SEC to propose amendment to Rule 14a-8 in light of AFSCME decision

Bill Sjostrom —  7 September 2006

As discussed by Prof. B. in this post, the 2nd Circuit recently ruled “that a shareholder proposal that seeks to amend the corporate bylaws to establish a procedure by which shareholder-nominated candidates may be included on the corporate ballot does not relate to an election within the meaning of [Rule 14a-8(i)(8)] and therefore cannot be excluded from corporate proxy materials under that regulation” (see 2006 WL 2557941). Today the SEC announced (see here) that it will formulate and recommend an amendment to Rule 14a-8 addressing issues raised by the decision. According to the SEC press release:

“Rule 14a-8, the shareholder proposal rule, provides shareholders important rights in the proxy process,” said Chairman Christopher Cox in announcing the calendaring of the proposed amendment. “These rights are best secured under consistent national application of Rule 14a-8 to shareholder proposals. Therefore, to provide certainty with regard to shareholder proposals in every judicial circuit, I have directed the staff to prepare recommendations for revisions to Rule 14a-8 that will assure its consistent nationwide application. Following the publication of a proposed amendment and the opportunity for public comment, a final proposal will be considered at an open meeting of the Commission that will be scheduled to allow a final rule to go into effect in time for the 2007 proxy season.”

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  1. From the Blogs « Governance News Watch - September 11, 2006

    […] >From “Bill Sjostorm rounds up some links to blogosphere commentary on the Second Circuit’s AFSCME v. AIG decision….” […]

  2. TRUTH ON THE MARKET » Thoughts on AFSCME v. AIG - September 9, 2006

    […] As noted here, the SEC responded almost immediately in a press release stating it will formulate and recommend an amendment to Rule 14a-8 addressing issues raised by the decision. The proposed amendment is scheduled to be considered at an open meeting on October 18, 2006 (obviously they intend to get this sorted out prior to the next proxy season). It’s not clear how the SEC will respond. The SEC’s own efforts to allow shareholder nominations was highly controversial and died in 2003 with the resignation of Chairman Donaldson. I do not believe Chairman Cox has publicly taken a position on the issue. And the court’s opinion seems to afford the SEC the option of reaffirming its 1990 interpretation. Specifically the court notes that “the SEC has substantial discretion to adopt new interpretations of its own regulations in light of, for example, changes in the capital markets or even simply because of a shift in the Commission’s regulatory approachâ€? so long as it explains “its departure from prior norms.â€? Hence, it seems to me that the SEC could simply put out a release explaining its departure from its pre-1990 position. It should be interesting. […]