Proposed Rule: Securities: Company Proxy Materials Shareholder Proposals

Friday,
August 3, 2007
Part V
Securities and
Exchange
Commission
17 CFR Part 240
Shareholder Proposals; Proposed Rules
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43466 Federal Register / Vol. 72, No. 149 / Friday, August 3, 2007 / Proposed Rules
SECURITIES AND EXCHANGE Paper Comments b. Proposed New Item 8B of Schedule 13G
COMMISSION c. Proposed New Item 8C of Schedule 13G
• Send paper comments in triplicate d. Proposed New Item 24 to Schedule 14A
to Nancy M. Morris, Secretary, U.S. e. Disclosure by Nominating Shareholder—
17 CFR PART 240 Securities and Exchange Commission, Proposed New Rule 14a–17
100 F Street, NE., Washington, DC f. Liability for, and Incorporation by
[Release No. 34–56160; IC–27913; File No.
S7–16–07]
20549–1090. Reference of, Information Provided by
All submissions should refer to File the Nominating Shareholder
Number S7–16–07. This file number g. Filing Requirements
RIN 3235–AJ92
should be included on the subject line h. Proposed New Rule 14a–17(b)–(c) and
Item 25 of Schedule 14A
Shareholder Proposals if e-mail is used. To help us process and B. Electronic Shareholder Forums
review your comments more efficiently, 1. Background
AGENCY: Securities and Exchange please use only one method. The
Commission. 2. Proposed Amendment to Facilitate the
Commission will post all comments on Use of Electronic Shareholder Forums
ACTION: Proposed rule. the Commission’s Internet Web site C. Request for Comment on Proposals
(http://www.sec.gov/rules/ Generally
SUMMARY: We are proposing 1. Bylaw Amendments Concerning Non-
proposed.shtml). Comments also are
amendments to the rules under the available for public inspection and Binding Shareholder Proposals
Securities Exchange Act of 1934 copying in the Commission’s Public 2. Other Requests for Comment
concerning shareholder proposals and Reference Room, 100 F Street, NE., III. General Request for Comment
electronic shareholder communications, IV. Paperwork Reduction Act
Washington, DC 20549, on official V. Cost-Benefit Analysis
as well as to the disclosure requirements business days between the hours of 10
of Schedule 14A and Schedule 13G. VI. Consideration of Burden on Competition
a.m. and 3 p.m. All comments received and Promotion of Efficiency,
Proposed amendments to Exchange Act will be posted without change; we do Competition and Capital Formation
Rule 14a-8 would enable shareholders not edit personal identifying VII. Initial Regulatory Flexibility Act
to include in company proxy materials information from submissions. You Analysis
their proposals for bylaw amendments should submit only information that VIII. Small Business Regulatory Enforcement
regarding the procedures for nominating you wish to make available publicly. Fairness Act
candidates to the board of directors. FOR FURTHER INFORMATION CONTACT:
IX. Statutory Basis and Text of Proposed
Schedule 14A and Schedule 13G would Amendments
Lillian Brown, Steven Hearne, or
be amended to provide shareholders Tamara Brightwell, at (202) 551–3700, I. Overview
with additional information about the in the Division of Corporation Finance,
proponents of these proposals, as well A. Federal Regulation of the Proxy
U.S. Securities and Exchange
as any shareholders that nominate a Process
Commission, 100 F Street, NE.,
candidate under such an adopted Washington, DC 20549–3010. Regulation of the proxy process is a
procedure. Included in these core function of the Commission and is
SUPPLEMENTARY INFORMATION: We are
nominating shareholder disclosures one of the original responsibilities that
proposing amendments to Rule 14a–2,1
would be the disclosure requirements Congress assigned to the agency in 1934.
Rule 14a–6,2 Rule 14a–8,3 Schedule
that currently apply to traditional proxy Section 14(a) of the Exchange Act 7
14A,4 and Schedule 13G 5 under the
contests. Finally, the proposed Securities Exchange Act of 1934,6 and stemmed from a Congressional belief
amendments would revise the proxy proposing new Rule 14a–17 and Rule that ‘‘fair corporate suffrage is an
rules to clarify that participation in an 14a–18 under the Exchange Act. important right that should attach to
electronic shareholder forum that may every equity security bought on a public
constitute a solicitation would be Table of Contents exchange.’’ 8 The Congressional
generally exempt from the proxy rules. I. Overview committees recommending passage of
This release accompanies a second A. Federal Regulation of the Proxy Process Section 14(a) proposed that ‘‘the
release, Shareholder Proposals Relating B. The Shareholder Proposal Process solicitation and issuance of proxies be
to the Election of Directors, in which we C. Commission Review of the Proxy left to regulation by the Commission.’’ 9
publish an interpretation and propose a Process
II. Proposed Amendments to the Proxy Rules Congress intended that Section 14(a)
rule change to affirm the staff of the give the Commission the ‘‘power to
and Related Disclosure Requirements
Division of Corporation Finance’s A. Proposed Amendments Concerning control the conditions under which
historical application of Rule 14a-8(i)(8). Bylaw Proposals for Shareholder proxies may be solicited’’ 10 and that
DATES: Comments should be received by Nominations of Directors this power be exercised ‘‘as necessary or
October 2, 2007. 1. Background Regarding the Election appropriate in the public interest or for
Exclusion in Rule 14a–8(i)(8) the protection of investors.’’ 11 Because
ADDRESSES: Comments may be
2. Proposed Amendment to Rule 14a–
submitted by any of the following 8(i)(8) Concerning Bylaw Amendments
the Commission’s authority under
methods: on Procedures for Shareholder Section 14(a) encompasses both
Nominations of Directors
Electronic Comments
3. Proposed Disclosure Requirements 7 15 U.S.C. 78n(a).
• Use the Commission’s Internet Related to Shareholder Proponents and 8 Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381
comment form (http://www.sec.gov/ Nominating Shareholders (1970), quoting H.R. Rep. No. 1383, 73d Cong., 2d
a. Overview of Requirements Applicable to Sess., at 13 (1934). See also J. I. Case Co. v. Borak,
rules/proposed.shtml); 377 U.S. 426, 431 (1964).
Shareholder Proponents
• Send an e-mail to rule-
9 S. Rep. No. 792, 73d Cong., 2d Sess., at 12
comments@sec.gov. Please include File 1 17

(1934).
CFR 240.a–2.
Number S7–16–07 on the subject line; 2 17 CFR 240.14a–6.
10 H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 14
or (1934). The same report demonstrated a

3 17 CFR 240.14a–8.
congressional intent to prevent frustration of the
• Use the Federal Rulemaking Portal 4 17 CFR 240.14a–100.
‘‘free exercise of the voting rights of stockholders.’’
(http://www.regulations.gov). Follow the 5 17 CFR 240.13d–102. Id.
instructions for submitting comments. 6 15 U.S.C. 78a et seq. 11 15 U.S.C. 78n(a).
Federal Register / Vol. 72, No. 149 / Friday, August 3, 2007 / Proposed Rules 43467
disclosure and proxy mechanics,12 the rather to reinforce state law rights with 8 a company must include in its proxy
proxy rules have long governed not only a sturdy federal disclosure and proxy materials some proposals that
the information required to be disclosed solicitation regime. To that end, the shareholders could present at the
to ensure that shareholders receive full Commission has sought to use its annual or special meeting under state
disclosure of all information that is authority in a manner that does not law. Other proposals can be included in
material to the exercise of their voting conflict with the primary role of the proxy materials prepared by the
rights under state law and the states in establishing corporate shareholders themselves. In this regard,
corporation’s charter, but also the governance rights. For example, Rule the proxy rules permit any shareholder
procedure for soliciting proxies.13 14a–8, the shareholder proposal rule, to solicit votes for the election of a
In assigning this responsibility to the explicitly provides that a shareholder nominee to the board through a proxy
Commission, Congress demonstrated its proposal is not required to be included solicitation by that shareholder. The
‘‘intent to bolster the intelligent exercise in a company’s proxy materials if it ‘‘is proxy rules do not, however, require a
of shareholder rights granted by state not a proper subject for action by company to include a shareholder’s
corporate law.’’ 14 To identify the rights shareholders under the laws of the nominee for director in its proxy
that the proxy process should protect, jurisdiction of the company’s materials. Conversely, the proxy rules
the Commission has taken as its organization.’’ 16 require the company to include in its
touchstone the rights of security holders One of the key rights that proxy materials non-binding resolutions
guaranteed to them under state shareholders have under state law is the of eligible shareholders on subjects
corporate law. As Chairman Ganson right to appear in person at an annual unrelated to the company’s ordinary
Purcell explained to a committee of the or special meeting and, subject to business unless the proposals fall
House of Representatives in 1943: compliance with applicable state law within one of the substantive bases for
The rights that we are endeavoring to requirements and the requirements exclusion in Rule 14a–8. The proposed
assure to the stockholders are those rights contained in the company’s charter and amendments to the proxy rules
that he has traditionally had under State law bylaws, such as an advance notice discussed below address these matters.
to appear at the meeting; to make a proposal; bylaw, present their own proposals for
to speak on that proposal at appropriate B. The Shareholder Proposal Process
length; and to have his proposal voted on.15
a vote by shareholders at that meeting.17
These proposals can relate to a wide Rule 14a–8 creates a procedure under
Thus, the federal proxy authority is not variety of matters, including the which shareholders, subject to certain
intended to supplant state law, but requirements, may present in the
nomination of the shareholders’ own
company’s proxy materials a broad
candidates for the election of
12 See Business Roundtable v. SEC, 905 F.2d 406, range of binding and non-binding
directors.18 Most shareholders,
411 (D.C. Cir. 1990) (‘‘We do not mean to be taken proposals, including non-binding
as saying that disclosure is necessarily the sole however, vote through the grant of a
proposals regarding matters that
subject of § 14’’); Roosevelt v. E.I. du Pont de proxy before the meeting instead of
Nemours & Co., 958 F.2d 416, 421–22 (D.C. Cir. traditionally are within the province of
attending the meeting to vote in person.
1992) (Congress ‘‘did not narrowly train section the board and management. The rule
Therefore, an important function of the
14(a) on the interest of stockholders in receiving permits a shareholder owning a
information necessary to the intelligent exercise of proxy rules is to provide a mechanism
relatively small amount of the
their’’ state law rights); SEC v. Transamerica Corp., for shareholders to present their
163 F.2d 511, 518 (3d Cir. 1947) (upholding the company’s shares 20 to submit his or her
proposals to other shareholders, and to
Commission’s authority to promulgate Exchange proposal to the company, and the rule
Act Rule 14a–8), cert. denied, 332 U.S. 847 (1948).
permit shareholders to instruct their requires the company to include the
See also John C. Coffee Jr., Federalism and the proxy how to vote on these proposals. proposal alongside management’s
SEC’s Proxy Proposals, New York Law Journal 5 Our regulations have been designed to proposals in the company’s proxy
(March 18, 2004) (Section 14(a) ‘‘does not focus facilitate the corporate proxy process so
exclusively on disclosure; rather, it contemplates materials. For example, a proposal
SEC rules regulating procedure in order to grant that it functions, as nearly as possible, concerning a matter that under state law
shareholders a ‘fair’ right of corporate suffrage’’); as a replacement for an actual, in-person would not be a proper subject for
Louis Loss & Joel Seligman, Securities Regulation gathering of security holders, thus shareholder action alone if it were cast
1936–37 (3d ed. 1990) (The Commission’s ‘‘power enabling security holders ‘‘to control the
under § 14(a) is not necessarily limited to ensuring as a binding proposal, may nonetheless
full disclosure. The statutory language is corporation as effectively as they might be included in the company’s proxy
considerably more general than it is under the have by attending a shareholder materials under Rule 14a–8 if it is cast
specific disclosure philosophy of the Securities Act meeting.’’ 19
of 1933’’). as a recommendation or request that the
13 E.g., Exchange Act Rule 14a–4 (17 CFR
The Commission’s proxy rules board take specified action.21 In all
240.14a–4), Exchange Act Rule 14a–7 (17 CFR provide a means for shareholders to cases, the proposal may be excluded by
240.14a–7) and Exchange Act Rule 14a–8 (17 CFR propose matters to other shareholders the company if it fails to satisfy the
240.14a–8). Each specifies procedural requirements for a vote at an annual or special rule’s procedural requirements or falls
that companies must observe in soliciting proxies. meeting. For example, under Rule 14a–
Exchange Act Rule 14a–4(b)(2) requires that the within one of the rule’s thirteen
form of proxy furnish the security holder with the
16 17
substantive categories of proposals that
means to withhold approval for the election of a CFR 240.14a–8(i)(1).
17 For
may be excluded.
director. Exchange Act Rule 14a–7 provides a example, Section 211(b) of the Delaware
procedure under which a security holder may be General Corporation Law permits any ‘‘proper
Because the proxy process is meant to
able to obtain a list of security holders. Exchange business,’’ in addition to the election of directors, serve, as nearly as possible, as a
Act Rule 14a–8 provides a procedure under which to be conducted at an annual meeting of
a qualifying security holder can obligate the shareholders. In order to provide for an orderly 20 Exchange Act Rule 14a–8(b)(1) (17 CFR
company to include certain types of proposals, period of solicitation before a meeting, many 240.14a–8(b)(1)) provides that a holder of at least
along with statements in support of those proposals, corporations have included provisions in their $2,000 in market value, or 1% of the company’s
in the company’s proxy statement. charter or bylaws to require advance notice of any securities entitled to be voted, may submit a
14 Roosevelt, 958 F.2d at 421. shareholder resolutions, including nominations for shareholder proposal subject to other procedural
15 Securit[ies] and Exchange Commission Proxy director, to be presented at a meeting. See R. requirements and substantive bases for exclusion
Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. Franklin Balotti & Jesse A. Finkelstein, Delaware under the rule.
2019 Before the House Comm. on Interstate and Law of Corporations & Business Organizations § 7.9 21 State corporation statutes generally provide
Foreign Commerce, 78th Cong., 1st Sess., at 172 (4th ed. 2006). that the business of the corporation shall be
18 Id.
(1943) (testimony of SEC Chairman Ganson managed by, or under the direction of, the board of
Purcell). 19 Business Roundtable, 905 F.2d at 410. directors.
replacement for an actual, in-person the staff not recommend enforcement In 2003, the Commission directed the
meeting of shareholders, it should action if the company excludes the Division of Corporation Finance to
facilitate proposals concerning only proposal. A shareholder proponent may review the proxy rules regarding
those subjects that could properly be respond to the company’s notice, but is procedures for the election of corporate
brought before a meeting under the not required to do so. Generally, the directors and provide the Commission
corporation’s charter or bylaws and staff responds to each notice with a ‘‘no- with recommendations regarding
under state law. Most state corporation action’’ letter to the company, a copy of possible changes to the proxy rules.
codes specify certain items of business which is provided to the shareholder, in Following the Division’s review of the
that are required to be presented to the which the staff either concurs or proxy rules, the Commission proposed a
shareholders for a vote, such as the declines to concur with the company’s comprehensive new set of rules, based
election of directors, and others that view that there is a basis for excluding on the Division’s recommendations,
may or may not be brought to a vote, the proposal.23 which would have governed
either in the discretion of the chair or Each proxy season, the Division of shareholder director nominations that
as specified by the corporation’s charter Corporation Finance responds to are not control-related.27 In connection
or bylaws. hundreds of these no-action requests.24 with the rulemaking concerning
With respect to the chair’s discretion, Although the Commission itself is not shareholder director nominations, the
in general state law provides that the directly involved in responding to no- Commission held a roundtable
order of business at a meeting of action requests, where a matter involves regarding the topic of shareholder
shareholders and the rules for the ‘‘substantial importance and where the director nominations generally, and
conduct of the meeting are determined issues are novel or highly complex,’’ the more specifically, the shareholder
by the chair, who is usually appointed Division may present an issue to the director nominations release.28 The
as provided in the bylaws, or in the Commission for review—either at the Commission also proposed and adopted
absence of such provision, by the board Division’s own instance or at the request a new set of disclosure standards
of directors.22 In order to reinforce the of the company or the shareholder concerning director nominations and
state law rights and responsibilities of communications between shareholders
proponent.25 Rule 14a–8 thus places the
shareholders, therefore, the proxy rules and companies.29
Commission’s staff at the center of
should be neutral with respect to the More recently, the Commission held
frequent disputes over whether a
manner in which meetings of three roundtables in May 2007. This
proposal must be included in the
shareholders are conducted, and should series of roundtables began with a re-
company’s proxy materials.
not interfere with the chair’s ability to examination of the fundamental
conduct the meeting in accordance with C. Commission Review of the Proxy principles of federalism that provide the
the requirements of state law and the Process context for our role under Section 14(a)
corporation’s governing documents. of the Exchange Act. Specifically, the
With respect to subjects and In meeting the Commission’s statutory roundtables focused on the relationship
procedures for shareholder votes that obligation under Section 14(a) of the between the federal proxy rules and
are specified by the corporation’s Exchange Act, this agency has state corporation law,30 proxy voting
governing documents, most state monitored the development of the proxy mechanics,31 and the evolution of both
corporation laws provide that a process closely since 1934. Over the binding and non-binding shareholder
corporation’s charter or bylaws can decades, we have made numerous proposals within the framework of the
specify the types of binding or non- improvements and refinements to the federal proxy rules.32
binding proposals that are permitted to proxy rules based upon practical Roundtable participants argued that,
be brought before the shareholders for a experience and the needs of investors.26 in contrast to the current operation of
vote at an annual or special meeting. This ongoing evaluation of the proxy the federal proxy rules, the federal role
Rule 14a–8(i)(1) supports these process leads us to consider changes should be to facilitate shareholders’
determinations by providing that a whenever it appears that the process can exercise of their fundamental state law
proposal that is violative of the be improved to better promote the and company ownership rights to elect
corporation’s governing documents may interests of investors, the efficient the board of directors.33 Some
be excluded from the corporation’s functioning of the capital markets, and
proxy materials. the health of capital formation. 27 Exchange Act Release 34–48626 (Oct. 14,
Rule 14a–8 specifies that companies 2003).

