SEC Staff Grants Substantial Implementation No-Action Relief for Proposal to Amend Proxy Access By-Law | Practical Law

SEC Staff Grants Substantial Implementation No-Action Relief for Proposal to Amend Proxy Access By-Law | Practical Law

The SEC's Division of Corporation Finance issued a no-action letter granting Oshkosh Corporation's request to exclude a shareholder proposal based on substantial implementation from its 2017 proxy materials that would require the board to amend its existing proxy access by-law after the company partially amended its by-law.

SEC Staff Grants Substantial Implementation No-Action Relief for Proposal to Amend Proxy Access By-Law

by Practical Law Corporate & Securities
Published on 10 Nov 2016 • USA (National/Federal)
The SEC's Division of Corporation Finance issued a no-action letter granting Oshkosh Corporation's request to exclude a shareholder proposal based on substantial implementation from its 2017 proxy materials that would require the board to amend its existing proxy access by-law after the company partially amended its by-law.
On November 4, 2016, the SEC's Division of Corporation Finance (Division) issued a no-action letter granting Oshkosh Corporation's request to exclude a shareholder proposal from its 2017 proxy materials that would require the board to amend its existing proxy access by-law. Oshkosh had sought to exclude the proposal under Exchange Act Rule 14a-8(i)(10) on the grounds that the company had already substantially implemented the proposal because it adopted some of the proponent's provisions in a by-law amendment on September 13, 2016. The very brief no-action letter stated that:
  • There appeared to be some basis for Oshkosh's view that the proposal may be excluded under Rule 14a-8(i)(10).
  • Based on the information Oshkosh presented, it appeared that Oshkosh's policies, practices, and procedures compare favorably with the guidelines of the shareholder proposal and that therefore Oshkosh has substantially implemented the proposal.
In November 2015, Oshkosh amended its by-laws to adopt and implement proxy access. On August 8, 2016 Oshkosh received a proposal from John Chevedden for inclusion in the company's annual proxy statement seeking to amend the existing proxy access by-law to include several "essential elements for substantial implementation".
The proposal sought to make the following changes to Oshkosh's existing proxy access by-law:
  • Minimum number of shares. The proposal requested that the minimum number of shares of company common stock required to nominate a candidate should be 3% of the number of outstanding shares of common stock. Oshkosh's original by-law required a minimum shareholding of 5%.
  • Number of proxy access nominees. The proposal requested that the number of shareholder nominees should be one quarter of the directors then serving or two, whichever is greater. Oshkosh's original by-law limited the number of nominees to 20% of the total number of directors then serving, with a maximum of two proxy candidates.
  • Aggregation of shares. The proposal requested that there be no limitations on the number of shareholders that can aggregate their shares. Oshkosh's original by-law allowed aggregation of shares of only up to 20 shareholders.
  • Renomination. The proposal requested that there be no limitation on the renomination of shareholder nominees based on the number or percentage of votes received in any election. Oshkosh's original by-law allowed the company to exclude any prior nominee who received less than 25% of the total votes cast from being eligible for renomination for the next two meetings.
  • Statement of intent. The proposal requested that there be no requirement that a shareholder making a nomination provide a statement of intent to continue to hold the required percentage of shares after the annual meeting. Oshkosh's original by-law required the shareholder to represent that it would continue to own the minimum number of shares of company common stock for at least one year following the meeting.
  • Treatment of loaned shares. The proposal requested that loaned securities should be counted toward the ownership threshold if the nominating shareholder represents that it has the legal right to recall those securities for voting purposes, will vote the securities at the annual meeting, and will hold those securities through the date of the meeting. Oshkosh's original by-law provided that loaned securities may be counted if they can be recalled on five business days' notice.
On September 13, 2016, Oshkosh amended its proxy access by-law to:
  • Reduce the minimum number of shares to 3%.
  • Eliminate the requirement that a proxy access nominee receive at least 25% of the votes cast to be eligible for renomination.
  • Eliminate the requirement that a shareholder represent to continue to own the minimum number of shares for the next year.
Oshkosh argued that, by amending its by-laws to adopt these three of the proponent's six requested provisions, it satisfied the proponent's essential objective of expanding shareholders' ability to use proxy access. Oshkosh argued that, as a result of satisfying this objective, even though it did not adopt all of the provisions requested by the proponent, it had substantially implemented the proposal.
The Oshkosh no-action letter (and the specific facts and circumstances underlying the SEC staff's actions) can be distinguished from the denial of no-action relief to H&R Block in July 2016 because Oshkosh took some action to "fix" and amend its original by-laws in response to the shareholder's proposal before requesting exclusion of the proposal. For more information on the H&R Block no-action letter, see Legal Update, SEC Staff Denies Substantial Implementation No-Action Relief for Proxy Access By-Law.
To learn more about shareholder proposals, see Practice Note, How to Handle Shareholder Proposals.