The Securities and Exchange Commission made it tougher for companies to exclude shareholder proposals that appear to conflict with management proposals.
In a staff legal bulletin, posted Thursday on its website, the SEC division of corporation finance backtracked from a position the agency took Dec. 1, 2014, issuing a no-action letter enabling Whole Foods Market Inc. to exclude a shareholder proposal on proxy access on the grounds the company planned to offer its own such proposal.
In its new interpretation, the bulletin said, “We will not … view a shareholder proposal as directly conflicting with a management proposal if a reasonable shareholder, although possibly preferring one proposal over the other, could logically vote for both. For example, if a company does not allow shareholder nominees to be included in the company's proxy statement, a shareholder proposal that would permit a shareholder or group of shareholders holding at least 3% of the company's outstanding stock for at least three years to nominate up to 20% of the directors would not be excludable if a management proposal would allow shareholders holding at least 5% of the company's stock for at least five years to nominate for inclusion in the company's proxy statement 10% of the directors … the proposals do not present shareholders with conflicting decisions such that a reasonable shareholder could not logically vote in favor of both proposals.”
As a result, the bulletin said, “the board of directors may have to consider the effects of both proposals if both the company and shareholder proposals are approved by shareholders. We do not believe, however, that such a decision represents the kind of 'direct conflict' the rule was designed to address.”
In its December interpretation letter to Whole Foods, Evan S. Jacobson, special counsel in the SEC division, wrote, “There appears to be some basis for your view that Whole Foods may exclude” a shareholder proxy access proposal because the company plans to sponsors its own such proposal, which would have tougher thresholds for shareholders to nominate directors. Two proposals would present “conflicting decisions for the stockholders and would create the potential for inconsistent and ambiguous results,” Mr. Jacobson wrote.
In a Council of Institutional Investors statement, attorney Con Hitchcock “predicts the SEC bulletin will enhance dialogue between shareholders and boards, especially on compensation issues that contain so many variables. The inclusion of both shareholder and management proposals on similar issues would give boards more nuanced ideas of what shareholders think about specific topics.”
In a letter to the SEC on Jan. 9, the CII called for the agency to revise its interpretation.