28 Security Holder Director Nominations
must notify the Commission when they 23 The staff’s response is an informal expression
of its views, and does not necessarily reflect the Roundtable (March 10, 2004).
intend to exclude a shareholder’s 29 Exchange Act Release 34–48825 (Nov. 24,
view of the Commission. Either the shareholder
proposal from their proxy materials. proponent or the company may obtain a decision 2003).
This notice goes to the staff of the on the excludability of a challenged proposal from 30 Roundtable on the Federal Proxy Rules and
Division of Corporation Finance. In the a federal court. State Corporation Law (May 7, 2007). Materials
notice, the company provides the staff 24 During the 2006–2007 proxy season, the related to the roundtable, including an archived
Division of Corporation Finance responded to broadcast and a transcript of the roundtable, are
with a discussion of the basis or bases available on-line at http://www.sec.gov/spotlight/
approximately 360 Exchange Act Rule 14a–8 no-
upon which the company intends to action requests. To respond to these requests, each proxyprocess.htm.
exclude the proposal and requests that proxy season the Division assembles a task force of 31 Roundtable on Proxy Voting Mechanics (May
attorneys who work full-time on the project from 24, 2007). Materials related to the roundtable,
22 See, e.g., Section 7.08, Model Business approximately January through April of each year. including an archived broadcast and a transcript of
Corporation Act. The Comment to this Section 25 17 CFR 202.1(d). the roundtable, are available on-line at http://
states that it is expected that the chair will not 26 As long ago as 1940, observers noted that ‘‘[t]he www.sec.gov/spotlight/proxyprocess.htm.
32 Roundtable on Proposals of Shareholders (May

misuse the power to determine the order of history of [C]ommission regulation pursuant to
business and to establish rules for the conduct of authority granted in Section 14 of the Securities 25, 2007). Materials related to the roundtable,
the meeting so as to unfairly foreclose the right of Exchange Act has been one of careful expansion including an archived broadcast and a transcript of
shareholders—subject to state law and the based upon experience and demonstrated needs.’’ the roundtable, are available on-line at http://
corporation’s charter and bylaws—to raise items Sheldon E. Bernstein & Henry G. Fischer, The www.sec.gov/spotlight/proxyprocess.htm.
which are properly a subject for shareholder Regulation of the Solicitation of Proxies: Some 33 See, e.g., R. Franklin Balotti, Director, Richards,
discussion or action at some point in the meeting Reflections on Corporate Democracy, 7 U. Chi. L. Layton & Finger, P.A, Transcript of Roundtable on
prior to adjournment. Rev. 226, 228 (1940). the Federal Proxy Rules and State Corporation Law,
participants also observed that recent provide shareholders with additional provisions of Rule 14a–8 in light of the
technological developments may disclosure to allow for better-informed AFSCME decision with a proposal that
provide promising possibilities for voting decisions. This additional is designed to ensure that this objective
additional, complementary means for disclosure is of great importance to is consistently achieved.
shareholders to interact and informed voting decisions both when Since the AFSCME case was decided
communicate with the management and shareholders are presented with last year, the Commission has
the board of directors of the company proposed bylaw amendments and when undertaken a thorough review of the
that could be more effective and more shareholders are presented with proxy process. That review, including
efficient.34 Participants generally agreed nominees for director submitted under three recent roundtables on the topic,
that enhanced disclosure should the company’s bylaws. As such, we are has led us to conclude that the federal
accompany any changes the proposing amendments to Schedule 13G proxy rules can be better aligned with
Commission might propose so that and Schedule 14A that would enhance shareholders’ fundamental state law
shareholders can make fully informed the disclosure of information about the rights to nominate and elect directors.
voting decisions.35 proponents of bylaw amendments At the same time, the vindication of
In light of these issues and concerning the nomination of directors, these state law rights must be
developments, the Commission is about any shareholders that submit accomplished in a way that
proposing that the current proxy rules director nominees under any adopted accommodates the abiding federal
and related disclosure requirements be bylaw, and about any director nominee interest in the full and fair disclosure to
revised and updated to more effectively that is submitted by a shareholder under shareholders of information that is
serve the essential purpose of such a bylaw. material to a contested election. This is
facilitating the exercise of shareholders’ the policy interest, grounded firmly in
rights under state law. A. Proposed Amendments Concerning Section 14 of the Securities Exchange
Bylaw Proposals for Shareholder Act of 1934, that underlies the election
II. Proposed Amendments to the Proxy Nominations of Directors exclusion of Rule 14a–8(i)(8).
Rules and Related Disclosure To achieve the mutually reinforcing
Requirements 1. Background Regarding the Election
Exclusion in Rule 14a–8(i)(8) objectives of vindicating shareholders’
We are proposing changes to Rule state law rights to nominate directors,
14a–8 that would facilitate Rule 14a–8(i)(8) sets forth one of on the one hand, and ensuring full
shareholders’ exercise of their state law several substantive bases upon which a disclosure in election contests, on the
rights to propose bylaw amendments company may exclude a shareholder other hand, we are proposing revisions
concerning shareholder nominations of proposal from its proxy materials. to Rule 14a–8(i)(8) that would permit a
directors. Additionally, we are Specifically, it provides that a company shareholder who makes full disclosure
proposing amendments to the proxy need not include a proposal that in connection with a bylaw proposal for
rules to make clear that director ‘‘relates to an election for membership director nomination procedures,
nominations made pursuant to any such on the company’s board of directors or including a proposal such as that in the
bylaw provisions would be subject to analogous governing body.’’ The AFSCME case, to have that proposal
the disclosure requirements currently purpose of this provision is to prevent included in the company’s proxy
applicable to proxy contests. These the circumvention of other proxy rules materials.37 The basis for the disclosure
proposed amendments are intended to that are carefully crafted to ensure that that we are proposing is the familiar
align the Commission’s shareholder investors receive adequate disclosure Schedule 13G regime, under which
proposal rule more closely with the and an opportunity to make informed certain passive investors that
underlying state law rights of voting decisions in election contests. beneficially own more than 5% of a
shareholders. Last year, the U.S. Court of Appeals for company’s securities, report their
As discussed above, in addition to the Second Circuit, in American ownership of a company’s securities.
governing the procedure for soliciting Federation of State, County and We believe that using this well-
proxies, a primary purpose of the Municipal Employees, Employees understood system of disclosure should
federal proxy rules is to provide Pension Plan v. American International reduce compliance costs for companies
shareholders with full disclosure of all Group, Inc.,36 held that AIG could not and shareholders. In addition, because
information for the exercise of their rely on Rule 14a–8(i)(8) to exclude a shareholders eligible to file under
voting rights under state law and the shareholder bylaw proposal under Schedule 13G must not have acquired or
corporation’s charter. The amendments which the company would be required, held their securities for the purpose of
we propose today are designed to under specified circumstances, to or with the effect of changing or
include shareholder nominees for influencing the control of the company,
May 7, 2007, at 14–17; Leo E. Strine, Jr., Vice director in the company’s proxy the opportunity to use Rule 14a–8 to
Chancellor, Court of Chancery of the State of materials at subsequent meetings. inappropriately circumvent the
Delaware, Transcript of Roundtable on the Federal The effect of the AFSCME decision disclosure and procedural regulations
Proxy Rules and State Corporation Law, May 7, was to permit both the bylaw proposal
2007, at 18–23; Stanley Keller, Edwards Angell that are intended to apply in contested
Palmer & Dodge LLP, Transcript of Roundtable on and, had the bylaw been adopted, elections should be minimized.
the Federal Proxy Rules and State Corporation Law, subsequent election contests conducted Under the proposed amendments, if
May 7, 2007, at 142–143. under it, to be included in the the proponents of a bylaw to establish
34 See, e.g., Stanley Keller, Edwards Angell
company’s proxy materials, but without a procedure for shareholder
Palmer & Dodge LLP, Transcript of Roundtable on
the Federal Proxy Rules and State Corporation Law,
compliance with the disclosure nominations of directors do not meet
requirements of Rule 14a–12
May 7, 2007, at 152–154. both the threshold for required filing on

35 See, e.g., Roberta Romano, Yale Law School, solicitations. Because of the importance Schedule 13G, and the eligibility
Transcript of Roundtable on the Federal Proxy that we attach to the provision of requirements to file on Schedule 13G,
Rules and State Corporation Law, May 7, 2007, at meaningful disclosure to investors in
26–27; Stephen P. Lamb, Vice Chancellor, Court of the proposal could then be excluded
Chancery of the State of Delaware, Transcript of election contests, we are revisiting the
Roundtable on the Federal Proxy Rules and State 37 See proposed revision to Exchange Act Rule
Corporation Law, May 7, 2007, at 123–125. 36 462 F.3d 121 (2d Cir. 2006) (AFSCME). 14a–8(i)(8).
from the company’s proxy materials • The proposal is submitted by a and approved by shareholders. A
under Rule 14a–8(i)(8). In this way, shareholder (or group of shareholders) shareholder proposal to establish bylaw
shareholders will be guaranteed the that has continuously beneficially procedures for shareholder nominations
disclosure necessary to evaluate such owned more than 5% of the company’s of directors would also be subject to any
proposals. securities entitled to be voted on the substantive bases for exclusion
In light of the need for full disclosure proposal at the meeting for at least one currently provided for in Rule 14a-8 that
where the possibility of control over a year by the date the shareholder submits do not relate to an election for
company is present, we believe that our the proposal; 40 and membership on the company’s board of
decision to link the ability to include a • The proposal otherwise satisfies the directors.
bylaw proposal for director nominations requirements of Rule 14a–8.41 Shareholder proposals to amend the
in a company’s proxy materials to the As amended, Rule 14a–8 would allow company’s bylaws to establish a
5% threshold set by Section 13(d) of the proponents of bylaw proposals to offer procedure for shareholder nominations
Exchange Act addresses the basic policy shareholder nomination procedures as of directors by proponents that do not
concerns previously articulated by both they see fit. The only substantive meet the eligibility requirements of the
Congress and the Commission. limitations on such procedures would proposed amendment to Rule 14a-
Moreover, because the proposed be those imposed by state law or the 8(i)(8)—including the requirements that
expansion of shareholders’ ability to company’s charter and bylaws. For the shareholder proponents have been
submit proposals under Rule 14a–8 example, the procedure could specify a more than 5% owners for at least one
would be limited to specific situations minimum level of share ownership for year and have filed a Schedule 13G—
in which shareholders would be assured those making director nominations that would be subject to exclusion.
of appropriate disclosure and would be included in the company’s We believe that the amendments we
procedural protections, if the proposal proxy materials; it could specify the are proposing today will not only
did not meet the eligibility requirements number of director slots subject to the provide consistency and certainty in
of the amended rule, the Commission’s procedure; or it could prescribe a this area of Rule 14a–8, but also will
staff would continue to interpret the method for the allocation of any costs— provide shareholders the ability to have
rule to permit companies to exclude the so long as both the form and substance a greater voice in their company’s
proposal. of any such requirements were corporate governance, consistent with
We believe that the amendments we consistent with applicable state law and their rights under state law.
are proposing today, including the the company’s charter and existing
Request for Comment
amendments to the language of the bylaw provisions. Likewise, the voting
election exclusion, will provide clarity threshold required in order to adopt the • As proposed, a bylaw proposal may
and certainty in this area. We also bylaw would be determined by the be submitted by a shareholder (or group
believe they will facilitate shareholders’ thresholds set forth by state law or in of shareholders) that is eligible to and
exercise of their state law rights to the company’s charter and bylaws with has filed a Schedule 13G that includes
propose amendments to company respect to the adoption of bylaws or specified public disclosures regarding
bylaws concerning director bylaw amendments.42 its background and its interactions with
nominations. The disclosure requirements and anti- the company, that has continuously
fraud provisions of the federal proxy held more than 5% of the company’s
2. Proposed Amendment to Rule 14a– rules would, of course, apply to any securities for at least one year, and that
8(i)(8) Concerning Bylaw Amendments solicitation of proxies conducted otherwise satisfies the procedural
on Procedures for Shareholder pursuant to a bylaw provision proposed requirements of Rule 14a–8 (e.g.,
Nominations of Directors holding the securities through the date
We are proposing an amendment to a determination of whether a proposing shareholder of the annual meeting). Are these
is eligible to file a Schedule 13G will continue to disclosure-related requirements for who
Rule 14a–8(i)(8) 38 that would enable be based on the specific facts and circumstances
shareholders to have their proposals for accompanying the activities of the proposing may submit a proposal, including
bylaw amendments regarding the shareholder. See Release No. 34–39538 (Jan. 12, eligibility to file on Schedule 13G,
procedures for nominating directors 1998) [63 FR 2854]. appropriate? If not, what eligibility
40 The one-year holding requirement would apply
included in the company’s proxy requirements and what disclosure
individually to each member of a group that is
materials. Such a bylaw proposal would aggregating its security holdings to make a proposal.
regime would be appropriate?
be required to be included in the 41 To require a company to include the proposal
Æ For example, should the 5%
company’s proxy materials if: in its proxy materials, the proposal would have to ownership threshold be higher or lower,
• The shareholder (or group of satisfy the procedural requirements of Exchange Act such as 1%, 3%, or 10%? Is the 5%
shareholders) that submits the proposal Rule 14a–8 and not fall within one of the other level a significant barrier to
substantive bases for exclusion included in
is eligible to file a Schedule 13G and Exchange Act Rule 14a–8.
shareholders making such proposals?
files a Schedule 13G that includes 42 In the event the charter or bylaws are silent as Does the impediment imposed by this
specified public disclosures regarding to the voting threshold required, a company and its threshold depend on the size of the
its background and its interactions with shareholders should look to the governing state company? Should the ownership
corporation law. The staff of the Commission would percentage depend on the size of the
the company; 39 not become involved in determining what this
threshold is or whether it had been achieved. company? For example, should it be 1%
38 See proposed revision to paragraph (i)(8) of
Interpretation and enforcement of any bylaw for large accelerated filers, 3% for
Exchange Act Rule 14a–8. provision setting forth a procedure for shareholder accelerated filers and 5% for all others?
39 The eligibility to file a Schedule 13G generally director nominees to be included in the company’s Should an ownership threshold be
is available only for persons who have acquired and proxy materials would be the province of the
applicable at all?
continue to hold the securities beneficially owned appropriate state court since it would be a question
without ‘‘a purpose or effect of changing or of state law, not federal law. The staff of the Æ If the eligibility requirement should
influencing the control of the issuer, or in Commission would not become involved in be different from 5%, should we
connection with or as a participant in any determining the correct interpretation or nonetheless require the filing of a
transaction having that purpose or effect.’’ See Rule application of an adopted bylaw provision. In
13d–1(e). Although proposing a bylaw amendment addition, the staff of the Commission would not
Schedule 13G or otherwise require
pursuant to proposed Rule 14a–8(i)(8) would not on become involved in determining whether a bylaw disclosure equivalent to a Schedule
its own eliminate the ability to file a Schedule 13G, provision was properly adopted. 13G?
Æ The proposed one-year holding • Is there any tension between the management or board of directors to
requirement is consistent with the requirement in Schedule 13G that the take or not to take other related or
existing holding period in Rule 14a– securities not be acquired or held for the unrelated actions should be rendered
8(b)(1) to submit a shareholder proposal. purpose of changing or influencing transparent. It would be useful to the
Is it appropriate to limit use of the control of the company and the desire company’s shareholders to know of any
proposed rules to shareholder of the holder of such shares to propose course of dealing between the
proponents that have held their a bylaw amendment seeking to establish shareholder proponent and the
securities for any length of time? If so, procedures for including shareholder- company when they are deciding how
is the one-year period that we have nominated candidates to the board? they will vote on the proposal. The
proposed appropriate, or should the Does the answer to this question depend additional Schedule 13G and Regulation
holding period be longer (e.g., two years on the number of candidates sought to 14A disclosure requirements that we are
or three years) or shorter than proposed be included in the proposal? If there is proposing address these concerns.
(e.g., six months)? Why? With regard to tension, should we establish a safe Therefore, we propose to require
the one-year holding requirement, is it harbor of some kind? disclosure on Schedule 13G of
appropriate to require that each member significant background information
3. Proposed Disclosure Requirements regarding the shareholder proponent, as
of a group of shareholders individually
Related to Shareholder Proponents and well as an extensive description of the
satisfy this holding requirement?
Nominating Shareholders course of dealing between the
Æ Shareholders of some companies,
e.g., open-end management investment a. Overview of Requirements Applicable shareholder proponent and the
companies, are not eligible to file to Shareholder Proponents company. In addition, we propose to
Schedule 13G because the securities of require the company to disclose similar
Under the revisions to Rule 14a–8 that
those companies are not defined as information with regard to the nature
we are proposing today, a company
‘‘equity securities’’ for purposes of Rule and extent of its relationships with the
would be required to include in its
13d–1, which governs the filing of shareholder proponent. We believe that
proxy materials bylaw proposals to
Schedule 13G by beneficial owners of this additional disclosure will provide
establish procedures governing
equity securities. Should we permit transparency to shareholders voting on
shareholder nominations for director so
security holders of such companies to such bylaw amendments.
long as the bylaw is consistent with Specifically, we are proposing that
file a Schedule 13G for the purpose of state law and the company’s charter and
relying upon proposed Rule 14a–8(i)(8) any shareholder (or group of
bylaws. To trigger that requirement, an shareholders) that forms any plans or
if the holder otherwise would be eligible essential element is that the shareholder
to file a Schedule 13G but for the proposals regarding an amendment to
(or group of shareholders) proposing the the company’s bylaws 43 concerning
exclusion of the company’s securities bylaw provide disclosure about its own
from the definition of ‘‘eligible shareholder director nominations, file or
background, intentions, and course of amend Schedule 13G to include the
security?’’ If we were to do this, what, dealings with the company to enable
if any, amendments would be required following information that would be
other shareholders to vote intelligently required by new Item 8A, Item 8B, and
to Schedule 13G? Should we instead use on the proposal. This disclosure
an eligibility requirement, other than Item 8C:
requirement is being implemented • The shareholder proponent’s
eligibility to file Schedule 13G, in Rule through proposed amendments to
14a–8(i)(8) for shareholders of relationships with the company; and
existing Schedule 13G and a new • Additional relevant background
companies whose securities are not reporting requirement under proposed information on the shareholder
‘‘equity securities?’’ Item 24 of Regulation 14A. proponent. The shareholder proponent
• If a shareholder acquires shares The already significant role that full also would be required to amend its
with the intent to propose a bylaw disclosure plays in our proxy rules is Schedule 13G to update this
amendment, could that be deemed to rendered still more important when information as necessary.
constitute an intent to influence control individual shareholders or groups of To permit reliance on the existing
of the company and thus potentially bar shareholders, who do not owe a disclosure scheme set forth in
them from filing on 13G? If so, should fiduciary duty to the company or to Regulation 13D, the proposed
the Commission provide an exemption other shareholders, use company assets amendments to Rule 14a–8 will require
that would enable such a shareholder to and resources to propose changes in the shareholder bylaw proposals to be
file on Schedule 13G? company’s governing documents. Our
• Proposals to establish a procedure proposed amendments would require 43 In this regard, the formation of any plans or
for shareholder nominees would be that certain information concerning proposals regarding an amendment to the
subject to the existing limit under Rule proposals that could cause a company’s bylaws would include the submission of
a proposal to amend the company’s bylaws, and
14a–8 of 500 words in total for the fundamental change in the relationship discussions in which the shareholder indicated to
proposal and supporting statement. Is between the company and its management an intent to submit such a proposal or
this existing word limit sufficient for shareholders be placed before all indicated an intent to refrain from submitting such
such a proposal? If not, what increased shareholders entitled to vote. This a proposal conditioned on the taking or not taking
of an action by the company. See proposed Note to
word limit would be appropriate? information, in this context, includes Item 8A of Schedule 13G. In the proposed
• In seeking to form a group of background information on the disclosure requirements, and in the following
shareholders to satisfy the 5% shareholder proponent that other discussion of those proposed requirements, the
threshold, shareholders may seek to shareholders ordinarily would find to be term ‘‘shareholder proponent’’ refers to a person
that has formed any plans or proposals regarding an
communicate with one another, thereby important and relevant to a decision
amendment to the company’s bylaws for a

