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Nov 27, 2019

Glass Lewis responds to SEC’s 14a-8 no-action shift

New approach takes effect in 2020 proxy season

Glass Lewis will expect companies to keep shareholder proposals they don’t like on their proxies even if the SEC declines to rule on the matter. 

The proxy adviser’s stance is a response to the SEC division of corporation finance’s recently revised approach to handling shareholder proposals that companies want to exclude from AGMs.

The division announced in September that from proxy season 2020 it will in some cases respond orally to no-action requests under Rule 14a-8 and emphasized that it retains the option not to make a decision on excluding a proposal. 

The announcement has caused widespread confusion. Corporate governance professionals and investors are concerned that the shift might lead to outcomes such as a rush of niche shareholder proposals, a lack of clear guidance and an increase in litigation to settle disputes.

Groups including Ceres and the Council of Institutional Investors have called for the division to drop its revised approach. The groups argue in a September letter to division director William Hinman that the altered process ‘reduces transparency and accountability, increases the burden on investors and could increase conflict between companies and their investors.’

Previous requests for comment from the SEC on the division’s new approach have not been returned. The division’s September statement says officials will continue to monitor correspondence and provide informal guidance to companies and proponents as appropriate. Where a company seeks to exclude a proposal, the division will let the proponent and the company know of its position, being that it concurs, disagrees or declines to state a view.

‘The [division] intends to issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8,’ officials write.

Glass Lewis in its recently updated policy guidelines for 2020 takes the stance that the absence of an SEC decision or letter regarding a proposal does not let companies off the hook in terms of their proxies or disclosures. 

‘In instances where the SEC has declined to state a view on whether a shareholder resolution should be excluded, we believe such [a] proposal should be included in a company’s proxy filings,’ writes Courteney Keatinge, senior director for ESG research at Glass Lewis, in a recent blog post. ‘A failure to do so will likely lead Glass Lewis to recommend that shareholders vote against the members of the governance committee.’ 

The proxy adviser will look at no-action scenarios on a case-by-case basis, Keatinge tells Corporate Secretary. ‘That said, any prudent lawyer would say, If in doubt, keep it in,’ she says, adding that the ramifications of excluding a proposal in the absence of a no-action relief decision are potentially worse than including the proposal – even if it passes.   

Keatinge writes in the blog that where the SEC verbally allows a company to exclude a shareholder proposal and the agency provides no written record about this decision, Glass Lewis will expect the company to provide some disclosure concerning the no-action relief. 

‘In cases where a company has failed to include a proposal on its ballot without such disclosure, we will generally recommend shareholders vote against the members of the governance committee of the board,’ she writes.  

Ben Maiden

Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...