SEC to Give Oral No-Action Letters

The SEC has announced that it will not put all of its rulings on shareholder proposals in writing. Some rulings will be oral only. Needless to say, since the Code of Hammurabi in ancient Mesopotamia, the idea has been that it is a good thing to have the rules in writing so that everyone knows what they are and they will be consistent. We consider this a poor decision with ominous implications.

The staff intends to issue a response letter where it believes doing so would provide value, such as more broadly applicable guidance about complying with Rule 14a-8.

The staff continues to believe, as noted in Staff Legal Bulletin 14I and Staff Legal Bulletin 14J, that when a company seeks to exclude a shareholder proposal from its proxy materials under paragraphs (i)(5) or (i)(7) of Rule 14a-8, an analysis by its board of directors is often useful.

If the staff declines to state a view on any particular request, the interested parties should not interpret that position as indicating that the proposal must be included. In such circumstances, the staff is not taking a position on the merits of the arguments made, and the company may have a valid legal basis to exclude the proposal under Rule 14a-8. And, as has always been the case, the parties may seek formal, binding adjudication on the merits of the issue in court.


Investors have written to object to this policy.

An excerpt:

We recommend that the Division rescind the policy and retain the process that has worked reasonably well for decades. The number of no action requests processed by the Staff has not increased, and thus this change does not seem merited. In the event that the SEC does not rescind the new policy, we offer the following suggestions to reduce the level of uncertainty and conflict resulting from the new approaches:

1. Keep the new options as exceptional. Clarify that in the coming season, the new options will not be routinely or widely utilized, but instead will be deployed on a few pilot decisions until the implications are better understood. This would stay in line with the SEC historically declining to issue a decision only in exceptional conditions such as ongoing litigation⁠1 on the core legal issue raised by the proposal.

2. Establish clear criteria for deployment of the new options. Describe the criteria for determining when the agency will decline to issue a no-action decision or issue an “oral” determination. An overarching set of guidelines seems necessary to guide staff decision-making and inform the market; to the extent that general criteria are not possible, we urge that the Staff include an explanation of the use of the options on a case-by-case basis consistent with prior practice. For example, in declining to issue a decision, the Staff might note that the issues are addressed by Staff precedents (include citation to exemplary precedents). Similarly, the Staff might note that it is declining to decide the issues in a no-action letter, but that this does not preclude later referring the matter for enforcement.

3. Establish early time frames. We recommend that the Staff signal a clear and routine time limit on when the “no-determination” option will be taken. To the extent that the Staff could make determinations to decline to issue an opinion early, e.g. within seven days of receiving a no-action request, it could help avert futile efforts and expenditures by investors to prepare a proponent’s response for the Staff’s consideration, and allow time to pursue litigation. Conversely, we seek clarification as to whether the Staff will await a response from the proponent before choosing one of these forms of disposition.

4. Clarify online posting. The Staff has noted to a reporter for Standard & Poor’s that it will signify online, in some manner, these new dispositions, together with any letters. We request that any correspondence from the proponent’s perspective, as well as the issuer’s request, be posted online with the statement of disposition.

5. Specify procedural safeguards for oral decisions. Procedures for rendering oral decisions should ensure fair and symmetrical information and access by the parties. For instance, the Staff could conduct a conference call in which the issuer and proponent are each represented to hear the same presentation. As one observer has suggested, the Staff could allow the audio recording of such a call.

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