The Evolving Role of Rule 14A-8 in the Corporate Governance Process
65 Pages Posted: 21 Apr 2016 Last revised: 7 May 2016
Date Written: April 20, 2016
For the first five decades of existence, Rule 14a-8 existed in an environment largely defined by issuer consternation and shareholder disinterest. Unhappy shareholders preferred to invoke the Wall Street Rule rather than demonstrate their disagreement at the ballot box. Management viewed feedback and advice from shareholders, for the most part, as unwanted. To the extent shareholder friendly reforms occurred, they often were forced on the Commission by the courts.
Much has changed since that first half-century of the Rule’s development. Shareholders are more organized. Communication between owners and management has improved. Use of Rule 14a-8 as a mechanism for obtaining the collective views of shareholders is more widely accepted. Moreover, the advent of say on pay proposals has resulted in non-management proposals becoming a routine part of the proxy process. The practice has arguably reduced some of the concerns over the use of Rule 14a-8 to obtain the collective views of shareholders.
The Rule, however, was drafted in an earlier era and has not been updated to reflect the change in the relationship between owners and managers. In the existing environment, there is less need for Commission intermediation. To the extent believing that a proposal has already been implemented or has become irrelevant, management can make the case in the opposition statement, leaving the ultimate outcome to shareholders.
The Rule and the accompanying administrative interpretation therefore require changes designed to ensure that the provision better aligns with the current state of corporate governance. The article suggests a number of ways that this could occur, including greater involvement by the Commission in the oversight of the administrative interpretation of the Rule.
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