SEC Staff Issues Guidance on Excluding Shareholder Proposals: Competing Proposals in Proxy Statements Likely to Increase

Sullivan & Cromwell LLP - October 23, 2015

The staff of the Division of Corporation Finance of the Securities and Exchange Commission issued a legal bulletin yesterday publishing the outcome of its review of Rule 14a-8(i)(9), which allows the exclusion of a shareholder proposal that “directly conflicts” with a management proposal.  Going forward, the staff will grant no-action relief on the basis of a direct conflict “only if a reasonable shareholder could not logically vote in favor of both proposals,” a “higher burden” for companies to meet than had been the case previously.  As a result, the instances of competing company and shareholder proposals being contained in the same proxy statement are likely to increase.

The legal bulletin also addressed the impact of the Third Circuit’s decision in Trinity Wall Street v. Wal-Mart Stores, Inc. with respect to no-action relief under Rule 14a-8(i)(7), which allows the exclusion of shareholder proposals that relate to “ordinary business operations.”  Although both the staff and the Trinity Wall Street panel separately concluded that a shareholder proposal submitted to Wal-Mart Stores, Inc. was excludable, the majority in Trinity Wall Street employed an approach that differed from the staff’s historic practice.  In the legal bulletin, the staff states that it believes its practice is consistent with the views expressed by the SEC in evaluating no-action relief under Rule 14a-8(i)(7) and intends to continue its prior application of the rule when considering no-action requests.

Staff Legal Bulletin No. 14H is available at