The Imminent Resurrection Of Rule 14a-8 And The Renewed Significance Of State Corporate Law

The big news at the Securities and Exchange Commission last week was that it would not seek to overturn the D.C. Court of Appeals’ decision vacating Rule 14a-11 (See D.C. Circuit Delivers Harsh Judgment on SEC Rule 14a-11 and Business Roundtable v. SEC – Winners and Losers). When the SEC adopted Rule 14a-11, it also approved amendments to Rule 14a-8. The SEC stayed the effectiveness of those amendments during the litigation over Rule 14a-11.

Now that the Rule 14a-11 litigation has ended, the amendments to Rule 14a-8 will become effective. According to this statement by SEC Chairwoman Mary Schapiro, this is likely to occur tomorrow. As a result, companies will no longer be able to rely on Rule 14a-8(i)(8) to exclude a proposal seeking to establish a procedure in a company’s governing documents for the inclusion of one or more shareholder nominees for director in the company’s proxy materials. Consequently, I expect to see more shareholder proposals seeking to amend corporate bylaws. However, whether shareholders have the power to amend bylaws unilaterally is a function of state law. Thus, now is a good time to review state law authority to adopt and amend bylaws.

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