triggering application of the proxy rules. when asked to consider a proposed shareholder director nomination procedure; any
In order not to impose an undue burden bylaw amendment setting forth affiliate, executive officer or agent acting on behalf
on such shareholders, should such procedures for director nominations. In of that person with respect to the plans or
proposals; and anyone acting in concert with, or
communications be exempt from the addition, we believe that the use of such who has agreed to act in concert with, that person
proxy rules? If so, what should the a proposal, or the possibility of such a with respect to the plans or proposals. See proposed
parameters of any such exemption be? proposal, to influence the company’s Item 8A(a) of Schedule 13G.
included in a company’s proxy The requirement that a shareholder or of its officers or directors, or any
materials only if the shareholder group of shareholders hold more than affiliate of the company; and
proponent is subject to Regulation 13D 5% of the company’s shares entitled to • Any other material relationship
and eligible to file on Schedule 13G.44 be voted on the proposal corresponds between the shareholder proponent and
Regulation 13D, which requires the with the filing requirement on Schedule the company or any affiliate of the
disclosure of specified information in 13G for beneficial owners of more than company not otherwise disclosed.49
filings with the Commission on 5% of a company’s shares, and Additionally, Item 8B would require a
Schedule 13D, applies to persons that facilitates the provision of the shareholder proponent to describe the
directly or indirectly beneficially own additional disclosures concerning the following items that occurred during the
more than 5% of a class of voting equity shareholder proponent that the 12 months prior to the formation of any
securities registered pursuant to Section amendments to Rule 14a–8 would plans or proposals, or during the
12 of the Exchange Act.45 Schedule 13G require. The proposed requirement that pendency of any proposal or
requires less disclosure than Schedule the shares be continuously held for at nomination:
13D and is available for use by persons least one year as of the date of • Any material transaction of the
who beneficially own more than 5% of submitting the proposal has the shareholder proponent with the
a class of equity securities registered additional benefit of ensuring that company or any affiliate of the
with the Commission pursuant to proposals are made by shareholders company; and
Section 12(g) of the Exchange Act and with a significant long-term stake in the • Any discussion regarding the
who meet the criteria for one of three company, and it is consistent with the proposal between the shareholder
types of Schedule 13G filers.46 current requirement in Rule 14a–8 that proponent and a proxy advisory firm.
Generally, persons, including groups has worked well historically. The As proposed, new Item 8B also would
and others who file on Schedule 13G proposed requirement that the require disclosure of any holdings of
must certify that the securities have not shareholder (or group of shareholders) more than 5% of the securities of any
been acquired with the purpose nor be eligible to report on Schedule 13G competitor of the company, including
with the effect of changing or would not only ensure that they are the number and percentage of securities
influencing control of the company.47 subject to the disclosure requirements of owned, as of the date the shareholder
The proposed amendments to Rule the Williams Act, but also that their proponent first formed a plan or
14a–8 and Schedule 13G, which would shares were not acquired and are not proposal regarding an amendment to the
enable a shareholder that had provided held with the purpose or effect of company bylaws in accordance with
specified disclosures to propose a bylaw changing or influencing control of the Rule 14a–8(i)(8).50 The shareholder
amendment, would apply to a company. proponent also would be required to
shareholder (or group of shareholders) disclose any material relationship with
that: b. Proposed New Item 8B of Schedule any competitor other than as a security
• Has continuously held more than 13G holder, as of the date the shareholder
5% of the company’s shares entitled to A shareholder proponent may have a proponent first formed a plan or
be voted on the proposal for at least one variety of relationships with the proposal regarding an amendment to the
year as of the date of submitting the company. Because these relationships company bylaws in accordance with
proposal; will often be relevant to an informed Rule 14a–8(i)(8).
• Was eligible to file a report of decision by other shareholders as to Finally, new Item 8B would require
beneficial ownership on Schedule 13G; whether to vote in favor of a proposed disclosure regarding any meetings or
and bylaw amendment, disclosure of contacts, including direct or indirect
• Has filed a report of beneficial information concerning the proposal communication by the shareholder
ownership on Schedule 13G, or an should include information about such proponent, with the management or
amendment thereto, that includes relationships. Accordingly, we are directors of the company that occurred
information about the shareholder or proposing to add a new Item 8B to during the 12-month period prior to the
group’s background and relationships Schedule 13G concerning the nature formation of any plans or proposals, or
with the company. and extent of relationships between the during the pendency of any proposal.
shareholder proponent and the The proposed disclosure would provide:
44 See proposed revisions to paragraph (i)(8) of
company.48 As proposed, new Item 8B • A description, in reasonable detail,
Rule 14a–8. of the content of such direct or indirect
45 See 17 CFR 240.13d–1.
disclosure would include:
46 Regulation 13D permits filing on Schedule 13G • Any direct or indirect interest of the communication;
for a specified list of qualified institutional shareholder proponent in any contract • A description of the action or
investors who have acquired the securities in the with the company or any affiliate of the actions sought to be taken or not taken;
ordinary course of their business and not with the company (including any employment • The date of the communication;
purpose nor the effect of changing or influencing
agreement, collective bargaining • The person or persons to whom the
control of the company. See Exchange Act Rule communication was made;
13d–1(b) (17 CFR 240.13d–1(b)). In addition, agreement, or consulting agreement);
persons who are beneficial owners of more than 5% • Any pending or threatened • Whether that communication
of a class of equity securities may file Schedule litigation in which the shareholder included any reference to the possibility
13G, if they have not acquired the securities with
proponent is a party or a material of such a proposal; and
the purpose nor with the effect of changing or
participant, involving the company, any • Any response by the company or its
influencing control of the company, and if they are
not directly or indirectly the beneficial owner of representatives to that communication
20% or more of the class of securities. See Exchange 48 In proposed Item 8A of Schedule 13G we
Act Rule 13d–1(c) (17 CFR 240.13d–1(c)). Finally, define a shareholder proponent to include a person 49 A material relationship between the proponent
certain persons may file a Schedule 13G, in lieu of or group that has formed any plans or proposals and the company or an affiliate of the company may
Schedule 13D, if they qualify under Exchange Act with regard to the amendment, any affiliate, include, but is not limited to, a current or prior
Section 13(d)(6) or Rule 13d–1(d) (17 CFR 240.13d– executive officer, or agent of such shareholder employment relationship, including consulting
1(d)). proponent, or anyone acting in concert with, or who arrangements.
47 Reports of beneficial ownership filed on has agreed to act in concert with such shareholder 50 For this purpose, a ‘‘competitor’’ of the
Schedule 13G pursuant to Rule 13d–1(d) are not proponent with respect to the proposed bylaw company is proposed to include any enterprise with
required to make this certification. amendment. the same Standard Industrial Classification code.
prior to the date of filing the required —The qualifications and background of during the pendency of any proposal,
disclosure. such person or persons relevant to the regarding an amendment to the
To the extent that the shareholder plans or proposals; and company bylaws in accordance with
proponent and management or the —Any interests or relationships of such Rule 14a–8(i)(8):
directors of the company have an person or persons that are not shared • Any material transaction of the
ongoing dialogue, the shareholder generally by the other shareholders of shareholder proponent with the
proponent may describe the frequency the company and that could have company or any affiliate of the
of the meetings and the subjects covered influenced the decision by such company; and
at the meetings rather than providing person or persons to submit a • Any meetings or contacts between
the information separately for each proposal. the shareholder proponent and
meeting. However, if an event or With regard to these disclosures, management or directors of the
discussion occurred at a specific examples of any interests or company.51
meeting that is material to the relationships of the shareholder As with the shareholder proponent
shareholder proponent’s decision to proponent not shared by other requirement, to the extent that the
submit a proposal, that meeting would shareholders of the company may shareholder proponent and management
be required to be discussed in detail include, but are not limited to, or directors of the company have an
separately. contractual arrangements, current or ongoing dialogue, the company would
previous employment with the be required to merely describe the
c. Proposed New Item 8C of Schedule frequency of and the subjects covered at
13G company, employment agreements,
consulting agreements, and supplier or the meetings, except where an event or
When a shareholder (or group of customer relationships. discussion occurred that is material to
shareholders) proposes a bylaw the shareholder proponent’s decision to
amendment regarding the procedures d. Proposed New Item 24 to Schedule submit a proposal.
for nominating directors, background 14A For purposes of meeting these
information regarding the proposing Because a shareholder proponent’s proposed disclosure requirements, the
shareholder often will be relevant to an relationships with the company often company would be entitled to rely on
informed voting decision by the other will be relevant to an informed voting the Schedule 13G disclosures of the
shareholders. Accordingly, we are decision by other shareholders, shareholder proponent concerning the
proposing to add a new Item 8C to background information regarding these date on which the shareholder
Schedule 13G concerning the following relationships should be disclosed not proponent formed any plans or
information about the shareholder only by the shareholder proponent, but proposals regarding an amendment to
proponent: also the company. Accordingly, we are the company bylaws in accordance with
• If the shareholder proponent is not proposing to add a new Item 24 to Rule 14a–8(i)(8).
a natural person: Schedule 14A to require the disclosure Request for Comment
—The identity of the natural person or by the company of the nature and extent
of the relationship between the • The proposed disclosure standards
persons associated with the entity relate to the qualifications of the
responsible for the formation of any shareholder proponent, any affiliate,
executive officer or agent of the shareholder proponent, any
plans or proposals; relationships between the shareholder
—The manner in which such person or shareholder proponent, or anyone acting
in concert with, or who has agreed to act proponent and the company, and any
persons were selected, including a efforts to influence the decisions of the
discussion of whether or not the in concert with, the shareholder
proponent with respect to the proposed company’s management or board of
equity holders or other beneficiaries directors. To assure that the quality of
of the shareholder proponent entity bylaw amendment submitted in
accordance with Rule 14a–8(i)(8), on the disclosure is sufficient to provide
played any role in the selection of information that is useful to
such person or persons, and whether one hand, and the company, on the
other. Item 24 disclosures would shareholders in making their voting
they played any role in connection decisions and to limit the potential for
with the formation of any plans or include:
• Any direct or indirect interest of the boilerplate disclosure, we have
proposals; proposed that the disclosure standards
shareholder proponent in any contract
—Any fiduciary duty to the equity require specific information concerning
with the company or any affiliate of the
holders or other beneficiaries of the these qualifications, relationships, and
company (including any employment
entity that the person or persons efforts to influence the company’s
agreement, collective bargaining
associated with the entity responsible management or board of directors. Is the
agreement, or consulting agreement);
for the formation of any plans or proposed level of required disclosure
• Any pending or threatened
proposals have in forming such plans appropriate? Are any of the proposed
litigation in which the shareholder
or proposals; disclosure requirements unnecessary to
proponent is a party or a material
—The qualifications and background of participant, involving the company, any
such person or persons relevant to the of its officers or directors, or any
51 As with the corresponding disclosure
plans or proposals; and requirement for shareholder proponents, the

