] 2000 SEC No-Act. LEXIS 184 (Feb. 12, 2000).

§ 24.03[F] Effect of Updates, Amendments and Withdrawals

Updates to — or amendments of — earlier proposals generally do not change the submission date, even if an amendment is made to ensure that a proposal complies with Rule 14a-8. One exception to this SEC staff position is when an amendment is so material as to cause the staff to consider the amended proposal to be a new proposal.

In addition, if a proponent withdraws a proposal and resubmits it later, the resubmission date is the one that counts for purposes of this exclusion. As a result, a substantially duplicative proposal submitted after the original submission date of another proposal, but before the resubmission date, is considered received first and the resubmitted proposal is excludable.

EXAMPLES:

In Electronic Data Systems Corporation,[fn15] the company received two proposals asking that the entire board of directors be elected annually. The SEC staff determined that the proposal the company sought to exclude had been received first, and permitted the exclusion of the second proposal. The proponent of the second proposal had initially made a submission in August 1998 that failed to comply with Rule 14a-8. A corrected proposal was subsequently submitted in December, after the company had received a substantially duplicative proposal. The company argued that the proponent's August proposal, accompanied by correspondence stating "all rights are reserved for the August 29 resolution if needed," was unfair to the other shareholder who submitted a proposal in accordance with the proxy rules.
In Lenox Bancorp, Inc.,[fn16] the company successfully excluded a proposal relating to the possible sale or merger of the company. The company deferred to the SEC staff in determining which substantially duplicative proposal it should exclude. One proponent had submitted a proposal in August 1998. After another proponent later submitted a substantially duplicative proposal, the first proponent sent a second proposal to the company along with correspondence stating that he was "withdrawing" the August proposal. However, his later proposal was simply a revision of the August one. The staff decided the company could exclude the earlier, August proposal since the proponent had written that he was withdrawing it.

[fn15] 1999 SEC No-Act. LEXIS 381 (Mar. 11, 1999).

[fn16] 1999 SEC No-Act. LEXIS 23 (Jan. 11, 1999).

§ 24.03[G] Common Types of Proposals

The examples below illustrate the most common situations or requests that involve substantially duplicative proposals submitted by proponents to companies.

§ 24.03[G][1] Business Combinations

In Excel Industries, Inc.,[fn17] the first proposal requested that the board arrange to promptly sell the company to the highest bidder. The company successfully excluded a subsequent proposal urging that the board take all reasonable steps to maximize shareholder value, including sale or merger of the company. The first proposal recommended that the board engage the services of an independent investment company to pursue the possible sale or merger of the company.

[fn17] 1999 SEC No-Act. LEXIS 78 (Jan. 26, 1999).

§ 24.03[G][2] Board and Governance Matters

In AT&T Corp.,[fn18] the company successfully excluded a proposal urging the board to nominate at least two candidates for each open board position and include them in the company's proxy materials. The first proposal addressed the same topic, but used slightly different language.

In Lucent Technologies,[fn19] the company was allowed to exclude a proposal recommending that the board implement annual elections of directors. The first proposal addressed the same topic, but used slightly different language.

In Proctor & Gamble Company,[fn20] the SEC staff granted no-action relief on a proposal recommending that the board reinstate the annual election of directors. The first proposal was on the identical topic, and used virtually identical language.

In UAL Corporation,[fn21] exclusion was permitted of a proposal recommending adoption of secret ballot voting. The first proposal recommended that the board adopt a policy of confidential voting that would be suspended in proxy contests where nonmanagement groups have access to voting results.

[fn18] 2001 SEC No-Act. LEXIS 149 (Jan. 31, 2001).

[fn19] 2000 SEC No-Act. LEXIS 922 (Oct. 31, 2000).

[fn20] 2000 SEC No-Act. LEXIS 742 (July 19, 2000).

[fn21] 1994 SEC No-Act. LEXIS 337 (Mar. 11, 1994).

§ 24.03[G][3] Executive Compensation

In AT&T Corp.,[fn22] the company was required to include a proposal regarding the level and type of board compensation. The proponent argued that the other proposal was not duplicative because it sought the discontinuance of incentive compensation for "top management." His proposal, by comparison, dealt with "board compensation." The company argued, without success, that compensation for "top management" included the board.

In Sprint Corporation,[fn23] the company was permitted to exclude a proposal asking the board to seek shareholder approval for all present and future senior management change-of-control compensation. The first proposal called for adoption of a policy against future compensation contingent on a change-in-control unless approved by shareholders.

