The commission unanimously decided to let stand, rather than review, the determination of the Division of Corporation Finance regarding the American Federation of State, County and Municipal Employees’ Pension Plan (AFSCME) proposal to Citigroup Inc. related to the nomination of candidates for director, according to a news release.
AFSCME’s proposal called for Citigroup to permit shareholders or groups of shareholders holding 3% or more of the company’s stock to nominate candidates for director in the company’s proxy material (See Pension Funds Urge SEC Action on Proxy-Access Issue ). After review of a request from Citigroup, the Division of Corporate Finance determined that existing Rule 14a-8 under the Securities Exchange Act of 1934 did not require Citigroup to include AFSCME’s proposal in its proxy materials.
Under the current rules, only candidates that are nominated by an incumbent board of directors are included on the ballots that companies distribute to their shareholders. If shareholders want to nominate a candidate, companies are not required to mention the candidate or to include that candidate’s name on the ballot. If a shareholders’ candidate wants support, they must bear the expense of printing, distributing and collecting their own ballots, as well as their own campaign material.
AFSCME had argued that such measures amount to spending large sums of money in what is essentially a proxy contest, action normally only required during hostile-takeover bids.
However, SEC Chairman William Donaldson said in the statement that while current rules governing shareholder proposals and the election of directors will continue to be enforced “the time has come for a thorough review of the proxy rules and regulations.”
The review to formulate possible changes in the proxy rules and regulations and their interpretations regarding procedures for the election of corporate directors will be conducted by the Division of Corporation Finance. During this review, the division will examine issues such as:
- shareholder proposals
- nomination processes
- elections of directors
- solicitation of proxies for director elections
- contests for corporate control
- disclosure and other requirements imposed on large shareholders and groups of shareholders.
Further, the SEC has asked the division to consult with all interested parties, including representatives of pension funds, shareholder advocacy groups, and representatives from the business and legal communities and requested that recommendations be provided by July 15. The outcome of the review will not effect the current proxy voting season.