SEC Limits ‘Nitpicking’ of Investor Proposals

Companies may no longer exclude shareholder proposals from their proxy ballots because of minor factual disputes or differing opinions, the Securities and Exchange Commission said in a staff bulletin.

Companies may continue to exclude proposals that impugn the character of the firm or make allegations of impropriety or illegality without supporting factual information, the SEC said.

Companies also may exclude proposals that contain false information or those that are so vague that shareholders don’t know what they are being asked to vote on.

But in a staff bulletin this week, the SEC said, “Many companies have begun to assert deficiencies in virtually every line of a proposal’s supporting statement as a means to justify exclusion of the proposal in its entirety.”

Brian Lane, a Washington lawyer who once headed the SEC’s division of corporation finance, said regulators had grown weary of companies “nitpicking” investor proposals.

The SEC has received more than 150 requests for so-called no-action letters from companies during the last 12 months, mostly seeking guidance about what they may or may not exclude from their proxy ballots.

“This clears the air,” said Tim Smith, a money manager at Walden Asset Management in Boston. “The SEC staff was becoming judge and jury as company lawyers filed reams of challenges on every little thing.”

Walden, a self-described activist fund, has had two of 25 resolutions it submitted this year kept off ballots, Smith said.

This month Hewlett-Packard Co. asked the SEC to allow it to leave out a resolution from a shareholder who said the company should resurrect the line of computers it bought from Compaq Computer Corp. in 2002.

Hewlett-Packard said the shareholder should at least be prevented from describing its board as “an ineffectual, obsequious body whose heads nod up and down like bobble-head dolls,” saying the language is an insult. The SEC hasn’t answered the company’s petition.

The SEC’s new guidance on proxies gives investors more opportunities to revise resolutions that are demeaning or that contain statements of opinion.

Sarah Teslik, executive director of the Council of Institutional Investors, said the SEC’s new guidance may force companies to reconsider objections before they automatically file with the SEC to oppose resolutions.

“When I see these filings, I always think, ‘Have they no shame?’ ” Teslik said. “Companies that do this show flagrant disrespect for their owners.”