You may recall that, last month, Corp Fin announced that it had revisited its approach to responding to no-action requests to exclude shareholder proposals. In essence, under the new policy, the staff may respond to some requests orally, instead of in writing, and, in some cases, may decline to state a view altogether, leaving the company to make its own determination. (See this PubCo post.) In its most recent proxy guidelines, Glass Lewis explains its expectations from companies in light of the new approach.
In describing the new approach in remarks to the PLI Securities Regulation Institute this week, Corp Fin Deputy Director Shelley Parratt indicated that the only real change was in the form of the response; there was no intent to otherwise change policy (i.e., for those who were concerned about the potential expansion of “declines to state.”) Parratt indicated that SEC responses to no-action requests are essentially an accommodation to companies and that it has always been the case that Corp Fin could decline to state a view. She said that the plan was to post a chart on the SEC website with the bottom line responses to these no-action requests—which she thought might actually be easier for readers to follow—and to inform both the company and the proponent by email that the response would shortly be posted on the chart. The expectation is that this process would start later this month. Corp Fin will continue to provides letter responses where they believe it would be valuable.
At least one of the proxy advisory firms, Glass Lewis, has chimed in with its expectations regarding how companies should respond to the new approach. In its 2020 Proxy Paper™ Guidelines, Glass Lewis has stated that they “believe that companies should only omit proposals in instances where the SEC has explicitly concurred with a company’s argument that a proposal should be excluded. In instances where the SEC has declined to state a view on whether a shareholder resolution should be excluded, we believe that such proposals should be included in a company’s proxy filings. A failure to do so will likely lead Glass Lewis to recommend that shareholders vote against the members of the governance committee.” [emphasis added] Of course, at least to date, declines to state have been rare and, based on Parratt’s remarks, will likely remain so.
This next guideline, however, could have greater general application as it applies in all cases where the SEC has “verbally permitted a company to exclude a shareholder proposal and there is no written record provided by the SEC about such determination.” In the absence of a “written record,” Glass Lewis says that it expects “the company to provide some disclosure concerning this no-action relief. In cases where a company has failed to include a proposal on its ballot without such disclosure, we will generally recommend shareholders vote against the members of the governance committee of the board.” [emphasis added] Is a staff response in the Corp Fin chart referred to above a sufficient “written record,” or is Glass Lewis referring here only to a staff response letter? Is the disclosure intended just for purposes of verification or is more extensive disclosure expected (e.g., of the bases for the requested exclusion)?