affiliate of the company; and proposed disclosures would include: a description,
—Any interests or relationships of such • Any other material relationship in reasonable detail, of the content of such direct
person or persons, and of that entity, between the shareholder proponent and or indirect communication; a description of the
that are not shared generally by the the company or any affiliate of the action or actions sought to be taken or not taken;
other shareholders of the company the date of the communication; the person or
company not otherwise disclosed. persons to whom the communication was made;
and that could have influenced the Additionally, Item 24 of Schedule whether that communication included any
decision by such person or persons 14A would require disclosure of the reference to the possibility of such a proposal; and
and the entity to submit a proposal. following with respect to the 12 months any response by the company or its representatives
to that communication prior to the date of filing the
• If the shareholder proponent is a prior to the shareholder proponent required disclosure. See proposed Item 24(d)(2) of
natural person: forming any plans or proposals, or Schedule 14A.
shareholders’ ability to make an requirement that would more serve if elected.54 Finally, a company
informed voting decision? If so, which appropriate upon which to rely? would not be required to include a
specific requirements are not necessary? • Is it appropriate to require any nominating shareholder’s nominee in its
Should we require substantially similar additional disclosure by shareholders proxy materials if the shareholder fails
disclosure from both the proponent and and/or the company, beyond what is to provide the information required by
the company as proposed or should the currently required, in connection with a proposed Rule 14a–17(b)–(c).55
company be allowed to avoid proposed amendment to the company’s
duplicating disclosure relating to the f. Liability for, and Incorporation by
bylaws in accordance with proposed
proponent where the company agrees Reference of, Information Provided by
Rule 14a–8(i)(8)? Rather, should we
with the disclosure provided? Is any require disclosure only when a the Nominating Shareholder
additional disclosure appropriate? shareholder actually seeks to nominate It is our intent that a shareholder who
• We solicit comments with respect a director using a nominating procedure
to any other types of background nominates a director under a bylaw
established pursuant to a company’s provision concerning the nomination of
information regarding a shareholder bylaws?
proponent that should be disclosed in directors would be liable for any
Schedule 13G or Item 24 of Schedule e. Disclosure by Nominating materially false or misleading
14A. What other types of information do Shareholders—Proposed New Rule 14a– statements in the disclosure provided to
shareholders need to have about the 17 the company and included by the
shareholder proponent, or the company in its proxy materials. The
One of our primary concerns with proposed rules contain express
shareholder proponent’s course of using Rule 14a–8 to nominate or
dealing with the company, when voting language, modeled on Exchange Act
establish a procedure for shareholders to Rule 14a–8(l)(2),56 providing that the
on a proposal? nominate a candidate for director is that
• Would the proposed Schedule 13G company would not be responsible for
doing so could result in shareholders that disclosure.57 In addition, it is our
disclosure requirements for shareholder
being asked to vote on a director intention that any information that is
proponents be useful to other
nominee without the disclosure that provided to the company for inclusion
shareholders in forming their voting
otherwise would be required under the in its proxy materials by the nominating
decisions? Are the requirements
federal proxy rules applicable to shareholder and included in the
practical? Is any aspect of the proposed
elections involving solicitations in company’s proxy statement would not
disclosure overly burdensome for
opposition to the company’s nominees.
shareholder proponents to comply with? be incorporated by reference into any
• As proposed, shareholder To address this concern, we are
filing under the Securities Act or the
proponents would be required to proposing a new Rule 14a–17 that
Exchange Act unless the company
disclose discussions with a proxy would provide that the existing
determines to incorporate that
advisory firm prior to submitting a disclosure requirements for solicitations
information by reference specifically
proposal. Is this disclosure requirement in opposition (either for a short slate or
into that filing.58 However, to the extent
appropriate? Why or why not? for a majority of board seats) would
the company does so incorporate that
• We also propose that companies apply to nominating shareholders and
information by reference, we would
would be responsible for disclosure their nominees under any shareholder
consider the company’s disclosure of
regarding their relationships and course nomination procedure.52 These
that information as the company’s own
of dealing with the shareholder disclosure requirements are found in
statement for purposes of the anti-fraud
proponent in Item 24 of Schedule 14A. Item 4(b), Item 5(b), Item 7, and Item
and civil liability provisions of the
Is this proposed additional disclosure 22(b) of Schedule 14A, and provide
Securities Act or the Exchange Act, as
useful? Would any aspect of this basic information regarding the
applicable.
disclosure requirement be impractical or nominating shareholder (or shareholder
overly burdensome? group) and nominee or nominees, g. Filing Requirements
• As proposed, the disclosures including biography and shareholdings,
concerning the shareholder proponent other interests of the individuals (or When, in accordance with a
and company’s relationship must be group), methods and costs of the shareholder nomination bylaw
provided for the 12 months prior to solicitation, and other information to procedure, a shareholder nominates a
forming any plans or proposals, or enable voting shareholders to make an candidate for director, the company
during the pendency of any proposals, informed decision. would be required to file its proxy
with regard to an amendment to the Because the shareholder nominee statement in preliminary rather than
company bylaws. Is this the appropriate would be included in the company’s definitive form, in the same manner as
timeframe? If not, should the timeframe proxy materials, the company would be under the existing proxy rules
be shorter (e.g., 6 or 9 months) or longer required to include the disclosure in its
54 See Exchange Act Rule 14a–4(d)(4) (17 CFR
(e.g., 18 or 24 months)? Is any federal proxy statement or, in the Internet
240.14a–4(d)(4)). The rule provides that such
holding period requirement version of its proxy statement, to link to consent is required in order for a person to be
appropriate? a Web site address where those named in the proxy statement as a bona fide
• Is the proposed reliance on the disclosures would appear. The nominee.
existing Schedule 13G framework nominating shareholder would be 55 See proposed Exchange Act Rule 14a–17(d).
56 17 CFR 240.14a–8(l)(2). Exchange Act Rule
appropriate? Should we require the type responsible for providing the
14a–8(l)(2) applies with respect to proposals and
of disclosure found in Schedule 13G, information to the company.53 Further, supporting statements that are submitted by
but nevertheless permit a shareholder the nominating shareholder would be
shareholders and then required to be repeated in

who holds less than 5% of a company’s required to provide a statement that the the company’s proxy materials by Exchange Act
shares to file a Schedule 13G and to shareholder nominee consented to being Rule 14a–8. In this regard, Exchange Act Rule 14a–
8 states that ‘‘the company is not responsible for the
submit bylaw proposals of the type named in the proxy materials and to contents of [the shareholder proponent’s] proposal
described herein? Is there another or supporting statement.’’
disclosure provision in the federal 52 See proposed Exchange Act Rule 14a–17(c). 57 See proposed Exchange Act Rule 14a–17(e).
securities laws with a lesser ownership 53 Id. 58 See proposed Exchange Act Rule 14a–17(f).
applicable to proxy contests.59 This is These disclosures would be required at would be responsible for the
the same result that would be obtained the time the shareholder forms any information submitted to the company?
in a traditional contested election in plans or proposals with respect to Should the proposal include language
which the shareholder nominees submission of a nominee for director to addressing a company’s responsibility
appeared in a separate proxy statement. the company for inclusion in the proxy for including statements made by the
It is possible that either the company materials.63 Immediately after the shareholder that it knows are not
or a nominating shareholder (or group of nominating shareholder provides the accurate?
shareholders) may wish to solicit in company with the disclosure, under • Should information provided by a
favor of their nominee or nominees Rule 14a–17(c), the company would be nominating shareholder be deemed
outside the company proxy materials. required to provide the information on incorporated by reference into
As in a traditional contested election, it its Web site or provide a link on its Web Securities Act or Exchange Act filings?
is important that any soliciting materials site to a Web site address where the If so, why?
in addition to the proxy statement be disclosure would appear. In addition, • Should companies that receive a
filed publicly with the Commission so pursuant to Item 25 of Schedule 14A, nomination for director from a
that such materials are available to all the company would be required to shareholder be required to file their
shareholders, to the company, and to include the disclosure in its proxy proxy statement in preliminary form, as
the Commission staff for review. statement or provide a link to a Web site is proposed? If not, why would it be
Accordingly, where a shareholder or address where the disclosure would appropriate for companies to file
company chooses to solicit outside the appear in the Internet version of its directly in definitive form?
company proxy materials, we intend proxy statement. Under Rule 14a–17(d), • Should solicitations in favor of or
that the existing filing requirements if a nominating shareholder fails to against a nominee for director, by either
applicable to definitive additional provide the required information, the the company or the shareholder, be filed
soliciting materials would apply.60 shareholder’s nominee will not be as definitive additional soliciting
Under these requirements, all soliciting required to be included in the materials on the date of first use, as is
materials are required to be filed with company’s proxy materials. proposed? If not, how should such
the Commission in the same form as the Request for Comment materials be filed?
materials sent to shareholders no later • As proposed, a nominating
than the date they are first sent or given • As proposed, a nominating shareholder would be required to
to shareholders.61 shareholder would be required to provide the information required by
provide to the company, for inclusion in Item 8A, Item 8B and Item 8C of
h. Proposed New Rule 14a–17(b)–(c) the company’s proxy materials, Schedule 13G to the company for
and Item 25 of Schedule 14A disclosure responsive to Item 8A, Item inclusion on the company’s Web site
As noted above, one of the primary 8B, and Item 8C of Schedule 13G, as and in its proxy. Would it be
concerns with using Rule 14a–8 to well as Item 4(b), Item 5(b), Item 7, and appropriate to add a disclosure
establish a procedure for shareholders to Item 22(b) of Schedule 14A, as requirement on Form 8–K that would
nominate directors is that doing so applicable. Is this the appropriate type apply where a company does not
would not provide shareholders with and amount of disclosure for a maintain a Web site? Would it be
disclosure they otherwise would be nomination under a shareholder appropriate to allow a company to
given in a proxy contest. In this regard, nomination procedure? If not, what choose between Web site disclosure and
we note that it is of substantial disclosure requirement would be Form 8–K disclosure even where a
importance to provide shareholders appropriate? Is the timing requirement company maintains a Web site? Why or
with clear, transparent disclosure for providing this disclosure why not?
regarding any shareholder or group of appropriate? If not, when should such • Is there disclosure other than that
shareholders using a nominating disclosures be provided? proposed concerning shareholder
• Is it appropriate for the disclosure
procedure established pursuant to a nominees that would be material to
to be provided to the company for
company’s bylaws to nominate a investors? If so, what are those
inclusion on its Web site and in its
candidate for director. Therefore, the disclosures and why would they be
proxy materials, or should the
additional disclosures that are proposed material? For example, should we
shareholder instead be responsible for
to be added to Schedule 13G for require disclosure regarding the
filing the information provided that they
shareholder proponents of a bylaw relationship between the nominating
beneficially own more than 5% of the
amendment concerning shareholder shareholder and shareholder nominee?
company’s securities entitled to be
director nominations also would apply voted and are eligible to file on If so, what disclosures would be
to a nominating shareholder under an Schedule 13G? appropriate and useful to shareholders?
adopted bylaw. In this regard, we are • Does the proposal make sufficiently B. Electronic Shareholder Forums
proposing to add new Rule 14a–17(b), clear that the nominating shareholder
which would require any nominating 1. Background
shareholder to provide to the company required by these items is important for an The Commission’s recent series of
the disclosures required by Item 8A, informed voting decision by shareholders, we are roundtables on the proxy process
Item 8B, and Item 8C of Schedule 13G.62 proposing new Item 25 of Schedule 14A in order
to provide complete disclosure regarding considered, among other issues, the role
59 See proposed amendment to Exchange Act
nominating shareholders utilizing procedures of technology in facilitating
established in bylaw amendments that allow for communications not only between
Rule 14a–6. nominations by shareholders.
shareholders and companies, but also
60 See Exchange Act Rule 14a–6(b) (17 CFR

63 We have proposed a Note to Exchange Act Rule
240.14a–6(b)) and Exchange Act Rule 14a–12 (17 14a–17(a) stating that the formation of any plans or among shareholders. Given the
CFR 240.14a–12). proposals includes instances where the shareholder opportunities for collaborative
61 Id.
has indicated an intent to management to submit a discussion afforded by the Internet and
62 In this regard, it is important to note that a nomination or has indicated an intent to
shareholder director nomination bylaw may management to refrain from submitting a
related technological innovations, the
establish any ownership threshold for nominating nomination conditioned on the taking or not taking proxy mechanism by comparison offers
a director. Because we believe that the disclosure of a corporate action. limited opportunities—usually only the
annual meeting—for shareholders to and between shareholders and their protect an interactive computer
provide advice to management. company. service.64
Accordingly, the proxy system may not Persons providing information to or
be the only, or the most efficient, means 2. Proposed Amendment To Facilitate making statements on the electronic
of shareholder communication with the Use of Electronic Shareholder shareholder forum would remain liable
management on purely advisory Forums for the content of those communications
matters. under traditional liability theories in the
We propose to facilitate greater online
Alternatives or supplements to the federal securities laws, such as those in
interaction among shareholders by
proxy machinery that exploit the Section 17(a) of the Securities Act and
removing obstacles in the current rules Section 10(b), Rule 10b–5, and Section
advantages of telecommunications to the use of an electronic shareholder
technology have been suggested that 20(e) of the Exchange Act. The
forum. To facilitate the establishment of prohibitions in the anti-fraud laws
could offer shareholders other means to such forums, which can be conducted
communicate, including with regard to against primary or secondary
and maintained in any number of ways, participation in fraud, deception, or
resolutions such as those typically we propose to clarify that a company is
submitted as non-binding proposals manipulation would continue to apply
not liable for independent statements by to those supplying information to the
under Rule 14a–8. For example, an shareholders on a company’s electronic
online forum, restricted to shareholders site, and claims would not face any
shareholder forum. In addition, in order additional obstacle because of the new
of the company whose anonymity is
to enhance the efficacy of the forum, we rule. Any other applicable federal or
protected through encrypted unique
propose to address any ambiguity state law would also continue to apply
identifiers, could offer the opportunity
concerning whether use of an electronic to a person providing information or
for shareholders to discuss among
shareholder forum could constitute a statements to an electronic shareholder
themselves the subjects that most
concern them, and which today are proxy solicitation. forum.
considered—if at all—only indirectly Proposed Rule 14a–18(a) would make An additional concern regarding the
through the proxy process. Shareholder clear that both companies and use of an electronic shareholder forum
expressions of interest on particular shareholders are entitled to establish relates to the broad general application
suggested actions, tabulated based on and maintain an electronic shareholder of our proxy rules under Section 14(a)
their ownership interest, could be forum under the federal securities laws, of the Exchange Act. Under the proxy
determined on a real-time basis. The provided that the forum is conducted in rules, a solicitation encompasses any
company could use the form to provide compliance with the federal securities request for a proxy, any request to
information, such as a copy of press laws, applicable state law, and the execute or revoke a proxy, and the
release information regarding record company’s charter and bylaws. While furnishing of a form of proxy or other
dates and expression of views by the the proxy rules currently do not prohibit communication under circumstances
company. Moreover, the opportunity for or delimit such activities, neither were reasonably calculated to result in the
this enhanced level of shareholder procurement, withholding, or
they written in contemplation of the
participation could be extended revocation of a proxy.65 This broad
wide-ranging communications potential
throughout the year, rather than only at definition of solicitation limits the kinds
of the Internet. By addressing specific
annual meetings. From the company’s of activities that a shareholder or the
concerns relating to the use of the
standpoint, such a shareholder forum company may undertake in a public
electronic shareholder forum in the
could provide more frequent forum when discussing issues that may
proposed rule, we are seeking to remove be voted on at the company’s annual or
information about the interests and legal ambiguity that might inhibit
concerns of investors. special meeting.
shareholders and companies from To facilitate greater use of the
We are not seeking, through the proxy energetic exploitation of the potential of electronic shareholder forum concept
rules or otherwise, to devise an communications technology, and to and to encourage more robust
approved regulatory version of an encourage shareholders and companies communication with the company and
electronic shareholder forum. Myriad to take advantage of this technology to among shareholders, we propose to
uses of the Internet to facilitate facilitate better communication among exempt any solicitation in an electronic
shareholder communication are already shareholders and between shareholders shareholder forum by or on behalf of
well under way, and as technology and companies. any person who does not seek directly
continues to develop, individuals and
Liability for statements made on an or indirectly, either on its own or
entities will find increasingly creative
electronic shareholder forum is one area another’s behalf, the power to act as
ways to address the challenges they face
of concern for companies and proxy for a shareholder and does not
in presenting proposals to companies,
shareholders when making the decision furnish or otherwise request, or act on
determining support for proposals
whether to establish such a forum. To behalf of a person who furnishes or
among other shareholders, conducting
alleviate this concern, we propose to requests, a form or revocation,
referenda on non-binding proposals,
clarify in Rule 14a–18(b) that, for simply abstention, consent or authorization.66
and organizing online petitions to
establishing, maintaining, or operating The solicitation would be exempt so
management, among other potential
the electronic shareholder forum, a long as it occurs more than 60 days
activities. The Commission strongly
company or shareholder would not be prior to the date announced by the
encourages these developments. Rather
than prescribe any specific approach to liable under the federal securities laws
64 See Section 230(c)(1) of the
an online shareholder forum in the for any statement or information
Telecommunications Act of 1996 (47 U.S.C.

