A forthcoming academic paper looks for bundling in more than 1,500 management proposals between 2003 and 2012.  Bundling occurs when multiple matters are combined into a single proposal.  The authors, James Cox, Fabrizio Ferri, Colleen Honigsberg, and Randall Thomas, conclude that bundling occurs far more frequently than had been suggested by prior studies.  They recommend that the Securities and Exchange Commission withdraw its 2004 guidance regarding bundling of stockholder proposals.

The perceived SEC ban on bundling is found in its rules governing the form of proxies:

• Rule 14a-4(a)(3) which requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon, whether or not related to or conditioned on the approval of other matters”; and
• Rule 14a-4(b)(1) which requires that the form of proxy provide separate boxes for shareholders to choose between approval, disapproval or abstention “with respect to each separate matter referred to therein as intended to be acted upon . . .”.

The challenge, therefore, is how to define a “matter”.  The authors propose that bundling be required when a material “item” is bundled with other technical or material “items”.  But what exactly constitutes an “item”?  Should an equity incentive plan be viewed as a single item or is it the bundling of separate items?  Should the stockholders be able to vote separately on the provisions of the plan providing for option awards, restricted stock awards, and other award types?

There is an old bon mot that a camel is a horse designed by a committee.  The problem with forced unbundling is that it deprives the stockholders on the ability to vote for a horse.  Instead, they are required to vote on the pieces.  The result may well be a camel.