March 19, 2015 2:47 p.m. ET
A controversial Securities and Exchange Commission decision to stop allowing companies to exclude certain shareholder proposals stemmed from concern firms could abuse the SEC’s process, the top U.S. securities regulator said Thursday.
SEC Chairman Mary Jo White acknowledged the agency’s January decision to review a corporate governance rule and stop giving companies guidance on whether they could ignore proposals that “directly conflict” with management’s own measures had led to “not insignificant consternation.” Still, there were deeper issues at play, she said.
“While any frustrated expectations are regrettable, my request was driven by a deeper concern that the application of [the rule], as originally interpreted by the staff, could result in unintended consequences and potential misuse of our process,” she said at a conference in New Orleans.
Ms. White was referring to a so-called proxy access resolution submitted to Whole Foods Market Inc. late last year that aimed to make it easier for investors to nominate directors to the high-end grocer. The SEC initially said Whole Foods could ignore the resolution since the grocer had a similar proposal on its corporate ballot. The agency reversed itself in January after investors complained that Whole Food’s own proposal set the bar so high for investors that none would have been able to meet its requirements.
The absence of SEC guidance on the issue of “conflicting” shareholder proposals has helped fuel dozens of companies’ decisions to embrace similar proxy access measures, which, if implemented, would require the companies to include the names of all board nominees, even those not backed by the company, directly on corporate ballots distributed before shareholder annual meetings. The embrace comes in part because companies no longer can go to the SEC for formal permission to exclude investor initiatives they find unpalatable.
Staff are reviewing when a shareholder proposal truly conflicts with a management proposal, Ms. White said. For example, can a company ignore any shareholder proposal on the same topic as one management plans to propose?
“What if the proposals have the same subject matter, but the terms differ?” she asked. “What if management’s proposal could be viewed as a proposal that, if adopted, may purport to provide shareholders with the ability to do something, such as call a special meeting or include a nominee for director in a company’s proxy materials, but that, in fact, no shareholder would be able to meet the criteria to do so?”
Ms. White didn’t provide a timeline for the completion of the review, but staff aim to wrap it up ahead of next year’s proxy season, according to people familiar with the matter.
Write to Andrew Ackerman at [email protected]
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