proxy rules, the proposed amendment is provided by another person to the § 230(c)(1)) (‘‘No provider or user of an interactive
designed to remove any unnecessary forum. The intent is for the person computer service shall be treated as the publisher
establishing, maintaining, or operating or speaker of any information provided by another
real and perceived impediments to information content provider.’’).
continued private sector an electronic shareholder forum to be 65 See Exchange Act Rule 14a–1(l ) (17 CFR
experimentation and use of the Internet protected from liability in a similar way 240.14a–1(l )).
for communication among shareholders, as the federal telecommunications laws 66 See proposed Exchange Act Rule 14a–2(b)(6).
company for its annual or special Request for Comment to act as a proxy for a shareholder or
meeting of shareholders or if the • Our proposals are intended to request a form of proxy from them and
company announces the meeting less provide a company or its shareholders occur more than 60 days prior to an
than 60 days before the meeting date the with the flexibility under the federal annual or special meeting (or within
solicitation may not occur more than securities laws to establish an electronic two days of the announcement of the
two days following the company’s shareholder forum that permits meeting) are exempt under the proxy
announcement.67 We further propose to interaction among shareholders and rules. Is it appropriate to provide this
clarify in proposed Rule 14a–18(c) that between shareholders and the exemption from regulation for
a person who participates in an company’s management or board of communications on an electronic
electronic shareholder forum and makes directors, and permits the operator of shareholder forum? Should the
solicitations in reliance on the proposed the electronic shareholder forum to exemption apply more broadly to all
exemption would continue to be eligible provide for non-binding referenda votes communications? Would it be possible
to solicit proxies outside of Rule 14a– of forum participants. Do our proposals to conduct an effective proxy
2(b)(6) provided that any such provide this flexibility? Are there solicitation on the forum despite the
solicitation complies with Regulation additional steps that are necessary to limitations? Is the 60-day limitation
14A. assure that the federal securities laws do sufficiently long to protect shareholders
not hinder the development of these from unregulated solicitations? Should
The purpose of these amendments is
electronic shareholder forums? the time period be shortened (e.g., 30 or
to encourage the free flow of
• We propose to amend Regulation 35 days) or lengthened (e.g., 75 or 90
information, ideas, and opinions in an
14A to encourage the development of days)? Is there a better alternative that
electronic shareholder forum. It is not
electronic shareholder forums that would encourage free and open
the purpose of these amendments to
could be used by companies to better communication on electronic
allow such a forum to be used to
communicate with shareholders and by shareholder forums, but limit the use of
circumvent the proxy or anti-fraud
shareholders to better communicate the forums as a way to solicit proxies
rules. We believe that there is less risk
both with their companies and among without providing the full and fair
of an electronic shareholder forum being disclosure required in our proxy rules?
used for proxy solicitation more than 60 themselves. In addition, the electronic
shareholder forum concept could offer • As proposed, we have provided no
days prior to an annual or special guidance on what should happen to the
meeting and therefore have proposed a shareholders a means of advancing
referenda that might otherwise be communications and data on the forum
60-day limitation.68 Communications within the 60-day period prior to the
within an electronic shareholder forum proposed as non-binding shareholder
proposals under Rule 14a–8. Is this annual or special meeting. Solicitations
that occur less than 60 days prior to the that remain posted on the forum that
annual or special meeting, or more than appropriate and, if so, how can we
further encourage the development of were exempt under proposed Rule 14a–
two days after the announcement of the 2(b)(6) may no longer be exempt.
meeting, would continue to be treated as electronic shareholder forums?
• As proposed, the new rules would Should we require that the electronic
any other communication would be shareholder forums be taken down
treated today, and would be required to allow companies and shareholders to
develop electronic shareholder forums within 60 days of a scheduled meeting?
comply with our proxy rules if they are Alternatively, if the forum continues to
a solicitation unless they fall within an as they see fit, as long as the forums are
conducted in compliance with Section run, should shareholders who continue
existing exemption. In addition, we making communications on the forum
propose to limit the exemption to 14(a) of the Exchange Act, other federal
laws, applicable state law, and the file any communications that are
persons who do not seek to act as a solicitations in compliance with
proxy for a shareholder or request a company’s charter and bylaw
provisions. Should we be more Regulation 14A? Should those
form of proxy from them. shareholders be required to file any
prescriptive in our approach, such as by
We propose limitations to the providing direction or guidance relating solicitations on the forum that occurred
exemption because, though we believe to whether a forum is available for non- more than 60 days prior to the meeting?
that an electronic shareholder forum binding referenda, whether access is How would the forums be policed to
should provide a medium for, among limited to shareholders, the frequency ensure that the responsible parties are
other things, open discussion, debate, with which shareholder records are properly filing?
and the conduct of referenda, we believe updated for purposes of enabling • What would be the appropriate use
that the solicitation of proxies for an participation, or whether the forum of an electronic shareholder forum with
upcoming meeting is more appropriate assures the anonymity of shareholders regard to a bylaw proposal, as
under the protections of our proxy rules. who access it? contemplated in this release? For
Any proxies obtained prior to the • As proposed, we make clear that a example, should shareholders be able to
application of our proxy rules would company or shareholder that use a forum to solicit other shareholders
not benefit from the full and fair establishes, maintains, or operates a to form a 5% group in order to submit
disclosure required under the forum is not liable for any statements or a bylaw proposal?
regulations. information provided by another C. Request for Comment on Proposals
person. Does the proposed rule Generally
67 The proposal would not affect the application
adequately address the liability
of any other exemptions under Regulation 14A. For concerns that might face sponsors of 1. Bylaw Amendments Concerning Non-
example, a person could rely on the other Binding Shareholder Proposals
and participants in an electronic
applicable exemptions in Exchange Act Rule 14a–

2 (17 CFR 240.14a–2). shareholder forum? Several participants in the
68 60 days corresponds with the maximum • In order to encourage use of Commission’s recent proxy roundtables
amount of time prior to a scheduled meeting that electronic shareholder forums, we are expressed concern that by requiring the
the company may fix the record date for
determining the stockholders entitled to notice of
proposing an exemption for solicitations inclusion of non-binding shareholder
or to vote at a meeting under the Delaware Code. on an electronic shareholder forum. As proposals in company proxy materials,
See Del. Code title 8, § 213 (2007). proposed, solicitations that do not seek Rule 14a–8 expands rather than
vindicates the framework of shareholder corporate governance issues, the non-binding proposals? Should the
rights in state corporate law.69 A prevalence of widely published voting bylaw itself be required to provide this
number of other participants in the guidelines for market participants of all explanation?
roundtables indicated, however, that sizes, and the significantly enhanced • Would it be appropriate for the
non-binding shareholder proposals have opportunities for collaborative Commission to provide that the
a useful role in the proxy process and discussion and decision-making substance of the procedure for non-
in corporate governance.70 Based, in afforded by the Internet and related binding proposals contained in a bylaw
part, on these and other views expressed technological innovations. amendment would not be defined or
by participants at the roundtables, we We therefore are requesting comment limited by Rule 14a–8, but rather by the
are requesting comment as to whether on whether a company or its applicable provisions of state law and
the Commission should adopt rules that shareholders should have the ability to the company’s charter and bylaws? For
would enable shareholders, if they propose and adopt bylaws that would example, the Commission could provide
choose to do so, to determine the establish the procedures that the that the framework could be more
particular approach they wish to follow company will follow for including non- permissive or more restrictive than the
with regard to non-binding proposals. binding proposals in the company’s requirements of existing Rule 14a–8
Such an approach was proposed once proxy materials. In addition to general (e.g., the framework could specify
before by the Commission but comment, we encourage commenters to different eligibility requirements than
ultimately was not adopted; 71 however, address the following specific questions: provided in current Rule 14a–8,
in light of developments in the last 25 • Would it be appropriate to require different subject-matter criteria,
years that may have diminished the the shareholder (or group of different time periods for submitting
concerns about shareholders’ ability to shareholders) that submits the proposal non-binding proposals to the company,
act as a group, which formed the basis to file a Schedule 13G that includes or different resubmission thresholds; or
of arguments for a mandated federal specified public disclosures regarding it could specify that non-binding
approach, we are again requesting its background and its interactions with proposals would not be eligible for
comment on this approach. These the company, that corresponds to the inclusion in the company’s proxy
developments include the increasing proposed disclosure requirements for
materials, or alternatively that all non-
importance of institutional investors in shareholder proponents of bylaw
binding proposals would be included in
contemporary capital markets, the amendments concerning shareholder
the company’s proxy materials without
significant role of private organizations director nominations?
• Should a shareholder (or group of restriction, if these approaches were
that collect and disseminate information consistent with state law and the
to institutional investors concerning shareholders) proposing such a bylaw
amendment be required to have company’s charter and bylaws).
69 See, e.g., Leo E. Strine, Jr., Vice Chancellor, continuously held a certain percentage • To ensure that any new rule is
Court of Chancery of the State of Delaware, of the company’s securities entitled to consistent with the principle that the
Transcript of Roundtable on the Federal Proxy be voted on the proposal at the meeting? federal proxy rules should facilitate
Rules and State Corporation Law, May 7, 2007, at shareholders’ exercise of state law
18–23. What would the appropriate percentage
70 See, e.g., Ted White, Strategic Advisor, Knight be? Should a holding period be rights, and not alter those rights, should
Vinke Asset Management, Transcript of Roundtable required? If so, how long should the any rule adopted include a specific
on the Federal Proxy Rules and State Corporation holding period be? requirement that, to be included in a
Law, May 7, 2007, at 94–95; Damon A. Silvers, company’s proxy materials, a
Associate General Counsel, AFL–CIO, Transcript of
• Should a proposal be required to
Roundtable on Proposals of Shareholders, May 25, otherwise satisfy the requirements of shareholder proposal establishing bylaw
2007, at 8–11. See also Form Letters B and C, Rule 14a–8 (e.g., the proposal would procedures for non-binding proposals
available on the Commission’s Web site at have to satisfy the procedural would have to be binding on the
www.sec.gov. company under state law if approved by
71 In 1982, during a comprehensive review of the requirements of Rule 14a–8 and not fall
shareholder proposal process, the Commission within one of the other substantive shareholders?
proposed permitting companies and shareholders to bases for exclusion included in Rule • Would it be appropriate for the
formulate and adopt procedures for including 14a–8)? Commission to provide that, if
shareholder proposals in the company’s proxy
materials. See Release No. 34–19135 (Oct. 14, 1982)
• Under current Rule 14a–8, all shareholders approve a bylaw procedure
[47 FR 47420]. Under the proposed approach, the shareholder proposals and supporting for non-binding proposals,
Commission would have continued to have a rule statements are limited to 500 words in interpretation and enforcement of that
that specified the procedures governing the total. Should the word limit be different procedure would be the province of the
submission and inclusion of shareholder proposals,
but would have adopted a supplemental rule to for shareholder submissions of proposed appropriate state court? Under such an
permit a company and its shareholders to adopt a bylaw amendments to establish approach, the Commission and its staff
plan providing their own procedures to govern the procedures for non-binding proposals? would not resolve such questions.
process. The proposed approach would have If so, should the word limit be increased Should the Commission or its staff
allowed a company’s board of directors and
shareholders, rather than the Commission or its to 3,000 words in order to permit a more instead become involved in interpreting
staff, to make judgments as to what proposals thorough description of the proposed or enforcing the company’s bylaws? Is
should be included in the company’s proxy procedural framework and in there any reasonably foreseeable
materials at the company’s expense. The plan could situation where intervention by the
have been proposed by either the company’s board
accordance with the approximate word
of directors or shareholders, and subject to certain count in current Rule 14a–8? If not Commission or its staff would be critical
minimum requirements, the provisions of the plan 3,000, should the word limit be higher to the proper functioning of bylaw
could have been as liberal or restrictive as or lower than 3,000 (e.g., 1,000, 2,000, procedures for non-binding proposals?
shareholders were willing to approve. In 1983, the In addition, we solicit comments with
4,000)?
Commission adopted final rules amending

