Proposals are resolutions to be voted on at shareholder meetings. Proposals may address matters such as the election of members of the Board of Directors, the issuance of additional stock, an amendment to the corporation’s Articles of Incorporation, executive compensation and other corporate matters.
There are two types of proposals. Management proposals are put forward by the company’s management, and shareholder proposals are proposed by a company’s shareholder. The SEC’s Shareholder Proposal Rule (Rule 14a-8) requires that companies include in their proxy materials shareholder proposals are to be presented for vote at their annual meetings. Shareholders who do not want to rely on the company’s proxy materials, and who may be circulating their own proxy statement and proxy card, must often give the company at least 120 day "advance notice" of their proposal. These "advance notice" requirements appear in the company’s by-laws and most recent proxy statement. Shareholder proposals may cover a variety of topics, including matters of corporate governance, social and environmental issues. To be eligible to submit a proposal, a shareholder must own at least $2,000 in market value, or 1%, of a company’s outstanding stock for at least one year. They must continue to hold those shares through the meeting date.
The Board of Directors recommends in the proxy materials whether it supports or opposes management and shareholder proposals.
SEC Rules and Regulations Regarding Proposals
Once a company receives a shareholder proposal, it may choose to include the proposal in its proxy materials, work with the shareholder toward a mutually agreeable solution (which may include withdrawal of the proposal) or submit a No-Action request to the SEC in order to exclude the proposal from the company’s proxy materials.
Since there are a variety of rules and regulations surrounding shareholder proposals, it’s important to understand all of the guidelines before submitting one. There are several reasons a company can rely on to exclude a shareholder proposal from its proxy materials. These reasons include, but aren’t limited to, instances when the proposal:
- Is not a proper subject for shareholder action under State law
- Would violate a law if adopted
- Is materially false or misleading
- Relates to a matter of the company’s ordinary business operations
- Has already been substantially implemented
For a more complete description of the shareholder proposal, see Staff Legal Bulletin 14, which may be found at the SEC’s website at: http://www.sec.gov/interps/legal/cfslb14.htm.
SEC Rule 14a-8