New guidance from the Securities and Exchange Commission will change the way it reviews no-action requests next proxy season.
The SEC's division of corporation finance said Sept. 6 that its staff will no longer automatically provide a written response of its views to all no-action requests. Instead, staff may respond orally to some of the requests. Staff intends to issue a written response where it believes doing so would provide value, the SEC said.
Shareholders can file resolutions prior to a company's annual meeting. If the resolution makes it onto the company's proxy statement, it gets voted on. Popular shareholder resolution topics in recent years included climate change, political spending disclosures, board diversity and the gender pay gap.
If a company thinks a resolution is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the resolution in its proxy statement.
Currently, when a no-action letter is submitted, the SEC posts the letter to its website, decides if it agrees with the request and posts a written response.
Starting with the 2019-'20 proxy season, that will change.
Michael L. Hermsen, a Chicago-based partner with Mayer Brown LLP, said the SEC announcement could pose problems for companies. "There's just a lot of uncertainty about what this means going forward," he said. "A lot of us look at this (information) on the SEC website as precedent for when we're trying to counsel a client."
Companies that do not receive a written response to their no-action requests will be in precarious position, Mr. Hermsen said.
"Companies will not necessarily have the level of comfort they often like when they decide whether or not to include or exclude a shareholder proposal," he said. "They may be less willing to exclude a shareholder proposal without that comfort. We may see more shareholder proposals get included in proxy statements."
In its announcement, the SEC said if staff declines to state a view on any particular request, the interested parties should not interpret that position as indicating that the proposal must be included. "In such circumstances, the staff is not taking a position on the merits of the arguments made, and the company may have a valid legal basis to exclude the proposal under Rule 14a-8," the SEC said. "And, as has always been the case, the parties may seek formal, binding adjudication on the merits of the issue in court."