Exchange Act Rule 14a–8, but left the Exchange Act • Should the proxy statement for the respect to the practicality and feasibility
Rule 14a–8 framework intact, concluding that, at shareholder vote be required to explain of relying on state courts as the arbiter
that time, a federal framework for including that approval of the bylaw would of disagreements between companies
shareholder proposals in company proxy materials
was in the best interests of shareholders and
establish procedures that would govern and shareholder proponents over the
issuers. See Release No. 34–20091 (Aug. 16, 1983) in all circumstances with regard to company’s bylaws as they apply to non-
[48 FR 38218]. shareholder requests for the inclusion of binding shareholder resolutions.
• Should the Commission encourage • Should the board of directors be • Execution of the electronic petition
the proponent of any bylaw procedure able to adopt a bylaw setting up a would occur through the same control
governing non-binding proposals to separate procedure for non-binding numbers used to vote under electronic
include in the procedure a fair and shareholder proposals and be able, proxy;
efficient mechanism for resolving any under our proxy rules, to follow that • Communications would be subject
disagreements between the company procedure in lieu of Rule 14a–8 with to Rule 14a–9, but otherwise would be
and the shareholder as to the bases for regard to non-binding proposals? minimally restricted by the proxy rules;
inclusion or exclusion of a proposal? Should such procedures be deemed to • Results of petitions would be
• Should the Commission specify comply with Rule 14a–8 if the bylaw is reported as a percentage of total
that, even after the shareholders not approved by a shareholder vote, outstanding shares;
approve a bylaw procedure for non- provided that state law authorizes the • The decision to sign or not to sign
binding shareholder proposals, a adoption of such a bylaw without a an electronic petition would not be
shareholder meeting the proposed shareholder vote? considered a shareholder vote;
eligibility requirements could later • Petitions would follow current Rule
• Should a bylaw proposed and
submit another bylaw procedure that 14a–8 guidelines (e.g., would be limited
adopted by a company prior to
removes or amends the previously- to 500 words) and require the
becoming subject to Exchange Act
adopted non-binding procedure and that identification of the shareholder-
Section 14(a) be deemed to comply with
bylaw would not generally be sponsor;
Rule 14a–8 once the company became • Companies would be permitted to
excludable by a company under Rule subject to Exchange Act Section 14(a)?
14a–8(i)(2) or Rule 14a–8(i)(3)? post a response to each petition; and
If so, should such companies be • Petition sponsors could use an
• How might shareholders’ overall required to provide disclosure regarding
ability to communicate with ‘‘electronic-only’’ solicitation approach
the rights of shareholders with respect with no obligation to send paper copies.
management and other shareholders be to the submission of non-binding
improved or diminished if shareholders • Are there additional changes to
shareholder proposals for inclusion in Rule 14a–8 that would improve
were able to choose different procedures the company’s proxy materials as part of
for non-binding proposals than those operation of the rule? If so, what
the description of its equity securities in changes would be appropriate and why?
currently in Rule 14a–8? Are there its Securities Act and Exchange Act
additional or different procedures that For example, should the Commission
registration statements. If not, should amend the rule to change the existing
the Commission should require,
companies instead be required to submit ownership threshold to submit other
encourage or seek to prevent?
the bylaw to a shareholder vote once the kinds of shareholder proposals? If so,
With respect to subjects and
procedures for shareholder votes that company becomes public and subject to what should the threshold be? Would a
are specified by the corporation’s Section 14(a) of the Exchange Act, either higher ownership threshold, such as
governing documents, most state at a special meeting or an annual $4,000 or $10,000, be appropriate?
corporation laws provide that a meeting? Should the Commission amend the rule
corporation’s charter or bylaws can • Is there a concern that affiliates of to alter the resubmission thresholds for
specify the types of binding or non- a company could obtain a sufficient proposals that deal with substantially
binding proposals that are permitted to number of votes to adopt a bylaw the same subject matter as another
be brought before the shareholders for a without obtaining a vote of the non- proposal that previously has been
vote at an annual or special meeting. affiliates? Should the federal proxy rules included in the company’s proxy
Further, most state corporation laws further restrict the operation of bylaw materials? If so, what should the
permit a company’s board of directors to provisions that are otherwise resubmission thresholds be—10%, 15%,
adopt, amend, or repeal bylaws without permissible under state law by 20%? Are there any areas of Rule 14a–
a shareholder vote. Because a requiring, for example, that once a 8 in which changes or clarifications
company’s board of directors could company is subject to Section 14(a), the should be made (e.g., Rule 14a–8(i)(7)
adopt a bylaw establishing procedures shareholders who are not affiliates of and its application with respect to
for the consideration of non-binding the company ratify the bylaw, or that proposals that may involve significant
proposals at meetings of shareholders, the bylaw procedure be periodically re- social policy issues)? If so, what changes
we have not included in the above approved by shareholders after its initial or clarifications are necessary?
request for comment any discussion of approval? Does the fact that the • Currently, Item 4 in Part I of Form
a board of directors adopting bylaws company’s bylaws can generally be 10–K and Form 10–KSB and Item 4 in
that would limit the ability of revised or repealed at any time after Part II of Form 10–Q and 10–QSB
shareholders to raise non-binding adoption mitigate the need for such require a company to disclose
proposals for a vote at meetings of extraordinary procedures? information regarding the submission of
shareholders. To the extent a company • Should the Commission adopt a matters to a vote of security holders.
had in place a bylaw under which non- provision to enable companies to follow The required disclosure includes a
binding shareholder proposals were not an electronic petition model for non- description of each matter voted upon at
permitted to be raised at meetings of binding shareholder proposals in lieu of the meeting and the number of votes
shareholders, a company may be able to Rule 14a–8? Such a model could cast for, against, or withheld, as well as
look to Rule 14a–8(i)(1) with regard to include some or all of the following the number of abstentions and broker
the exclusion of such proposals. Such parameters: non-votes as to each such matter. In the
ability to exclude the proposals would, • Electronic petitions would be interest of increased transparency,
of course, be reliant on the bylaw’s submitted by shareholders and posted should additional disclosure be
compliance with applicable state law by the company on the electronic proxy provided with regard to the voting
and the company’s governing notice and access Web site; results for non-binding shareholder
documents. In light of the board’s power • Only shareholders as of the record proposals? For example, should the
to adopt such a bylaw under state law, date could sign the electronic petition company be required to disclose votes
please consider the following specific through the close of the applicable for non-binding shareholder proposals
requests for comment: shareholder meeting; as a percentage of the total outstanding
securities entitled to vote on the represented by proxy and entitled to (e.g., by combining the reports required
proposal? Or as a percentage of the total vote on the proposal, or a supermajority to report beneficial and other ownership
votes cast? Would shareholders benefit vote? interests)?
from receiving this type of information? • Our proposals assume that the
existing exemptions for solicitations are III. General Request for Comment
2. Other Requests for Comment sufficient to include soliciting activities We request and encourage any
• Would adoption of the proposed of shareholders that are seeking to form interested person to submit comments
rules conflict with any state law, federal a more than 5% group. Accordingly, the regarding:
law, or rule of a national securities release does not address any such • The proposed amendments that are
exchange or national securities soliciting activities or propose any new the subject of this release;
association? To the extent you indicate rules in this regard. Is our assumption • Additional or different changes; or
that the proposed rules would conflict that the existing exemptions are • Other matters that may have an
with any of these provisions, please be sufficient for the purpose of forming a effect on the proposals contained in this
specific in your discussion of those shareholder group to submit a bylaw release.
provisions that you believe would be proposal correct? If not, what would be We request comment from the point
violated. the appropriate scope of any new of view of companies, investors and
• As the Commission staff noted in its exemption or amendment to an existing other market participants. With regard
July 15, 2003 Staff Report entitled exemption? to any comments, we note that such
‘‘Review of the Proxy Process Regarding • Is there an alternative to the comments are of great assistance to our
the Nomination and Election of proposal regarding shareholder director rulemaking initiative if accompanied by
Directors,’’ 72 the cost to shareholders of nomination bylaws that would provide supporting data and analysis of the
soliciting proxies in opposition to the a preferable method by which issues addressed in those comments.
company’s solicitation has been shareholders could establish procedures IV. Paperwork Reduction Act
considered to be prohibitive and, as to place their candidates for director in
such, has been a key component of the company proxy materials? For A. Background
arguments in favor of increasing the example, should shareholders be able to The proposed amendments contain
opportunity for the inclusion of propose a bylaw amendment only where ‘‘collection of information’’
shareholder nominees for director in the there has been a majority withhold vote requirements within the meaning of the
company’s proxy materials. Significant for a specified director or directors, and Paperwork Reduction Act of 1995, the
recent technological advances appear to the director or directors do not resign? PRA.74 We are submitting the proposal
have the potential to substantially If so, what ownership threshold would to the Office of Management and Budget
reduce the costs of such a proxy be appropriate in those circumstances? for review in accordance with the
solicitation, including the Commission’s • In light of developments that reduce PRA.75 The titles for the collections of
recently adopted ‘‘E-Proxy’’ rules 73 and the costs of proxy solicitations by information are:
the electronic shareholder forum shareholder proponents, such as the (1) ‘‘Proxy Statements—Regulation
discussed in this release. Will these adoption of ‘‘E-proxy,’’ general advances 14A (Commission Rules 14a–1 through
technological advances reduce the costs in communication technology, the 14a–15 and Schedule 14A)’’ (OMB
of proxy solicitations for both proposals concerning electronic Control No. 3235–0059); and
companies and those that solicit in shareholder forums, and, in some (2) ‘‘Securities Ownership—
opposition to a company? instances the ability of shareholders to Regulation 13D and 13G (Commission
• Should bylaw proposals request and receive reimbursement for Rules 13d–1 through 13d–7 and
establishing a shareholder director election contest expenses, is there an Schedules 13D and 13G)’’ (OMB Control
nomination procedure be subject to a alternative to the proposal regarding No. 3235–0145).
different resubmission standard than shareholder director nomination bylaws These regulations were adopted
other Rule 14a–8 proposals? If so, what that would enable shareholders to pursuant to the Exchange Act and the
standard would be appropriate and conduct election contests without Investment Company Act of 1940 and
why? incurring the expense of a traditional set forth the disclosure requirements for
• As proposed, the federal proxy contest and without being placed on the securities ownership reports filed by
rules would not establish a threshold for company ballot? For example, should investors and proxy statements filed by
the votes required to adopt a bylaw our proxy rules be amended to permit companies to help investors make
procedure. This is because the voting pure electronic solicitation? Should we informed voting or investing decisions.
thresholds for the adoption of bylaw amend Rule 14a–2(b)(1) to enable The hours and costs associated with
amendments are established by state shareholders to solicit a greater number preparing and filing the disclosure,
law and a company’s governing of other shareholders than currently is filing the forms and schedules and
documents. Is this reliance on state law permitted under the rule (the rule limits retaining records required by these
and the company’s governing the number solicited to ten) without regulations constitute reporting and cost
documents appropriate? Should the being required to furnish a proxy burdens imposed by each collection of
proxy rules establish a different federal statement? information. An agency may not
standard for the required vote to adopt • Would additional amendments to conduct or sponsor, and a person is not
a bylaw procedure, such as the majority the system for reporting beneficial and required to respond to, a collection of
of shares present in person or other ownership interests in securities information unless it displays a
be appropriate? If so, what additional currently valid OMB control number.
amendments would be appropriate and
72 See Staff Report: Review of the Proxy Process
Regarding the Nomination and Election of why? Are there areas where additional B. Summary of Proposals
Directors, Appendix A (Summary of Comments in disclosures would be appropriate (e.g., The proposed amendments would
Response to the Commission’s Solicitation of Public with regard to the exercise of voting
Views Regarding Possible Changes to the Proxy establish a new procedure by which
Rules) (July 15, 2003). rights without an economic interest in
73 Release No. 34–55146 (Jan. 22, 2007) [72 FR the underlying security)? Are there ways 74 44 U.S.C. 3501 et seq.
4148]. in which the system could be simplified 75 44 U.S.C. 3507(d); 5 CFR 1320.11.
shareholders could use Rule 14a–8 to collection of information requirement requirements to submit such proposals,
propose bylaw amendments establishing unless it displays a currently valid OMB we estimate that there would be a
procedures that would permit eligible control number. limited number of shareholder
shareholders to nominate candidates for proposals to amend the bylaws to
C. Paperwork Reduction Act Burden
the board of directors in the company’s provide for shareholder nominees to be
Estimates
proxy materials.76 As proposed, Rule included in the company’s proxy
14a–8 would be amended to require The proposed amendments would, if materials. We note, however, that by
inclusion of such proposals, provided adopted, require additional disclosure establishing procedures for submission
that the proposals comply with the on Schedule 14A and Schedule 13G, as of theses types of proposals, we are
procedural requirements of Rule 14a–8 well as in a company’s registration likely to encourage more bylaw
and the additional proposed disclosure statements. amendment proposals than we currently
requirements. To be included, the bylaw 1. Proposed Amendments to Rule 14a– receive. We therefore assume some
amendments would be required to be 8 Concerning Bylaw Proposals for increase in such proposals and estimate
submitted by a shareholder proponent Shareholder Nominations of Directors that the number would be 30 per year.80
that is eligible to, and has, filed a For purposes of the PRA, we estimate
Schedule 13G including all required Schedule 14A prescribes the that the proposed amendments to Rule
disclosures and has continuously held information that a company must 14a–8 would create an incremental
more than 5% of the company’s include in its proxy statements to burden of six hours of company
securities entitled to be voted on the provide security holders with material personnel time and costs of $800 for the
proposal for at least one year. We also information relating to voting decisions. services of outside professionals. In
propose to amend Schedule 13G and For purposes of the PRA, we currently sum, we estimate that the amendments
add Item 24 and Item 25 of Schedule estimate that compliance with to Regulation 14A will increase the
14A to require disclosure regarding the Regulation 14A, including preparation annual paperwork burden by
shareholder proponent’s background of Schedule 14A, requires 475,781 hours approximately 180 hours of company
and relationships with the company. of company personnel time personnel time and a cost of
This disclosure would be provided by (approximately 66 hours per company) approximately $24,000 for the services
the shareholder proponent and the and costs $63,437,000 for the services of of outside professionals. These burdens
company, respectively. outside professionals (approximately and costs would include the additional
In addition to the proposed $8,750 per company).77 The proposed disclosure in proposed Item 24 and Item
amendments concerning shareholder amendment to Rule 14a–8 would 25 of Schedule 14A as well as the
proposals to amend company bylaws, require the company to include burdens and costs associated with
we propose several amendments to shareholder proposed bylaw including the proposal in the company’s
require disclosure about shareholder amendments that provide procedures
proxy materials.
nominees for director and nominating for shareholder nominations of directors
unless the shareholder has failed to 2. Proposed Amendments to Schedule
shareholders when shareholder
comply with the procedural 13G Requiring Disclosure From
nominees are included in the company’s
requirements of Rule 14a–8. Shareholder Proponents
proxy material. Proposed Rule 14a–17
Historically shareholders have made Exchange Act Schedule 13G is a
would require nominating shareholders
relatively few binding proposals. In the short-form filing for persons to report
to provide the company with certain
2006–2007 proxy season, companies ownership of more than 5% of a class
Schedule 14A information regarding
received 1,250 shareholder proposals, of of voting equity securities registered
each director nominee for inclusion in
which only 100 were binding under Section 12 of the Exchange Act.
the proxy statement or on a Web site to proposals.78 Of those 100, only three
which the proxy statement refers. In Generally, the filer must certify that the
related to bylaw amendments providing securities have not been acquired and
addition, proposed Rule 14a–17 would for shareholder nominees to appear in
require a nominating shareholder to are not held for the purpose of, or with
the company’s proxy materials.79 These
provide information regarding the the effect of, changing or influencing the
three proposals were not subject to the
background of the nominating control of the issuer of the securities.
additional disclosure requirements that
shareholder and its relationships with For purposes of the PRA, we currently
would apply to shareholders under the
the company that would be required by estimate that compliance with the
proposed rules. In light of this historical
proposed Items 8A, 8B and 8C of Schedule 13G requirements under
data and given the proposed eligibility
Schedule 13G to the company. Regulation 13D requires 98,800 burden
The proposed information collection 77 These figures assume 7,250 respondents that
hours, broken down into 24,700 hours
requirements would be mandatory and file Schedule 14A under Regulation 14A with the (or 2.6 hours per respondent) of
responses would not be confidential. Commission. We estimate that 75% of the burden respondent personnel time and costs of
The hours and costs associated with of preparation is carried by the company internally $22,230,000 (or $2,340 per respondent)
and that 25% of the burden of preparation is carried
preparing and filing forms and retaining by outside professionals retained by the issuer at an
for the services of outside
records constitute reporting and cost average cost of $400 per hour. The hourly cost professionals.81
burdens imposed by the collection of estimate is based on our consultations with several
information requirements. An agency registrants and law firms and other persons who 80 We estimate that the number of proposals for
regularly assist registrants in preparing and filing bylaw amendments to allow shareholder
may not conduct or sponsor, and a with the Commission. nominations of directors received last proxy season
person is not required to respond to, a 78 Rachel McTague, 39 Securities Regulation & (3) would increase tenfold (30).
Law Report 911 (June 11, 2007) (stating that, 81 These figures assume 9,500 respondents that
76 Proposed Rule 14a–18 would establish special according to data complied by the Institutional file Schedule 13G with the Commission. We
provisions in the proxy rules applicable to Shareholder Services, nearly 1,250 shareholder estimate that 25% of the burden of preparation is
electronic shareholder forums in order to encourage proposals were submitted to companies during the carried by the company internally and that 75% of
shareholders and companies to take advantage of 2006 proxy season). the burden of preparation is carried by outside
these forums. These rules are intended to allow 79 Tomoeh Murakami Tse, The Washington Post, professionals retained by the issuer. These figures
issuers and shareholders broad latitude with regard March 15, 2007, at D2 (stating that three proxy assume an average cost of $300 per hour. The
to the forums and do not impose any new access proposals were submitted by shareholders Commission has increased the cost estimate $100
paperwork burdens. during the 2006 proxy season). Continued
The proposed amendment to Rule annually. Of these, for purposes of this and 60 days after publication of this
14a–8 would require the company to analysis we estimate that 50% will be release. Consequently, a comment to
include certain shareholder proposed successful. If we assume that in every OMB is assured of having its full effect
bylaw amendments only if they are case where a bylaw amendment is if OMB receives it within 30 days of
submitted by a shareholder proponent successful a shareholder nominee is publication.
that is eligible to, and has, filed a proposed, the additional disclosure
V. Cost-Benefit Analysis
Schedule 13G that complies with would be required 15 times annually.
proposed Schedule 13G Items 8A, 8B, For purposes of the PRA, we estimate We propose to revise and update the
and 8C. As explained above, we that proposed Rule 14a–17 would create proxy rules to more effectively serve
estimate that the number of shareholder an incremental burden of six hours of their essential purpose of facilitating the
proponents submitting such proposals company personnel time and costs of exercise of shareholders’ rights under
under Rule 14a–8 would be 30. Rather $800 for the services of outside state law. We request any relevant data
than presume that any of the professionals for each shareholder from commenters that would be helpful
shareholder proponents previously filed nominee included in a Schedule 14A. In in quantifying these costs and benefits.
a Schedule 13G on an individual or sum, we estimate that the amendments A. Benefits
group basis, we assume for purposes of will increase the annual paperwork
burden of Regulation 14A by The proposed amendments to Rule
the PRA that each person or group will
approximately 90 hours of company 14a–8 concerning binding bylaw
be a new Schedule 13G filer. This
personnel time and a cost of proposals relating to shareholder
would increase the number of Schedule
approximately $12,000 for the services nominations of directors on the
13G filers. In addition, the proposed
of outside professionals. company’s proxy would help
disclosure of each shareholder shareholders to exercise rights under
proponent’s background and D. Solicitation of Comments state law to nominate and elect directors
relationships with the company would of their choosing. A bylaw amendment
We request comment on the accuracy
be different and more detailed than the that allowed shareholder nominees to be
of our estimates. Pursuant to 44 U.S.C.
disclosure currently required by included in the company’s proxy
3506(c)(2)(B), the Commission solicits
Schedule 13G, increasing the reporting materials would reduce the cost for a
comments to: (i) Evaluate whether the
burden associated with this schedule. shareholder to nominate candidates for
For purposes of the PRA, we estimate proposed collection of information is
necessary for the proper performance of election on the board since the
that the proposed amendments to nominating shareholder would not need
Schedule 13G would create an the functions of the agency, including
whether the information will have to incur the cost of preparing separate
incremental burden of 4.1 hours per proxy materials and mailing those
practical utility; (ii) evaluate the
response, which we would add to the materials to other shareholders.
accuracy of the Commission’s estimate
existing Schedule 13G burden resulting Allowing shareholders to propose bylaw
of burden of the proposed collection of
in a total burden of 14.5 hours.82 Each amendments that would enable them to
information; (iii) determine whether
of the 30 additional filers would incur include shareholder nominees on the
there are ways to enhance the quality,
a burden of approximately 3.6 hours of company’s proxy may provide
utility, and clarity of the information to
respondent personnel time (25% of the shareholders a more effective voice than
be collected; and (iv) evaluate whether
total burden) and costs of $4,350 for the simply being able to recommend
there are ways to minimize the burden
services of outside professionals (75% of the collection of information on those candidates to the nominating committee
of the total burden). In sum, we estimate who are to respond, including through or being able to nominate candidates in
that the amendments to Schedule 13G the use of automated collection person at a shareholder meeting.
will increase the annual paperwork techniques or other forms of information The proposed amendment would
burden by approximately 108 hours of technology. require additional disclosure on
respondent personnel time and a cost of Persons submitting comments on the Schedule 13G and Schedule 14A by
approximately $130,000 for the services collection of information requirements shareholder proponents, nominating
of outside professionals. should direct the comments to the shareholders and shareholder nominees
3. Proposed Rule 14a–17 To Require Office of Management and Budget, about their background and
Disclosure From Nominating Attention: Desk Officer for the relationships with the company. This
Shareholders and Shareholder Securities and Exchange Commission, additional information provided by
Nominees Office of Information and Regulatory such disclosures would help provide
Affairs, Washington, DC 20503, and transparency to shareholders in voting
Proposed Rule 14a–17 would require should send a copy to Nancy M. Morris, on bylaw amendments and shareholder
nominating shareholders and their Secretary, Securities and Exchange nominees.
nominees to provide disclosure relating Commission, 100 F Street, NE., Finally, the proposed amendments to
to their backgrounds and relationships Washington, DC 20549–1090, with Regulation 14A regarding the electronic
with the company for inclusion in a reference to File No. S7–16–07. shareholder forum seek to remove
Schedule 14A. As explained above, we Requests for materials submitted to unnecessary barriers to the use of
estimate that there will be 30 proposals OMB by the Commission with regard to technology to increase constructive
for bylaw amendments to allow these collections of information should communication between shareholders
shareholder nominations of directors be in writing, refer to File No. S7–16– and between shareholders and the
07, and be submitted to the Securities company. The exemption for
since our last estimate provided to OMB based on
and Exchange Commission, Office of the communications more than 60 days
our consultations with several registrants and law

