SEC Postpones Discussion of Rule 14a-8, Shareholder Nomination of Directors

October 12, 2006

FEI Summary

On Oct. 11, 2006, the U.S. Securities and Exchange Commission (SEC) announced it will consider recommendations relating to Rule 14a-8 at its December 13 open commission meeting. According to an earlier press release (issued on September 7), the matter relates to the SEC’s proxy rules concerning director nominations by shareholders.

Other matters to be discussed at the December 13 SEC meeting will include proposed guidance for management under Section 404 of the Sarbanes-Oxley Act, as well as Foreign Private Issuer Deregistration and Internet Availability of Proxy Materials.

The Rule 14a-8 matter, originally scheduled to be discussed at the October 18 open commission meeting, according to the September 7 press release, has been moved to December 13. (As noted in the Sunshine Act notice published on October 11, the Rule 14a-8 matter is not on the agenda for the October 18 meeting.)

Based on the information in the September 7 press release, the rule proposal/amendment to Rule 14a-8 of the proxy rules which the SEC will consider is in response to the September 5 decision by the U.S. Court of Appeals for the Second Circuit, which disagreed with the SEC staff’s longstanding interpretation of Rule 14a-8.

 “A large number of public companies” are subject to the above court’s jurisdiction, according to the SEC’s September 7 press release, in which SEC Chairman Christopher Cox stated, "Rule 14a-8, the shareholder proposal rule, provides shareholders important rights in the proxy process. These rights are best secured under consistent national application of Rule 14a-8 to shareholder proposals. Therefore, to provide certainty with regard to shareholder proposals in every judicial circuit, I have directed the staff to prepare recommendations for revisions to Rule 14a-8 that will assure its consistent nationwide application.”

Also according to the September 7 press release, SEC anticipated that, following publication of the proposed amendment to Rule 14a-8 and the public comment period, a final rule proposal would be considered at an open commission meeting in time to allow a final rule to go into effect in time for the 2007 proxy season. 

SEC’s more recent announcement, on Oct. 11, indicating the Rule 14a-8 matter will be considered at the Dec. 13 open commission meeting [rather than the Oct. 18 meeting as originally anticipated], did not give any indication whether the SEC’s expectation that the final rule would be in effect for the 2007 proxy season has changed.

Prepared Oct. 12, 2006 by Edith Orenstein (eorenstein@FinancialExecutives.org), Director, Technical Policy Analysis, Financial Executives International (FEI). This summary does not represent FEI opinion, unless specifically noted above.