March 23, 2016

Proxy Cards: Corp Fin’s New CDI on “Clear & Impartial” Proposal Descriptions

Yesterday, Corp Fin issued this CDI 301.01 about how a proxy card should “clearly identify and describe the specific action on which shareholders will be asked to vote” for both management & shareholder proposals. The CDI provides six examples of what not to do. This is one of those examples that doesn’t satisfy Rule 14a-4(a)(3): it would not be appropriate to describe a shareholder proposal to amend a company’s bylaws to allow shareholders holding 10% of the company’s common stock to call a special meeting as “a shareholder proposal on special meetings.” The CDI doesn’t clarify whether it applies to VIFs – but it likely does. Here’s an excerpt from this Gibson Dunn blog:

The CD&I does not indicate that a shareholder proponent’s title or description of its own proposal is necessarily determinative of how that proposal should be identified on the company’s proxy card. For example, if a shareholder captions her proposal as “Proposal on Special Meetings,” that description presumably still may not satisfy Rule 14a-4(a)(3). Thus, a company remains ultimately responsible for determining how a shareholder proposal is described on the company’s proxy card.

Because the Staff’s interpretation was based on Rule 14a-4, it applies only to how proposals are addressed on a company’s proxy card. Nevertheless, we would expect the Staff to hold similar views in interpreting the requirement under Rule 14a-16(d)(6) that a company’s Notice of Internet Availability contain a “clear and impartial identification of each separate matter intended to be acted on.” Similarly, to the extent that companies are involved in reviewing and commenting on the form of voting instruction card that is distributed to street name shareholders, best practice is to conform the descriptions of proposals on the voting instruction card to the descriptions on the company’s proxy card. Companies also are subject to the general standard of avoiding misleading statements when identifying or describing proposals within the body of the proxy statement.

Notably, the SEC does not have a rule on the form and content of the state law notice that appears at the front of companies’ proxy statements. Thus, if a company has determined that a generic description of shareholder proposals is sufficient for the notice page of the proxy statement under state law, such as stating that the shareholder meeting agenda includes a “shareholder proposal, if properly presented,” the C&DI does not prevent that practice. As a result, the description (if any) of those proposals on the notice page may differ from how each proposal is identified on the proxy card.

Coincidentally, this follows my blog on last week about this topic…