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SEC Staff Grants No-Action Relief for Exclusion of Proposal to Prohibit Virtual Annual Meetings
Practical Law Legal Update w-005-3874 (Approx. 3 pages)
SEC Staff Grants No-Action Relief for Exclusion of Proposal to Prohibit Virtual Annual Meetings
by Practical Law Corporate & Securities
| Published on 19 Jan 2017 • USA (National/Federal) |
The SEC's Division of Corporation Finance issued a no-action letter granting HP Inc.'s request to exclude a shareholder proposal from its 2017 proxy materials that would require the board to adopt a corporate governance policy to initiate or restore in-person annual meetings and to publicize this policy to investors.
On December 28, 2016, the SEC's Division of Corporation Finance (Division) issued a no-action letter granting HP Inc.'s request to exclude a shareholder proposal from its 2017 proxy materials that would require the board to:
- Adopt a corporate governance policy to initiate or restore in-person annual meetings.
- Publicize this policy to investors.
On November 16, 2016, as required by Rule 14a-8(j) under the Exchange Act, HP filed a letter with the SEC notifying the SEC staff that it intended to omit the proposal from its 2017 proxy materials. The letter set out HP's view that the proposal covered matters relating to HP's ordinary business operations, which are excludable under Rule 14a-8(i)(7). In particular, the letter stated HP's view that the shareholder proposal was excludable under Rule 14a-8(i)(7) because it:
- Related to the company's determination of whether to hold annual meetings in person. HP stated that the determination of whether to hold in-person annual meetings is precisely the type of issue that the ordinary business exclusion is designed to address, as the proposal would impose a rigid requirement on the company in a situation where the company would be better served by its management and board making a focused and informed analysis of the issue. It also referred to prior no-action relief granted by the SEC staff to EMC Corporation for the exclusion of a similar shareholder proposal.
- Related to the location and conduct of the company's annual meeting. HP also stated that the proposal attempts to oversee the company's decisions about the location and conduct of its annual meeting and would substitute the proponents' judgment for that of the company's management in an area that is fundamental to the day-to-day operations of the company. The proposal, HP said, is analogous to a hypothetical proposal seeking to prohibit the company from holding its annual meeting in a particular city. In the past, the SEC staff has granted no-action relief for the exclusion of these types of proposals. The staff has also consistently agreed that proposals relating to the webcast and use of electronic media and communications technology to record and conduct annual meetings may be excluded under Rule 14a-8(i)(7).
- Related to, and attempted to regulate, the company's communications with shareholders. Lastly, HP stated that the proposal is excludable because it relates to, and attempts to regulate, the company's communications with its shareholders at the annual meeting. Decisions about communications with shareholders, it said, are the type of ordinary business operations that the ordinary business exclusion is designed to remove from shareholder decision-making. In addition, in the past, the SEC staff has granted no action relief for the exclusion of proposals relating to the communication of companies with their shareholders, as well as proposals seeking to regulate communications with shareholders at annual meetings.
In its response, the SEC staff advised HP that there appeared to be some basis for excluding the proposal and it would therefore not recommend enforcement action to the SEC if HP omitted the proposal from its proxy materials.
To learn more about shareholder proposals, see Practice Note, How to Handle Shareholder Proposals.