SEC Nullifies 'Ordinary Business' Proxy Exemption

December 10, 2002 ( - Companies will no longer be able to duck shareholder proxy fights including whether they should be required to treat stock options as an expense, according to a new rule.

The US Securities and Exchange Commission (SEC) announced that it would no longer allow companies to block shareholder proxy questions by claiming the issue involved related to their “ordinary business,” Dow Jones reported.

The move, a reversal of an earlier SEC position, could open more than 100 companies to shareholder battles aimed at forcing the option-expensing requirement, Dow Jones said.

The SEC’s new position came in a letter to the United Brotherhood of Carpenters and Joiners of America, which had sought unsuccessfully earlier this year to force a shareholder vote on options expensing at National Semiconductor Corp.

National Semiconductor adopted the ordinary-business exception to exclude the proposal, and in July, the SEC’s corporation-finance division backed National Semiconductor’s position.

In the letter to the union, Martin Dunn, the SEC’s deputy director of corporation finance, said that after an SEC review, the SEC now “does not concur” with National Semiconductor’s view. He added that “in the future, we will not treat shareholder proposals requesting the expensing of stock options as relating to ordinary-business matters,” Dow Jones said.

Among the companies that could face shareholder votes on options expensing as a result, according to the carpenters’ union:

  • Lehman Brothers Holdings Inc.
  • Caterpillar Inc.
  • Eli Lilly and Co.
  • BellSouth Corp.
  •   Apple Computer Inc.
  • Yahoo Inc,
  • Gap Inc.

In addition, the same union is submitting separate shareholder proposals to some companies to urge them to add a performance requirement to their options program.

That would require the firms to beat the stock performance of their peer group in order for executives to cash out the options and not allow them to do so simply when a rise in the overall market pushed the stock higher, Dow Jones said.