As we previously reported here, companies that adopted mainstream proxy access bylaws received a vote of confidence from the SEC when the agency issued a series of no-action letters allowing companies to exclude related shareholder proposals on the basis of “substantial implementation” under Rule 14a-8(i)(10) of the Securities Exchange Act of 1934. Each of these companies successfully asserted that its proxy access bylaw fulfilled the “essential objective” of the shareholder proposal and, as a result, that the company had substantially implemented the proposal.
Since then, at least 13 additional companies have successfully sought no-action relief on a substantial implementation basis, frequently citing the precedent established by this original set of no-action letters. See, for example, The Wendy’s Company (March 2, 2016), Amazon (March 3, 2016) and Newell Rubbermaid Inc. (March 9, 2016).
As we previously reported, the SEC Staff has not granted no-action relief for companies that require 5% ownership of shares outstanding in order for shareholders to avail themselves of proxy access. More institutional investors are aligning on the 3% ownership threshold. Vanguard recently announced a change to its proxy access policy, reducing its preferred ownership threshold from 5% to 3% of shares outstanding.
More recently, the SEC Staff has also denied no-action relief where the companies asserted that the shareholder proposals were “so inherently vague or indefinite” that they could be excluded under Rule 14a-8(i)(3). See Amphenol (March 8, 2016) and The Interpublic Group of Companies, Inc. (March 8, 2016). In these situations, the shareholder proposals were similar to proposals received by other companies this proxy season, permitting shareholders who continuously own 3% of shares outstanding for a 3-year period to nominate up to 25% of the board (and at least 2 directors), with no aggregation limit and no additional restrictions on proxy access candidates that did not apply to other board nominees.
In the wake of these no-action letters, companies considering proxy access are likely to gravitate toward the models contained in the successful no-action letters, continuing the convergence of proxy access terms during the 2016 proxy season. Proxy access adopters are expected to maintain a brisk pace, as companies now face a reduced risk of having bylaws challenged by shareholder proponents. Within the past two weeks, Home Depot Inc., General Motors Co. and FedEx Corp. joined Amazon.com Inc. and McDonald's Corp. among about 194 companies that since 2014 have adopted proxy access.