This year, proxy access has become “the next big thing” within IR and governance discussions. It seems activism, traditionally targeted to mega-caps, has trickled down to all market capitalizations. As we learned last week, even M&A is on the activists’ radar (watch video here),
We’ve worked with many clients on their proxy materials this year – and although Vintage tends to be on the tactical spectrum of the process, strategic and procedural discussion always arise. We try to have the answers – or at least know where to find them.
In summary, in order to have a shareholder proposal included on a company’s proxy card, and included along with any supporting statement in its proxy statement, a shareholder must be eligible and follow certain procedures. Under a few specific circumstances, the company is permitted to exclude a shareholder proposal, but only after submitting its reasons to the Commission.
What is a shareholder proposal?
A shareholder proposal is a shareholder recommendation or requirement that the company and/or its board of directors take action, which that shareholder intends to present at a meeting of the company’s shareholders. A shareholder proposal should state as clearly as possible the course of action that they believe the company should follow.
If a shareholder proposal is placed on the company’s proxy card, the company must also provide in the form of proxy means for all shareholders to specify by boxes a choice between approval or disapproval, or abstention. Unless otherwise indicated, the word “proposal” as used in this section refers both to a shareholder proposal, and to that shareholder’s corresponding statement in support of their proposal.
Who is eligible to submit a proposal, and how does a shareholder demonstrate to the company that they are eligible?
In order to be eligible to submit a proposal, a shareholder must have continuously held at least $2,000 in market value, or 1%, of the company’s securities entitled to be voted on the proposal at the meeting for at least one year by the date a shareholder submits the proposal. A shareholder must continue to hold those securities through the date of the meeting.
If a shareholder is the registered holder, which means that their name appears in the company’s records as a shareholder, the company can verify the shareholder’s eligibility on its own, although the shareholder will still have to provide the company with a written statement that they intend to continue to hold the securities through the date of the meeting of shareholders.
However, if like many shareholders, the shareholder is not a registered holder, the company likely does not know that they are a shareholder, or how many shares that shareholder owns. In this case, at the time a shareholder submit a proposal, they must prove eligibility to the company via a written statement from the “record” holder of the shareholder’s securities or via a filed a Schedule 13D, Schedule 13G, Form 3, Form 4 and/or Form 5 document.
How many proposals may a shareholder submit?
Each shareholder may submit no more than one proposal to a company for a particular shareholders’ meeting.
How long can a shareholder proposal be?
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The proposal, including any accompanying supporting statement, may not exceed 500 words.
What is the deadline for submitting a proposal?
If a shareholderis submitting their proposal for the company’s annual meeting, a shareholder can, in most cases, find the deadline in last year’s proxy statement. However, if the company did not hold an annual meeting last year, or has changed the date of its meeting for this year more than 30 days from last year’s meeting, a shareholder can usually find the deadline in one of the company’s quarterly reports on Form 10–Q, or in shareholder reports of investment companies under Rule 30d–1 of the Investment Company Act of 1940. In order to avoid controversy, shareholders should submit their proposals by means, including electronic means that permit them to prove the date of delivery.
Generally, a shareholder proposal must be received at the company’s principal executive offices not less than 120 calendar days before the date of the company’s proxy statement released to shareholders in connection with the previous year’s annual meeting. However, if the company did not hold an annual meeting the previous year, or if the date of this year’s annual meeting has been changed by more than 30 days from the date of the previous year’s meeting, then the deadline is a reasonable time before the company begins to print and send its proxy materials.
What if a shareholder fails to follow one of the eligibility or procedural requirements?
The company may exclude a shareholder proposal, but only after it has notified that shareholder of the problem, and that shareholder has failed adequately to correct it. Within 14 calendar days of receiving a shareholder proposal, the company must notify that shareholder – in writing – of any procedural or eligibility deficiencies, as well as of the time frame for a response. The response must be postmarked, or transmitted electronically, no later than 14 days from the date a shareholder received the company’s notification. A company need not provide a shareholder such notice of a deficiency if the deficiency cannot be remedied, such as if failure to submit a proposal by the company’s properly determined deadline.
Who has the burden of persuading the Commission or its staff that a shareholder proposal can be excluded?
Except as otherwise noted, the burden is on the company to demonstrate that it is entitled to exclude a proposal.
Must a shareholder appear personally at the shareholders’ meeting to present the proposal?
The shareholder, or their representative who is qualified under state law to present the proposal on the shareholder’s behalf, must attend the meeting to present the proposal. If the company holds its shareholder meeting in whole or in part via electronic media, and the company permits the shareholder or their representative to present the proposal via such media, then that shareholder may appear through electronic media rather than traveling to the meeting to appear in person.
If a shareholder or their qualified representative fail to appear and present the proposal, without good cause, the company will be permitted to exclude all of that shareholder’s proposals from its proxy materials for any meetings held in the following two calendar years.