Brief Fact Summary. It was argued by the American Federation of State, County & Municipal Employees (AFSCME) (Plaintiff) that its shareholder proposal — to have a condition for American International Group (AIG) (Defendant) to amend its bylaws to insist that under particular circumstances, AIGhad to disclose the names of shareholder nominated director position candidates along with any AIG board of directors nominated candidates â€”under SEC Rule 14a-9(i)(8) (in relation to an election) were not to be omitted from AIG’s proxy statement.
Synopsis of Rule of Law. A shareholder proposalfails to relate “to an election,” and so is not dismissible from a proxy statement, if it plans to amend the corporate bylaws to institute a procedurewherespecific shareholders are authorized to include in the corporate proxy materials their nominees for the board of directors, under SEC 4a-8(i)(8).
Construing a regulation is similar to interpreting a statute; that is, we begin by examining its language.View Full Point of Law
Issue. A shareholder proposal fails to relate “to an election,” so is it dismissible from a proxy statement, if it plans to amend the corporate bylaws to institute a procedure where specific shareholders are authorized to include in the corporate proxy materials their nominees for the board of directors, under SEC 4a-8(i)(8)?
Held. (Wesley, J.) No. A shareholder proposal fails to relate “to an election,” and so is not dismissible from a proxy statement, if it plans to amend the corporate bylaws to institute a procedure where specific shareholders are authorized to include in the corporate proxy materials their nominees for the board of directors, under SEC 4a-8(i)(8).Rule 14a-8(i)(8) is ambiguous, it allows a corporation to omit a shareholder proposal (suggestion(s) or condition(s) that the company and/or its board take some action and the submitting shareholders plan to show to the other shareholders at a meeting) only if, for board membership, that proposal â€œrelates to an election.â€ â€œRelates to and electionâ€ could be interpreted as generating a distinction betwixt proposals referring to a particular seat in a particular election or those like AFSCME’s [P] that just lay out the basic rules for the general governing of elections. The reasonable interpretation uses â€œanâ€ before â€œelectionâ€ and follows that the Rule was meant to only cover certain elections, not elections overall. It is also reasonable to think that the phrase was meant to produce moderately expansive exclusion, one that covers â€œa particular election or elections generally” seeing as all proposals that relate to elections in general will most likely also refer to one in specific. As the Rule offers no reason to choose one interpretation over another, the Rule, on its face, is ambiguous. When this is the case, courts usually seek guidance in any interpretation made by the agency that circulated the regulation of concern and often defers to that interpretation. Over time, the SEC has created two opposing interpretations of the Rule, with the earlier of the two taking a narrower view of the exclusion and the later a broader view. The earlier version, made in the SEC’s 1976 Statement, stated that if an immediate election contest would be the outcome then a proposal could be excluded, seeing as per Rule 14a-8(i)(8), shareholder proposals involving election related matters could be omitted as long as the matters were addressed in a proxy solicitation which would activate Rule 14a-12 (the former Rule 14a-11.) The nomination of a candidate by a proxy solicitation for a particular election would be made â€œfor the purpose of opposing”the company’s proxy solicitation and so would assuredly activate Rule 14a-12. A shareholder proposal wanting to question management’s nominees would be excludable under Rule 14a-8(i)(8), based on the 76 Statement, but a proxy solicitation wanting an additional proxy access amendment to the corporate bylaws would not implicate contradicting solicitations involving with the removal of directors or the election and so would not activate Rule 14a-12. Both the 76 Statement and the SEC’s subsequent statement held the view that election exclusion is restricted to shareholder proposals utilized to conflict with solicitations involving a specific board seat in a pending election and denied the expansive meaning that the exclusion is applicable to the proposals that would make an election contest probable. After 16 years, the SEC changed its view by considering proposals excludable if the outcome of them could be contested elections, even if they claim to only change basic procedures for the election and nomination of directors. Due to the opposing views, the SEC fails to hold the usual deference saved for an agency’s interpretation of its regulations and it fails to offer reasoning behind its switched viewpoint regardless of a â€œduty to explain its departure from prior norms.” So, the SEC’s earlier meaning should be deferred to and if the SEC wishes to change that position, it should proceed by amending the Rule or explaining its altered position. Reversed.
Discussion. One of the 13 practical foundations upon which a company may rely on to omit a shareholder proposal from its proxy materials is Rule 14a-80)(8)Â a.k.a. “the town meeting rule.” In 2007, the SEC adopted an amendment to Rule 14a-80)(8) that codified the agency’s latest construction of the rule, in response to the AIG decision. The amended language of the rule states that a company is permitted to omit a proposal:Â “If the proposal relates to a nomination or an election for membership on the company’s board of directors or analogous governing body or a procedure for such nomination or election.” Also, the amended rule text relates only to procedures that would result in a disputed election, either in the year of the proposal’s submission or in the years that follow, and fails to affect or address any other aspects of the agency before construction of the exclusion, as clarified in the adopting release for this rule.