[Federal Register: June 18, 2009 (Volume 74, Number 116)]
[Proposed Rules]
[Page 29023-29090]
[DOCID:fr18jn09-5]

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Part II

Securities and Exchange Commission

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17 CFR Parts 200, 232, 240 et al.

Facilitating Shareholder Director Nominations; Proposed Rule

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 232, 240, 249 and 274

[Release Nos. 33-9046; 34-60089; IC-28765; File No. S7-10-09]
RIN 3235-AK27

Facilitating Shareholder Director Nominations

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing changes to the federal proxy rules to remove
impediments to the exercise of shareholders' rights to nominate and
elect directors to company boards of directors. The new rules would
require, under certain circumstances, a company to include in the
company's proxy materials a shareholder's, or group of shareholders',
nominees for director. The proposal includes certain requirements, key
among which are a requirement that use of the new procedures be in
accordance with state law, and provisions regarding the disclosures
required to be made concerning nominating shareholders or groups and
their nominees. In addition, the new rules would require companies to
include in their proxy materials, under certain circumstances,
shareholder proposals that would amend, or that request an amendment
to, a company's governing documents regarding nomination procedures or
disclosures related to shareholder nominations, provided the proposal
does not conflict with the Commission's disclosure rules--including the
proposed new rules. We also are proposing changes to certain of our
other rules and regulations--including the existing exemptions from our
proxy rules and the beneficial ownership reporting requirements--that
may be affected by the new proposed procedures.

DATES: Comments should be received on or before August 17, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-10-09 on the subject line; or
     Use the Federal eRulemaking Portal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-10-09. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/final.shtml). Comments are
also available for public inspection and copying in the Commission's
Public Reference Room, 100 F Street, NE., Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Lillian Brown, Tamara Brightwell, or
Eduardo Aleman, Division of Corporation Finance, at<PHONE_NUMBER>, or,
with regard to investment companies, Kieran G. Brown, Division of
Investment Management, at<PHONE_NUMBER>, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are proposing new Rule 82a of Part 200
Subpart D--Information and Requests,\1\ and new Rules 14a-11,\2\ 14a-
18,\3\ and 14a-19,\4\ new Regulation 14N \5\ and Schedule 14N,\6\ and
amendments to Rule 13 \7\ of Regulation S-T,\8\ Rules 13a-11,\9\ 13d-
1,\10\ 14a-2,\11\ 14a-4,\12\ 14a-6,\13\ 14a-8,\14\ 14a-9,\15\ 14a-
12,\16\ and 15d-11,\17\ Schedule 14A,\18\ and Form 8-K,\19\ under the
Securities Exchange Act of 1934.\20\ Although we are not proposing
amendments to Schedule 14C \21\ under the Exchange Act, the proposed
amendments would affect the disclosure provided in Schedule 14C, as
Schedule 14C requires disclosure of some items of Schedule 14A.
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    \1\ 17 CFR 200.82a.
    \2\ 17 CFR 240.14a-11.
    \3\ 17 CFR 240.14a-18.
    \4\ 17 CFR 240.14a-19.
    \5\ 17 CFR 240.14n et seq.
    \6\ 17 CFR 240.14n-101.
    \7\ 17 CFR 232.13.
    \8\ 17 CFR 232.10 et seq.
    \9\ 17 CFR 240.13a-11.
    \10\ 17 CFR 240.13d-1.
    \11\ 17 CFR 240.14a-2.
    \12\ 17 CFR 240.14a-4.
    \13\ 17 CFR 240.14a-6.
    \14\ 17 CFR 240.14a-8.
    \15\ 17 CFR 240.14a-9.
    \16\ 17 CFR 240.14a-12.
    \17\ 17 CFR 240.15d-11.
    \18\ 17 CFR 240.14a-101.
    \19\ 17 CFR 249.308.
    \20\ 15 U.S.C. 78a et seq.
    \21\ 17 CFR 240.14c-101.
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Table of Contents

