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New SEC Guidance on Proxy Card Descriptions

    Client Alerts
  • April 05, 2016

Amazingly, the SEC staff continues to scrutinize Securities Exchange Rule 14a-4(a)(3)’s proxy card parameters. As you may recall, the staff recently grappled with the ever-murky “unbundling” aspect of that rule: first via three C&DIs issued in January 2014 (see this Doug’s Note) then again in October 2015 in the form of Q&As dealing specifically with merger proxy statements (see this Doug’s Note).

Then a few days ago, the staff provided guidance as to the meaning of “identify clearly.”

What does the rule say?

Securities Exchange Act Rule 14a-4(a)(3) requires that:

“[t]he form of proxy…[s]hall identify clearly and impartially each separate matter intended to be acted upon….” (emphasis added)

Recent hubbub regarding when a shareholder proposal “directly conflicts” with a management proposal under Rule 14a-8 (see this Doug’s Note) and regarding proxy access in general apparently raised concern over how specific a proxy card description must be.

The new guidance…

The staff stated the disclosure standard as follows:

“the proxy card should clearly identify and describe the specific action on which shareholders will be asked to vote.”  (emphasis added)

While “and describe” seems like an expansion of “identify,” most companies already make some effort to describe the item to avoid confusing their shareholders.

The staff’s actual guidance is limited to providing the following examples of disclosure that would not satisfy the rule:

  • Describing a management proposal to amend the charter to increase the authorized shares of stock as “a proposal to amend our articles of incorporation;”
  • Describing a shareholder proposal to amend the bylaws to allow 10% shareholders to call a special meeting as “a shareholder proposal on special meetings;”
  • “A shareholder proposal on executive compensation;”
  • “A shareholder proposal on the environment;”
  • “A shareholder proposal, if properly presented;” and
  • “Shareholder proposal #3.”

The takeaway…

Again, most companies already routinely provided more detail than indicated in the negative examples above. Nevertheless, it is easy to get lazy with this element of proxy disclosure. It also can be tempting to minimize the disclosure for non-management proposals.

The new guidance reminds us that the SEC staff has an eye on proxy card descriptions. It would be worth taking a few minutes to review past proxy cards to confirm your company’s compliance and to keep this issue in mind going forward.