firms and other persons who regularly assist Secretary—Records Management prior to the announced meeting date
registrants in preparing and filing with the Branch, 100 F Street, NE., Office of would allow for more open and
Commission. In our PRA submission, we will Filings and Information Services, unfettered communication between
increase the cost of outside professionals to meet
the new $400 per hour estimate. Washington, DC 20549. OMB is required parties. The enhanced communication
82 We currently estimate the burden for preparing to make a decision concerning the may result in better coordination among
a Schedule 13G filing to be 10.4 hours. collection of information between 30 the views of shareholders, more
effective exercise of state law rights, and would also incur costs associated with appropriate in furtherance of the
a better alignment between the interests the Rule 14a–17 disclosure purposes of the Exchange Act. Section
of shareholders and the company. requirements. Nominating shareholders 3(f) of the Exchange Act 84 and Section
and their nominees might also bear 2(c) of the Investment Company Act 85
B. Costs
solicitation costs in seeking support for require us, when engaging in
The proposed amendments would the nominee’s election. However, these rulemaking that requires us to consider
impose some direct costs on companies disclosure and solicitation costs are not or determine whether an action is
and shareholders who are subject to the expected to exceed the costs that would necessary or appropriate in the public
new rules. For purposes of the PRA, we be incurred from a separate proxy interest, to consider, in addition to the
estimate that the annual additional contest. protection of investors, whether the
burden to companies of preparing the Under the proposed rules, companies action will promote efficiency,
required proxy disclosure would be may choose to incur additional costs to competition and capital formation.
approximately 270 hours of company establish more responsive policies and The proposed rules are intended to
personnel time and a cost of procedures in an attempt to avoid promote the exercise of shareholder
approximately $36,000 for the services having shareholders seek bylaw rights under state law and provide
of outside professionals. In addition, for amendments or propose shareholder shareholders with information about
purposes of the PRA, we estimate that nominees. The company and the board shareholder proponents of, and
the annual incremental burden to may spend more time on shareholder shareholder nominees under,
prepare the required disclosure for relations instead of the business of the shareholder nomination bylaw
shareholder proponents, nominating company. In addition, it is possible that amendments. The proposed rules, if
shareholders and nominees would be electing a shareholder nominee to the adopted, would establish a fair and
approximately 108 hours of personnel board could have a disruptive effect on transparent mechanism for shareholders
time and a cost of approximately boardroom dynamics. to propose and adopt bylaw
$130,000 for the services of outside amendments to establish procedures
professionals. Request for Comment relating to shareholder director
The bulk of the additional disclosure We are sensitive to the costs and nominations inclusion in the company
required by the amendments to benefits imposed by our rules, and have proxy materials.
Regulation 14A would be provided to identified certain costs and benefits The disclosure requirements in the
the company by shareholder proponents related to these proposals. We request proposed rules would require detailed
and nominating shareholders. The comment on all aspects of this cost- information regarding the background
proposed amendments would add costs benefit analysis, including identification and relationships of shareholder
to the preparation and dissemination of of any additional costs and benefits. We proponents of the bylaw amendments to
this information in the company’s proxy encourage commenters to identify and be disclosed by the shareholder
statement where shareholders have supply relevant data concerning the proponents and the company. This
chosen to make proposals or put forth costs and benefits of the proposed disclosure would provide shareholders
nominees. amendments. a better informed basis for deciding
If shareholders have adopted a • What are the costs and benefits of whether to approve the bylaw
shareholder nomination bylaw a 5% threshold as opposed to amendments. Changes to the company’s
amendment and chose to allocate alternative thresholds? How would the bylaws should therefore better reflect
company resources to facilitate private costs of assembling a 5% shareholders’ preferences regarding
shareholder nominations, the cost of coalition vary across different types or director nomination procedures.
preparing the company’s proxy sizes of companies? Investors may value the information
materials would be increased by the • What are the potential costs and about whether companies have
need to prepare and include information benefits of facilitating an increase in the subjected these preferences to a vote
relating to the shareholder nominees. In variation of nomination rules across and provided a specified alternative
addition, the company could incur companies? procedure for inclusion of shareholder
increased costs relating to the • What are the costs and benefits of nominees in the company’s proxy
solicitation of proxies in support of the potentially moving away from a dual- materials. This may promote the
board’s candidates and against the slate structure in which voting efficiency of the exercise of shareholder
shareholder nominees. shareholders choose between the rights under state law.
The proposed amendments to management card and the dissident card If the shareholders adopt a bylaw
Regulation 14A and Schedule 13G toward a unitary slate voting system in amendment and the company is
would impose costs on shareholder which voters choose among items on a required to include shareholder
proponents. Shareholder proponents single proxy card? nominees in its proxy materials, there
would be required to provide extensive may be increased competition for board
background information and VI. Consideration of Burden on positions, which might encourage or
information on their relationships with Competition and Promotion of discourage qualified candidates from
the issuer on Schedule 13G. Under the Efficiency, Competition and Capital running. The proposed rules focus on
proposed amendments, a company Formation improving and streamlining information
would also incur preparation and filing Section 23(a)(2) of the Exchange flow between investors and with the
costs associated with disclosing the Act 83 requires us, when adopting rules company, which we believe would give
nature and extent of its relationships under the Exchange Act, to consider the more direct effect to shareholder
with a shareholder proponent. In impact that any new rule would have on
preferences regarding shareholder

addition, companies may incur costs for competition. In addition, Section director nominees. We believe these
procedures to monitor its relationships 23(a)(2) prohibits us from adopting any changes are likely to have a limited
with shareholder proponents. rule that would impose a burden on effect on efficiency, competition and
If a shareholder nomination bylaw competition not necessary or
amendment were adopted, shareholder 84 15 U.S.C. 78c(f).
nominees and nominating shareholders 83 15 U.S.C. 78w(a)(2). 85 15 U.S.C. 80a–2(c).
capital formation. The effects of the shareholders have improved access to be impacted by our proposals, including
proposed rules could be positive or management. any available empirical data.
negative depending on what
B. Legal Basis D. Reporting, Recordkeeping and Other
shareholders deem is best for them
We are proposing amendments to the Compliance Requirements
given the additional information. We
request comment on whether the forms and rules under the authority set The proposals would require all
proposals, if adopted, would promote forth in Sections 13, 14, and 23(a) of the companies, including small entities, to
efficiency, competition and capital Exchange Act, as amended and Section permit certain shareholders to submit
formation or have an impact or burden 20(a) and 38 of the Investment Company the specified binding proposals to
on competition. Commenters are Act, as amended. amend the company bylaws.
requested to provide empirical data and C. Small Entities Subject to the Shareholder proponents, including
other factual support for their view, if Proposed Rules proponents that are small entities,
possible. would be required to provide the
The Regulatory Flexibility Act defines proposed Schedule 13G disclosure
VII. Initial Regulatory Flexibility Act ‘‘small entity’’ to mean ‘‘small regarding background and relationships
Analysis business,’’ ‘‘small organization,’’ or with the company and companies
This Initial Regulatory Flexibility ‘‘small governmental jurisdiction.’’ 86 would be required to include similar
Analysis has been prepared in The Commission’s rules define ‘‘small disclosure provided by the shareholder
accordance with 5 U.S.C. 603. It relates business’’ and ‘‘small organization’’ for proponent with the company’s proxy.
to proposed revisions to the rules and purposes of the Regulatory Flexibility If a bylaw amendment with an
forms under the Exchange Act that Act for each of the types of entities alternate shareholder nomination
would permit shareholders to propose regulated by the Commission.87 A procedure is adopted, issuers would be
bylaw amendments to establish ‘‘small business’’ and ‘‘small required to meet the new procedural
procedures relating to shareholder organization,’’ when used with requirements and provide disclosure
director nominations for inclusion in reference to an issuer other than an relating to the shareholder nominee in
the company’s proxy materials. The investment company, generally means the proxy and the nominating
proposed revisions would also facilitate an issuer with total assets of $5 million shareholders and shareholder nominees
the use of an electronic shareholder or less on the last day of its most recent would be required to provide additional
forum by companies and shareholders. fiscal year. We estimate that there are information regarding their background
approximately 1,100 issuers, other than and relationships with the company.
A. Reasons for, and Objectives of, investment companies, that may be
Proposed Action considered reporting small entities.88 E. Duplicative, Overlapping or
The proposed rules are intended to For purposes of the Regulatory Conflicting Federal Rules
open up communication between the Flexibility Act, an investment company We believe that there are no rules that
company and its shareholders, promote is a small entity if it, together with other conflict with or duplicate the proposed
the exercise of shareholder rights under investment companies in the same rules.
state law, and provide shareholders group of related investment companies,
with better information to make an has net assets of $50 million or less as F. Significant Alternatives
informed voting decision by requiring of the end of its most recent fiscal The Regulatory Flexibility Act directs
disclosure about shareholder year.89 Approximately 215 investment us to consider significant alternatives
proponents and shareholder nominees companies meet this definition.90 The that would accomplish the stated
under any shareholder nomination proposed rules may affect each of the objective of our proposals, while
bylaw amendments. approximately 1,315 issuers that may be minimizing any significant adverse
The proposals, if adopted, would considered reporting small entities, to impact on small entities. In connection
facilitate the exercise of shareholders’ the extent companies and shareholders with the proposed amendments and
rights under state law. As proposed, take advantage of the proposed rules, we considered the following
shareholders who have held more than procedures.91 We request comment on alternatives:
5% of the company’s securities entitled the number of small entities that would • The establishment of different
to be voted at the meeting for at least compliance or reporting requirements or
one year by the date of their submission 86 5 U.S.C. 601(6). timetables that take into account the
may submit binding proposals to amend 87 Securities Act Rule 157 (17 CFR 230.157) and resources available to small entities;
Exchange Act Rule 0–10 (17 CFR 240.0–10) contain
the company bylaws to establish
the applicable definitions.
• The clarification, consolidation, or
procedures for shareholder nominations 88 The estimated number of reporting small simplification of the rule’s compliance
of directors. Enabling shareholders to entities is based on 2007 data, including the and reporting requirements for small
establish the company’s procedures for Commission’s EDGAR database and Thomson entities;
inclusion of shareholder nominees on Financial’s Worldscope database. • The use of performance rather than
89 Rule 0–10 under the Investment Company Act
the company’s proxy would provide design standards; and
[17 CFR 270.0–10] contains the applicable
shareholders with greater control over definition. • An exemption from coverage of the
the use of the company’s proxy process. 90 The estimated number of reporting investment proposed rules, or any part thereof, for
In addition, encouraging the use of companies that may be considered small entities is small entities.
electronic shareholder forums and the based on December 2006 data from the The Commission has considered a
Internet may have the effect of Commission’s EDGAR database and a third-party variety of reforms to achieve its
data provider.
improving shareholder communication. regulatory objectives. The proposed
91 The proposed amendments to Rule 14a–8

Any electronic shareholder forum may would not impact open-end investment companies amendments, if adopted, would require
enhance shareholders’ ability to that may be small entities because shareholders of companies to include binding bylaw
communicate not only with those entities are not eligible to file Schedule 13G, amendments relating to procedures for
which must be filed in order to rely upon the
management, but also with each other. proposed rule. Of the 215 investment companies
shareholder nominations of directors.
Such direct access may improve that may be considered small entities, 131 are open- The proposals are being made in order
shareholder relations to the extent end investment companies. to more effectively serve the essential
purpose of the proxy rules to facilitate business issuers may not be in keeping proposes to amend Title 17, chapter II
the exercise of shareholders’ rights with the objective of the proposed rules. of the Code of Federal Regulations as
under state law. The proposed follows:
G. Solicitation of Comment
amendments also would require
additional disclosure by the shareholder We encourage comments with respect PART 240—GENERAL RULES AND
proponent (or any subsequent to any aspect of this initial regulatory REGULATION, SECURITIES
nominating shareholder or shareholder flexibility analysis. In particular, we EXCHANGE ACT OF 1934
nominee) and the company of the request comments regarding:
1. The authority citation for part 240
background of the proponent and its • The number of small entities that
continues to read, in part, as follows:
relationships with the issuer.92 We may be affected by the proposals;
believe this additional disclosure will • The existence or nature of the Authority: 15 U.S.C. 77c, 77d, 77g, 77j,
potential impact of the proposals on 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn,
assist investors in making an informed
small entities discussed in the analysis; 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 78j,
voting decision. It is not clear how 78j–1, 78k, 78k–1, 78l, 78m, 78n, 78o, 78p,
applying separate compliance or and 78q, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 80a–
reporting standards to small entities • How to quantify the impact of the 20, 80a–23, 80a–29, 80a–37, 80b–3, 80b–4,
would further encourage facilitation of proposed rules. 80b–11, and 7201 et seq.; and 18 U.S.C. 1350,
the exercise of these rights. However, Commenters are asked to describe the unless otherwise noted.
we are considering what level of nature of any impact and provide * * * * *
disclosure would be appropriate for empirical data supporting the extent of 2. Section 240.13d–102 is amended
shareholder proponents, nominating the impact. Such comments will be by:
shareholders and shareholder nominees considered in the preparation of the a. Removing the authority citation
regarding their background and final regulatory flexibility analysis, if following the section; and
relationships with the company. If we the proposals are adopted, and will be b. Adding Items 8A, 8B and 8C.
require less disclosure from smaller placed in the same public file as The additions are to read as follows:
issuers we are concerned that comments on the proposed amendments
shareholders may not receive sufficient themselves. § 240.13d–102 Schedule 13G—Information
to be included in statements filed pursuant
information with which to make an VIII. Small Business Regulatory to § 240.13d–1(b), (c), and (d) and
informed decision. Enforcement Fairness Act amendments thereto filed pursuant to
We considered the use of performance § 240.13d–2.
For purposes of the Small Business
standards rather than design standards * * * * *
Regulatory Enforcement Fairness Act of
in the proposed rules. The proposal
1996,93 a rule is ‘‘major’’ if it has Item 8A. Shareholder Proponents
contains both performance standards
resulted, or is likely to result in:
and design standards. We are proposing (a) Definition of shareholder
• An annual effect on the economy of
design standards to the extent that we proponent: In this item, the term
$100 million or more;
believe that compliance with particular ‘‘shareholder proponent’’ means:
• A major increase in costs or prices
requirements are necessary. However, to (1) A person or group that has formed
for consumers or individual industries;
the extent possible, we are proposing any plans or proposals regarding an
or
rules that impose performance amendment to a company’s bylaws, in
• Significant adverse effects on
standards. By allowing companies to accordance with § 240.14a–8(i)(8);
competition, investment or innovation.
establish their own procedures relating (2) A nominating shareholder as
We request comment on whether our
to shareholder nominations, we seek to defined in § 240.14a–17(a);
proposals would be a ‘‘major rule’’ for
provide companies, shareholder (3) Any affiliate, executive officer or
purposes of SBREFA. We solicit
proponents and nominating agent acting on behalf of the person (or
comment and empirical data on:
shareholders with the flexibility to • The potential effect on the U.S. group) described above in Item
devise the means through which they economy on an annual basis; 8A(a)(1)–(2) with respect to the plans or
can comply with the standards. • Any potential increase in costs or proposals; and
We request comment on whether (4) Anyone acting in concert with, or
prices for consumers or individual
separate requirements for small entities who has agreed to act in concert with,
industries; and
would be appropriate. The purpose of • Any potential effect on competition, the person (or group) described above in
the amendments is to provide certain investment or innovation. Item 8A(a)(1)–(2) with respect to the
shareholders with the ability to amend plans or proposals.
the bylaws to establish their own IX. Statutory Basis and Text of (b) A shareholder proponent, as
procedures for shareholder nominations Proposed Amendments defined in section (a), shall provide the
of directors and to improve shareholder We are proposing amendments to additional disclosure required by Items
communications. Exempting small rules pursuant to Sections 13, 14, and 8B and 8C.
entities would not appear to be 23(a) of the Exchange Act, as amended, Note to Item 8A. For purposes of this Item
consistent with these goals. The and Sections 20(a) and 38 of the 8A and for the disclosures required by Item
establishment of any differing Investment Company Act, as amended. 8B and Item 8C, the term ‘‘plans or
compliance or reporting requirements or proposals’’ shall include, but not be limited
timetables or any exemptions for small List of Subjects in 17 CFR Part 240 to, the submission of a proposal to amend a
company’s bylaws, and instances where a
Reporting and recordkeeping
shareholder proponent has indicated an
92 The proposed ability for shareholder requirements, Securities. intent to management to submit such a
proponents to propose bylaw amendments to be In accordance with the foregoing, the proposal or has indicated an intent to
included in the company’s proxy material is linked
to their filing on Schedule 13G. A lower ownership Securities and Exchange Commission management to refrain from submitting such
threshold for small entities would not be a proposal conditioned on the taking or not
appropriate due to the loss of the additional 93 Pub. L. No. 104–121, Title II, 110 Stat. 857 taking of a corporate action. The term also
disclosure and safeguards provided by Schedule (1996)(codified in various sections of 50 U.S.C., 15 shall include a shareholder nomination for
13G. U.S.C. and as a note to 5 U.S.C. § 601). director pursuant to a bylaw procedure
established pursuant to Rule 14a–8(i)(8), and (e) Disclose any meetings or contacts, decision by such person or persons and
instances where a shareholder proponent has including direct or indirect the entity to submit a proposal or
indicated an intent to management to submit communication by the shareholder nomination.
such a nomination or has indicated an intent proponent, with the management or (b) If the shareholder proponent is a
to management to refrain from submitting
directors of the company that occurred natural person, disclose:
such a nomination conditioned on the taking
or not taking of a corporate action. during the 12 months prior to the (1) The qualifications and background
formation of any plans or proposals or of such person or persons relevant to the
Item 8B. Relationships With the during the pendency of any proposal or plans or proposals; and
Company of Shareholder Proponents nomination, including: (2) Any interests or relationships of
(1) Reasonable detail of the content of such person or persons that are not
(a) A shareholder proponent, as such direct or indirect communication; shared generally by the other
defined in Item 8A, must describe the (2) A description of the action or shareholders of the company and that
following: actions sought to be taken or not taken; could have influenced the decision by
(1) Any direct or indirect interest in (3) The date of the communication; such person or persons to submit a
any contract between the shareholder (4) The person or persons to whom proposal or nomination.
proponent and the company or any the communication was made;
affiliate of the company (including any Note to Item 8C(a)(5) and Item 8C(b)(2).
(5) Whether that communication Examples of interests or relationships of the
employment agreement, collective included any reference to the possibility shareholder proponent not shared by other
bargaining agreement, or consulting of such a proposal or nomination; and shareholders of the company include, but are
agreement); (6) Any response by the company or not limited to, contractual arrangements,
(2) Any pending or threatened its representatives to that current or previous employment with the
litigation in which the shareholder communication prior to the date of company, employment agreements,
proponent is a party or a material filing the required disclosure.
consulting agreements, and supplier or
participant, involving the company, any customer relationships.
of its officers or directors, or any Note to Item 8B(e). To the extent that a
shareholder proponent conducts regularly * * * * *
affiliate of the company; and 3. Section 240.14a–2 is amended by
scheduled meetings or contacts with
(3) Any other material relationship management or directors of a company, the adding paragraph (b)(6) to read as
between the shareholder proponent and shareholder proponent may describe the follows:
the company or any affiliate of the frequency of the meetings and the subjects
company not otherwise disclosed. covered at the meetings rather than providing § 240.14a–2 Solicitations to which
Note to Item 8B(a)(3). Any other material information separately for each meeting. § 240.14a–3 to § 240.14a–15 apply.
relationship of the shareholder proponent However, if an event or discussion occurred * * * * *
with the company or any affiliate of the at a specific meeting that is material to the (b) * * *
company may include, but is not limited to, shareholder proponent’s decision to submit a (6) Any solicitation in an electronic
whether the shareholder proponent currently proposal or nomination, that meeting should shareholder forum established pursuant
has, or has had in the past, an employment be discussed in detail separately.
to the provisions of Rule 14a–18 by or
relationship with the company or any on behalf of any person who does not
affiliate of the company (including Item 8C. Background Information
Regarding Shareholder Proponents seek directly or indirectly, either on its
consulting arrangements).
own or another’s behalf, the power to
(b) A shareholder proponent must (a) If the shareholder proponent is not act as proxy for a security holder and
describe the following items where they a natural person, provide: does not furnish or otherwise request, or
occurred during the 12 months prior to (1) The identity of the natural person act on behalf of a person who furnishes
the formation of any plans or proposals, or persons associated with the entity or requests, a form of revocation,
or during the pendency of any proposal responsible for the formation of any abstention, consent or authorization
or nomination: plans or proposals; provided that the solicitation is made
(1) Any material transaction of the (2) The manner in which such person more than 60 days prior to the date
shareholder proponent with the or persons were selected, including a announced by a registrant for its next
company or any affiliate of the discussion of whether or not the equity annual or special meeting of
company; and holders or other beneficiaries of the shareholders or if the registrant
(2) Any discussion regarding the shareholder proponent entity played announces the date of its next annual or
proposal or nomination between the any role in the selection of such person special meeting of shareholders less
shareholder proponent and a proxy or persons or otherwise played any role than 60 days before the meeting date,
advisory firm. in connection with any plans or then the solicitation may not be made
(c) If the shareholder proponent holds proposals; more than two days following the date
more than 5% of any enterprise with the (3) Whether the person or persons of the registrant’s announcement of the
same Standard Industrial Classification associated with the entity responsible meeting date.
code as the company, the shareholder for the formation of any plans or 4. Section 240.14a–6 is amended by
proponent must describe the number proposals have, in forming such plans removing the period at the end of the
and percentage of securities held in the or proposals, a fiduciary duty to the undesignated paragraph following
competitor, as of the date the equity holders or other beneficiaries of paragraph (a)(6), prior to Note 1, and
shareholder proponent first formed any the entity; adding a comma in its place; and by
plans or proposals. (4) The qualifications and background adding ‘‘or where the proxy materials
(d) Describe any material relationship of such person or persons relevant to the
include a shareholder nominee