Facilitating Shareholder Director Nominations

I. The Need for Reforms to the Federal Proxy Rules
    A. Overview
    B. Shareholder Participation in the Nomination and Election
Process
    1. Existing Shareholder Options
    2. Recent Corporate Governance and Other Reforms
II. Recent Commission Consideration of the Proxy Rules and
Regulations Addressing the Election of Directors
    A. 2003 Review of the Proxy Process and Subsequent Rulemaking
    B. 2007 Rulemaking Concerning Shareholder Proposals Seeking To
Establish Bylaw Procedures for Shareholder Director Nominations
III. Proposed Changes to the Proxy Rules
    A. Introduction
    B. Proposed Exchange Act Rule 14a-11
    1. Overview
    2. Application of Exchange Act Rule 14a-11
    3. Eligibility To Use Exchange Act Rule 14a-11
    4. Shareholder Nominee Requirements
    5. Maximum Number of Shareholder Nominees To Be Included in
Company Proxy Materials
    6. Notice and Disclosure Requirements
    7. Requirements for a Company That Receives a Notice From a
Nominating Shareholder or Group
    8. Application of the Other Proxy Rules to Solicitations by the
Nominating Shareholder or Group
    C. Amendments to Exchange Act Rule 14a-8(i)(8)
    1. Background
    2. Proposed Amendment to Rule 14a-8(i)(8)
    3. Disclosure Requirements
    4. Codification of Prior Staff Interpretations
    D. Other Rule Changes
    1. Beneficial Ownership Reporting Requirements
    2. Exchange Act Section 16
    E. Application of the Liability Provisions in the Federal
Securities Laws to Statements Made by a Nominating Shareholder or
Nominating Shareholder Group
    F. General Request for Comment
IV. Paperwork Reduction Act
    A. Background
    B. Summary of Proposed Amendments

    C. Paperwork Reduction Act Burden Estimates
    1. Proposed Rule 14a-11
    2. Proposed Amendment to Rule 14a-8(i)(8)
    3. Proposed Schedule 14N and Proposed Exchange Act Rules 14a-18
and 14a-19
    4. Proposed Amendments to Exchange Act Form 8-K
    5. Form ID Filings
    D. Revisions to PRA Reporting and Cost Burden Estimates
    E. Solicitation of Comment
V. Cost-Benefit Analysis
    A. Background
    B. Benefits
    1. Reduction in Costs Related to Shareholder Nominations
    2. Improved Disclosure of Shareholder Nominated Director
Candidates
    3. Potential Improved Board Performance and Company Performance
    4. Enhanced Ability for Shareholders and Companies To Adopt
Procedures
    C. Costs
    1. Costs Related to Potential Adverse Effects on Company and
Board Performance
    2. Costs Related to Potential Complexity of Proxy Process
    3. Costs Related to Preparing Disclosure, Printing and Mailing
and Costs of Additional Solicitations
    D. Small Business Issuers
    E. Request for Comment
VI. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
VII. Initial Regulatory Flexibility Act Analysis
    A. Reasons for, and Objectives of, the Proposed Action
    B. Legal Basis
    C. Small Entities Subject to the Proposed Rules
    D. Reporting, Recordkeeping and Other Compliance Requirements
    E. Duplicative, Overlapping or Conflicting Federal Rules
    F. Significant Alternatives
    G. Solicitation of Comment
VIII. Small Business Regulatory Enforcement Fairness Act
IX. Statutory Basis and Text of Proposed Amendments