In American Electric Power Company,[fn24] the company successfully sought no-action relief with respect to a proposal that the board establish a salary ceiling for executive officers and directors at two times the salary of the President of the United States. The first proposal sought to limit such compensation to 150% of the salary of the U.S. President.

[fn22] 2001 SEC No-Act. LEXIS 161 (Jan. 31, 2001).

[fn23] 2000 SEC No-Act. LEXIS 137 (Feb. 1, 2000).

[fn24] 1993 SEC No-Act. LEXIS 1189 (Dec. 22, 1993).

§ 24.03[G][4] Corporate Responsibility

In Exxon Corporation,[fn25] the company successfully excluded a proposal requesting that it adopt a written policy barring sexual orientation discrimination. The first proposal was on the identical topic, but used somewhat different language.

In Nucor Corporation,[fn26] the SEC staff allowed the company to exclude a proposal to expend greater effort in ensuring that women and minorities are considered for board nomination. The first proposal addressed the same topic, but used slightly different language.

In General Electric Company,[fn27] the SEC staff granted no-action relief on a proposal requesting the board to form a four-member committee of outside directors to evaluate the extent of violence in its network television programming, address certain significant issues related to violence in programming, identify options for modifying or reducing the level of violence in programming, prepare recommendations to the board as to whether the corporation should adopt any of those identified options and prepare a report for the board and any shareholders who request it. The company argued that this proposal was substantially duplicative of one requesting that the board review and report to shareholders about its program standards and their implementation with regard to violence on television. It stated that the second proposal was duplicative because it dealt with the same subject matter (violence on television) and had the same goal (to reduce violence on television).

[fn25] 1999 SEC No-Act. LEXIS 274 (Mar. 9, 1999).

[fn26] 1999 SEC No-Act. LEXIS 198 (Feb. 16, 1999).

[fn27] 1994 SEC No-Act. LEXIS 188 (Feb. 9, 1994).

§ 24.04 Practice Pointers

Company Practice Pointers

Always attach copies. Companies should always attach copies of each proposal that they allege are substantially duplicative to their requests to the SEC staff. The staff can then determine for itself if the proposals are indeed substantially duplicative.

Always date stamp proposals when they are received. For this exclusion, as well as some of the procedural provisions, it is important to know when a proposal was received. A company should have a procedure in place to ensure that proposals are uniformly date-stamped and kept in a safe place.

Analysis can be limited in certain circumstances. Unless there is an issue about whether the proposals are substantially duplicative, a company probably can draft its own request without the assistance of outside counsel, even if it does not have extensive experience with dealing with the staff. In these requests, there usually is no need to cite no-action letter precedent or provide legal opinions to obtain no-action relief.

Try to strategize about which proposal to include. Although a company cannot select which proposal to exclude — because the first proposal received is automatically included — there may be some strategy involved. Often, a company will prefer one substantially duplicative proposal due to the nature of the statements made in the supporting statement. Companies normally want to include the poorly drafted proposals that are less likely to attract votes. If the more desirable proposal is received first, a company may want to include it, even if there are other grounds to exclude it. Otherwise, it may succeed in having it excluded on another basis, only to be stuck with including the second, less-desirable proposal.

Negotiate withdrawals. Companies may be able to convince proponents to withdraw their proposals by informing them that they already intend to include a substantially duplicative proposal in their proxy statements. Since the proponent's objective is usually satisfied by this inclusion, she may withdraw her proposal, sparing the company the time and expense of obtaining no-action relief from the staff. Occasionally, proponents will disagree with the company's assertion that their proposals are substantially duplicative — most often because they want their own language included — and the company will be forced to ask the staff for no-action relief.

Proponent Practice Pointers

Verify which proposal was received first. When it receives notice that a company intends to seek no-action relief under this exclusion, the proponent should verify that the company can produce adequate evidence to show that its proposal was not the first the company received.

Become a co-sponsor or otherwise support the first proponent. If another proponent submitted a substantially duplicative proposal first, do what you can to assist the first proponent since there is a common interest. This can take the form of cosponsorship (if timely arranged), raising awareness of the issue, attending the meeting to present the proposal or helping to amend the proposal so that it is more effective.

Consider withdrawal if evidence is adequate. If the company has sufficient proof, a proponent may want to withdraw its proposal to maintain good relations with the company for its next proposal submission.

Act ahead. If a proponent's proposal was not received first and was thus excluded as substantially duplicative, the proponent should immediately submit the same proposal for the next shareholders' meeting — even if it is a year away — so that it will be first in line and not have its proposal excluded under this basis again.

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