The United States Proxy Exchange (USPX) yesterday released recommended standards for documenting eligibility to submit shareowner proposals.
The standards consist of a template letter that can be used by securities intermediaries to document their clients’ eligibility to file a proposal under Rule 14a-8. Glyn Holton, executive director of USPX, explains that the standards are based on in-depth research of relevant SEC no-action decisions, staff legal bulletins and the Apache vs. Chevedden lawsuit. It also contains informal discussions with SEC staff and USPX members’ experience with filing shareowner proposals.
Currently, corporate boards and management are, in Holton's opinion, able to exploit ambiguity surrounding the proxy proposal rules to concentrate power and block the ability of shareholders to influence the company. While SEC Rule 14a-8 oversees the entire process, and lays out rules regarding documentation that must be provided by shareowners to prove that they own shares in a corporation in order to submit a proposal, Holton believes executives have exploited the SEC's rule provision in an effort to refute the proponents' documentation of eligibility.
'These efforts have included multiple no-action requests of the SEC and the frivolous Apache vs. Chevedeen lawsuit,' says Holton. 'Both the SEC staff and the Federal District Court in Houston have mostly rejected these efforts.'
Holton pointed out that securities intermediaries contacted the USPX for further information on the appropriate documentation that can facilitate a client's eligibility. As a result, over the summer, USPX began working on standards to address this issue. But, after learning of the SEC’s plan to distribute a staff legal bulletin on the same topic, they decided to stop working on the standards and sent a letter to the commission regarding their findings with the hopes of having their conclusions integrated with the SEC’s bulletin.
‘When the SEC comes out with their legal bulletin, we feel that their requirements will be less stringent than what what we specified in our standards which are more conservative,’ said Holton.
The standards serve as an interim solution until the commission can issue a staff legal bulletin, and the USPX has released the standards in full length on their website.
