Dear Chair White:
Re: Recent Staff Decisions on Shareholder Proposals
This letter is submitted on behalf of Business Roundtable, an association of the chief executive officers of leading U.S. companies. Our member companies produce $7.2 trillion in annual revenues and employ more than 16 million employees worldwide. Business Roundtable companies comprise more than a third of the total value of the U.S. stock market, and annually pay more than $230 billion in dividends to shareholders, generate more than $470 billion in sales for small and medium-sized businesses, and invest $190 billion in research and development—equal to 70 percent of U.S. private research and development spending. Our members also give more than $3 billion a year in combined charitable contributions.
We write with respect to recent developments involving the shareholder proposal process and the significant disruptive effect these developments are having on companies, boards of directors and shareholders. Specifically, we are concerned by the staff (the Staff) of the Division of Corporation Finance’s (the Division) recent handling of shareholder proposals submitted to be included in the proxy statements for upcoming annual meetings where the proponent requests the adoption of a policy that the board chairman be an independent director who does not have certain relationships with the company. In a December no-action letter, the Staff concurred with the company that an identical independent chair proposal could be omitted from company proxy materials pursuant to Rule 14a-8(i)(3) because it was vague and indefinite, such that the company and its shareholders would be unable to determine with any reasonable certainty what actions or measures the proposal required. However, we understand that beginning February 26 – 66 days after the Staff issued the December 2014 no-action letter in response to an identical shareholder proposal – the Staff began denying no-action requests to exclude these proposals from proxy statements that will be filed in the coming weeks, reversing the position that the Staff took in December 2014. In the recent responses, the Staff acknowledges that it “has previously agreed” that there is some basis for the view that companies could omit the independent chair proposals from their proxy materials but that “upon further reflection,” the Staff is no longer able to reach this conclusion.
When Business Roundtable representatives and I met with you and your staff on January 20, 2015, we expressed significant concerns about the sudden announcement by the Division late into the proxy season that it would no longer express views during the current proxy season on the application of Rule 14a-8(i)(9), which, as you know, allows a company to exclude a shareholder proposal that “directly conflicts” with a company proposal. This most recent reversal of a previous view from the SEC’s staff gives us greater concern, as it further highlights a lack of consistency of the Staff’s actions with respect to shareholder proposal no-action letters – and the timing of which further compounds the issue.
Unanticipated and delayed changes of course by the Staff creates significant disruption for companies, their boards and shareholders, and undermines the predictability and appearance of impartiality of the shareholder proposal no-action letter process. The costs of shareholder proposals to companies and their shareholders are already significant and the recent developments have significantly increased costs of compliance with Rule 14a-8 to companies. These costs include board, management and outside advisor time and other significant resources that, in our opinion, simply do not enhance shareholder value. To make matters worse, the Staff’s recent reversals occurred late in the proxy season, at a time when many companies are on the verge of filing their proxy materials for upcoming annual meetings. Boards of directors take shareholder engagement seriously, including responding to shareholder proposals and in many instances have been considering these shareholder proposals for several months. In light of their fiduciary duty to act in the best interests of all shareholders, boards often need time to consult with advisors, discuss possible responses with shareholders, receive recommendations from the governance committee and discuss next steps at board meetings that were scheduled months in advance. However, the Staff’s sudden decision to reverse course so late in the proxy preparation process creates a situation where alternatives for responding to shareholder proposals may no longer be feasible for many companies and their boards.
The Division’s standard Informal Procedures accompanying the response to every no-action request state that the Division “believes that its responsibility with respect to matters arising under Rule 14a-8 . . . is to aid those who must comply with the rule by offering informal advice and suggestions and to determine, initially, whether or not it may be appropriate in a particular matter to recommend enforcement action to the Commission.” Business Roundtable believes that a core component of assisting in compliance with Rule 14a-8 is providing consistent and timely guidance, so that companies, boards and shareholders have a reasonable level of certainty about the shareholder proposal process. Thus, we encourage you after this proxy season to consider ways to increase the reliability, appearance of impartiality and responsiveness of the Staff’s no-action letter efforts, including encouraging a return to the use of Staff Legal Bulletins in between proxy seasons to communicate any evolutions in the Staff’s thinking on the excludability of proposals under Rule 14a-8 so that all parties can plan accordingly.
Thank you for considering our views. We would be happy to discuss our concerns. Please contact Michael J. Ryan, Jr. of the Business Roundtable at (202) 496-3275.
Sincerely,
John A. Hayes
Chairman, President and Chief Executive Officer
Ball Corporation
Chair, Corporate Governance Committee
Business Roundtable