of the shareholder proponent with any plans or proposals; and submitted pursuant to a bylaw adopted
enterprise with the same Standard (5) Any interests or relationships of in accordance with § 240.14a–8(i)(8).’’
Industrial Classification code as the such person or persons, and of that after that new comma.
company other than as a shareholder, as entity, that are not shared generally by 5. Section 240.14a–8 is amended by:
of the date the shareholder proponent the other shareholders of the company a. Revising paragraph (b)(1); and
first formed any plans or proposals. and that could have influenced the b. Revising paragraph (i)(8);
The revisions read as follows: or has indicated an intent to management to disclosed in the company’s proxy
refrain from submitting a nomination statement or on a Web site to which the
§ 240.14a–8 Shareholder proposals. conditioned on the taking or not taking of a proxy statement refers, in satisfaction of
* * * * * corporate action. the company’s disclosure obligations
(b) * * * (b) A nominating shareholder shall under Regulation 14A, will not be
(1) In order to be eligible to submit a provide the information required by deemed incorporated by reference into
proposal, you must have continuously Item 8A, Item 8B, and Item 8C of any filing under the Securities Act of
held at least $2,000 in market value, or Schedule 13G (§ 240.13d–102) to the 1933 or the Act, except to the extent that
1%, of the company’s securities entitled company at the time the shareholder the registrant specifically incorporates
to be voted on the proposal at the forms any plans or proposals with that information by reference.
meeting for at least one year by the date regard to submission of a nominee or
you submit the proposal; except where nominees for director. Immediately after § 240.14a–18 Electronic Shareholder
additional eligibility requirements are Forums.
receiving the information from the
specified in this rule. You must nominating shareholder, the company (a) A company or shareholder may
continue to hold those securities shall provide the information on its Web establish, maintain, or operate an
through the date of the meeting. site, or provide a link to a Web site electronic shareholder forum to
* * * * * address where the information would facilitate interaction among
(i) * * * appear. The company also shall include shareholders and between the company
(8) Relates to election: If the proposal the information provided by the and its shareholders as the company or
relates to a nomination or an election for nominating shareholder pursuant to this shareholder deems appropriate. Subject
membership on the company’s board of section in its proxy statement or on a to (b) and (c) of this Rule, the forum
directors or analogous governing body Web site to which the proxy statement must comply with the federal securities
or a procedure for such nomination or refers. laws, including Section 14(a) of the Act
election, except for a proposal to (c) At the time that a nominating and its associated regulations, other
establish a procedure by which shareholder submits to the company for applicable federal laws, applicable state
shareholder nominees for election of inclusion in the company proxy law, and the company’s charter and
director would be included in the materials a nominee or nominees, in bylaw provisions.
company’s proxy materials, where that accordance with a company bylaw that (b) No company or shareholder
proposal: has been adopted by shareholders, as because of establishing, maintaining, or
(i) Relates to a change in the provided in § 240.14a–8(i)(8), the operating an electronic shareholder
company’s bylaws that would be nominating shareholder must provide to forum is liable under the federal
binding on the company if approved by the company, for inclusion in the securities laws for any statement or
the shareholders; and company proxy statement or on a Web information provided by another person
(ii) Is submitted by a shareholder (or site to which the proxy statement refers, to the electronic shareholder forum.
group of shareholders) that: the following: Nothing in this Rule 14a–18 prevents or
(A) Has continuously held more than (1) Information meeting the disclosure alters the application of other provisions
5% of the company’s securities entitled requirements of Item 4(b) of Schedule of the federal securities laws, including
to be voted on the proposal at the 14A, as applicable; the provisions for liability for fraud,
meeting for at least one year by the date (2) Information meeting the disclosure deception, or manipulation, or other
the shareholder submits the proposal; requirements of Item 5(b) of Schedule applicable federal and state laws to a
(B) Is eligible to file a Schedule 13G 14A, as applicable; person or persons providing a statement
(§ 240.13d–102) as an institutional (3) Information meeting the disclosure or information to an electronic
investor or a passive investor, including requirements of Item 7 of Schedule 14A, shareholder forum.
pursuant to Rule 13d–1(l) (§ 240.13d– as applicable; (c) Reliance on the exemption in Rule
1(l)); and (4) Information meeting the disclosure 14a–2(b)(6) to construct, maintain,
(C) Has filed a statement of beneficial requirements of Item 22(b) of Schedule support, or participate in an electronic
ownership on Schedule 13G (§ 240.13d– 14A, as applicable; and shareholder forum does not eliminate a
102), or an amendment thereto, that (5) The consent of the nominee or person’s eligibility to solicit proxies
contains all required information; nominees to be named in the company’s after the date that the exemption in Rule
* * * * * proxy statement and to serve if elected. 14a–2(b)(6) is available, provided that
6. Add § 240.14a–17 and § 240.14a–18 (d) Where a nominating shareholder any such solicitation is conducted in
to read as follows: fails to provide any of the information accordance with this regulation.
required under paragraphs (b) and (c) of 7. Section 240.14a–101 is amended by
§ 240.14a–17 Shareholder nominations for this rule, the shareholder’s nominee will
election as director.
adding Item 24 and Item 25 to read as
not be required to be included in the follows:
(a) A nominating shareholder is any company’s proxy materials.
shareholder (or group of shareholders) (e) The company will not be § 240.14a–101 Schedule 14A. Information
that forms any plans or proposals responsible for the information required in proxy statement.
regarding the submission of a nominee provided to the company by the * * * * *
or nominees for director to the company nominating shareholder and included in
for inclusion in the company proxy Item 24. Relationships with Shareholder
the company’s proxy statement or on a
materials, in accordance with a Proponents
Web site to which the proxy statement
company bylaw that has been adopted refers, in satisfaction of the company’s Disclose the nature and extent of
by shareholders, as provided in disclosure obligations under Regulation relationships between the shareholder
§ 240.14a–8(i)(8). 14A. proponent, any affiliate, executive
Note to Rule 14a–17(a). The formation of (f) Information about a shareholder officer or agent of such shareholder
any plans or proposals includes instances nominee or nominees that has been proponent, or anyone acting in concert
where the shareholder has indicated an provided to the company by a with, or who has agreed to act in concert
intent to management to submit a nomination nominating shareholder, and which is with, such shareholder proponent with
respect to the proposed bylaw the company’s knowledge, an event or (2) Any meeting or contact, including
amendment submitted in accordance discussion occurred at a specific meeting that direct or indirect communication by the
with § 240.14a–8(i)(8), on the one hand, is material to the shareholder proponent’s nominating shareholder, with the
and the company, on the other, decision to submit a proposal, that meeting management or directors of the
should be discussed in detail separately.
including: company, including:
(a) Any direct or indirect interest of Note to Item 24. For purposes of the (i) Reasonable detail of the content of
the shareholder proponent in any disclosures required by this item, the such direct or indirect communication;
contract with the company or any company will be entitled to rely upon the (ii) A description of the action or
affiliate of the company (including any Schedule 13G disclosures of the shareholder actions sought to be taken or not taken;
employment agreement, collective proponent concerning the date upon which (iii) The date of the communication;
bargaining agreement, or consulting the shareholder proponent formed any plans (iv) The person or persons to whom
agreement); or proposals with regard to the submission of the communication was made;
a proposal to amend a company’s bylaws. (v) Whether that communication
(b) Any pending or threatened
litigation in which the shareholder included any reference to the possibility
Item 25. Relationships With Nominating of such a nomination; and
proponent is a party or a material
Shareholders (vi) Any response by the company or
participant, involving the company, any
of its officers or directors, or any (a) Provide the information submitted its representatives to that
affiliate of the company; and to the company by any nominating communication prior to the date of
(c) Any other material relationship shareholder as required by § 240.14a– submitting the nomination.
between the shareholder proponent, the 17(b) and (c). Note to Paragraph (c)(2): To the extent that
company, or any affiliate of the (b) Disclose the nature and extent of a nominating shareholder conducts regularly
company not otherwise disclosed. relationships between the nominating scheduled meetings or contacts with
management or directors of a company, the
Note to Paragraph (c): Any other material shareholder, any affiliate, executive
company may describe the frequency of the
relationship between the shareholder officer or agent of such nominating meetings and the subjects covered at the
proponent and the company or any affiliate shareholder, or anyone acting in concert meetings rather than providing information
of the company may include, but is not with, or who has agreed to act in concert separately for each meeting. However, if to
limited to, whether the shareholder with, such nominating shareholder with the company’s knowledge, an event or
proponent currently has, or has had in the respect to a nomination pursuant to a discussion occurred at a specific meeting that
past, an employment relationship with the bylaw adopted in accordance with Rule is material to the nominating shareholder’s
company (including consulting decision to submit a nomination, that
14a–8(i)(8), on the one hand, and the
arrangements). meeting should be discussed in detail
company, on the other, including:
(d) With respect to the 12 months separately.
(1) Any direct or indirect interest of
prior to a shareholder proponent the nominating shareholder in any Note to Item 25. For purposes of the
forming any plans or proposals, or contract with the company or any disclosures required by this item, the
during the pendency of any proposal, affiliate of the company (including any company will be entitled to rely upon the
regarding an amendment to a company’s employment agreement, collective disclosures of the nominating shareholder
bylaws in accordance with § 240.14a– bargaining agreement, or consulting submitted to the company as required by
8(i)(8): agreement); Rule 14a–17(c) concerning the date upon
(1) Any material transaction of the which the nominating shareholder formed
(2) Any pending or threatened any plans or proposals with regard to the
shareholder proponent with the litigation in which the nominating
company or any affiliate of the submission of a nominee or nominees to be
shareholder is a party or a material included in the company’s proxy materials.
company; and participant, involving the company, any
(2) Any meeting or contact, including of its officers or directors, or any * * * * *
direct or indirect communication by the affiliate of the company; and By the Commission.
shareholder proponent, with the (3) Any other material relationship Dated: July 27, 2007.
management or directors of the between the nominating shareholder,
company, including: Nancy M. Morris,
the company, or any affiliate of the Secretary.
(i) Reasonable detail of the content of
company not otherwise disclosed. [FR Doc. E7–14954 Filed 8–2–07; 8:45 am]
such direct or indirect communication;
(ii) A description of the action or Note to Paragraph (b)(3): Any other BILLING CODE 8010–01–P
actions sought to be taken or not taken; material relationship between the nominating
(iii) The date of the communication; shareholder and the company or any affiliate
of the company may include, but is not SECURITIES AND EXCHANGE
(iv) The person or persons to whom limited to, whether the nominating
the communication was made; shareholder currently has, or has had in the
COMMISSION
(v) Whether that communication past, an employment relationship with the
included any reference to the possibility company (including consulting
17 CFR Part 240
of such a proposal; and arrangements). [Release No. 34–56161; IC–27914; File No.
(vi) Any response by the company or S7–17–07]
(c) With respect to the 12 months
its representatives to that
prior to a nominating shareholder RIN 3235–AJ95
communication prior to the date of
forming any plans or proposals to
filing the required disclosure. Shareholder Proposals Relating to the
submit a nomination for director for
Note to Paragraph (d)(2): To the extent that inclusion in the company’s proxy Election of Directors
a shareholder proponent conducts regularly statement, or during the pendency of

scheduled meetings or contacts with AGENCY: Securities and Exchange
any nomination: Commission.
management or directors of a company, the
company may describe the frequency of the (1) Any material transaction of the ACTION: Proposed rule.
meetings and the subjects covered at the nominating shareholder with the
meetings rather than providing information company or any affiliate of the SUMMARY: The Securities and Exchange
separately for each meeting. However, if to company; and Commission is publishing this

Proposed Rule: Securities: Company Proxy Materials Shareholder Proposals

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Friday,

9 S. Rep. No. 792, 73d Cong., 2d Sess., at 12

comments@sec.gov. Please include File 1 17

or (1934). The same report demonstrated a

Rule 14a–8 specifies that companies 2003).

32 Roundtable on Proposals of Shareholders (May

May 7, 2007, at 152–154. both the threshold for required filing on

amendment to the company’s bylaws for a

plans or proposals; and requirement for shareholder proponents, the

shareholders and then required to be repeated in

60 See Exchange Act Rule 14a–6(b) (17 CFR

Telecommunications Act of 1996 (47 U.S.C.

applicable exemptions in Exchange Act Rule 14a–

Commission adopted final rules amending

72 See Staff Report: Review of the Proxy Process

our consultations with several registrants and law

preferences regarding shareholder

91 The proposed amendments to Rule 14a–8

include a shareholder nominee

a shareholder proponent conducts regularly statement, or during the pendency of

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