I. The Need for Reforms to the Federal Proxy Rules

A. Overview

    The nation and the markets have recently experienced, and remain in
the midst of, one of the most serious economic crises of the past
century. This crisis has led many to raise serious concerns about the
accountability and responsiveness of some companies and boards of
directors to the interests of shareholders, and has resulted in a loss
of investor confidence. These concerns have included questions about
whether boards are exercising appropriate oversight of management,
whether boards are appropriately focused on shareholder interests, and
whether boards need to be more accountable for their decisions
regarding such issues as compensation structures and risk management.
In light of the current economic crisis and these continuing concerns,
the Commission has determined to revisit whether and how the federal
proxy rules may be impeding the ability of shareholders to hold boards
accountable through the exercise of their fundamental right to nominate
and elect members to company boards of directors.
    Regulation of the proxy process and disclosure is a core function
of the Commission and is one of the original responsibilities that
Congress assigned to the Commission in 1934. Section 14(a) of the
Exchange Act \22\ stemmed from a Congressional belief that ``[f]air
corporate suffrage is an important right that should attach to every
equity security bought on a public exchange.'' \23\ The Congressional
committees recommending passage of Section 14(a) proposed that ``the
solicitation and issuance of proxies be left to regulation by the
Commission'' \24\ and explained that Section 14(a) would give the
Commission the ``power to control the conditions under which proxies
may be solicited.'' \25\ Congress thus recognized a federal interest in
the way public corporations handle the proxy process, and granted the
Commission authority to prescribe rules to regulate the solicitation of
proxies ``as necessary or appropriate in the public interest or for the
protection of investors.'' \26\
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    \22\ 15 U.S.C. 78n(a).
    \23\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., 13. See also Mills
v. Electric Auto-Lite Co., 396 U.S. 375, 381 (1970); J. I. Case Co.
v. Borak, 377 U.S. 426, 431 (1964).
    \24\ S. Rep. No. 792, 73d Cong., 2d Sess., 12 (1934).
    \25\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., 14 (1934). The
same report demonstrated a congressional intent to prevent
frustration of the ``free exercise of the voting rights of
stockholders.'' Id. Courts have found that the relevant legislative
history also demonstrates an ``intent to bolster the intelligent
exercise of shareholder rights granted by state corporate law.''
Roosevelt v. E.I. Du Pont de Nemours & Co., 958 F.2d 416, 421 (D.C.
Cir. 1992); see Borak, 377 U.S. at 431.
    \26\ 15 U.S.C. 78n(a).
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    Responding to the Commission's mandate from Congress, the
Commission has actively overseen the development of the proxy process
since 1934. The Commission has monitored the process and has considered
changes when it appeared that the process was not functioning in a
manner that adequately protected the interests of investors.\27\ At the
same time, the Commission has been mindful of the traditional role of
the states in regulating corporate governance. For example, Exchange
Act Rule 14a-8,\28\ the shareholder proposal rule, explicitly provides
that a company is permitted to exclude a shareholder proposal if it
``is not a proper subject for action by shareholders under the laws of
the jurisdiction of the company's organization'' \29\ or ``[i]f the
proposal would, if implemented, cause the company to violate any state,
federal, or foreign law to which it is subject.'' \30\
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    \27\ For example, as discussed in further detail below, the
Commission has considered changes to the proxy rules in recent
years. See Security Holder Director Nominations, Release No. 34-
48626 (October 14, 2003) [68 FR 60784] (``2003 Proposal'');
Shareholder Proposals, Release No. 34-56160 (July 27, 2007) [72 FR
43466] (``Shareholder Proposals Proposing Release''); Shareholder
Proposals Relating to the Election of Directors, Release No. 34-
56161 (July 27, 2007) [72 FR 43488] (``Election of Directors
Proposing Release''); and Shareholder Proposals Relating to the
Election of Directors, Release No. 34-56914 (December 6, 2007) [72
FR 70450] (Election of Directors Adopting Release''). When we refer
to the ``2007 Proposals'' and the comments received in 2007, we are
referring to the Shareholder Proposals Proposing Release and the
Election of Directors Proposing Release and the comments received on
those proposals, unless otherwise specified.
    \28\ 17 CFR 240.14a-8.
    \29\ 17 CFR 240.14a-8(i)(1).
    \30\ 17 CFR 240.14a-8(i)(2).
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    In identifying the rights that the proxy process should protect,
the Commission has sought to take as a touchstone the rights of
shareholders under state corporate law. As Chairman Ganson Purcell
explained to a committee of the House of Representatives in 1943:

    The rights that we are endeavoring to assure to the stockholders
are those rights that he has traditionally had under State law, to
appear at the meeting; to make a proposal; to speak on that proposal
at appropriate length; and to have his proposal voted on.\31\
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    \31\ Securit[ies] and Exchange Commission Proxy Rules: Hearings
on H.R. 1493, H.R. 1821, and H.R. 2019 before the House Committee on
Interstate and Foreign Commerce, 78th Cong., 1st Sess. 172 (1943)
(statement of SEC Chairman Ganson Purcell).

This principle has given rise to a shorthand that explains much of the
Commission's activity in regulating the proxy process. The proxy rules
seek to improve the corporate proxy process so that it functions, as
nearly as possible, as a replacement for an actual in-person meeting of
shareholders.
    Refining the proxy process so that it replicates, as nearly as
possible, the annual meeting is particularly important given that the
proxy process has become the primary way for shareholders to learn
about the matters to be decided by the shareholders and to make their
views known to company management.\32\ Our recent examinations

of the proxy process and the comments that we have received in the
course of these examinations suggest that the director nomination and
shareholder proposal processes are two areas in which our current proxy
rules pose impediments to the exercise of shareholders' rights.\33\
These proposed amendments are intended to remove impediments so
shareholders may more effectively exercise their rights under state law
to nominate and elect directors at meetings of shareholders.
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    \32\ See, e.g., Securit[ies] and Exchange Commission Proxy
Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the
House Comm. on Interstate and Foreign Commerce, 78th Cong., 1st
Sess., at 17-19 (1943) (Statement of the Honorable Ganson Purcell,
Chairman, Securities and Exchange Commission) (Explaining the
initial Commission rules requiring the inclusion of shareholder
proposals in the company proxy materials: ``We give [a stockholder]
the right in the rules to put his proposal before all of his fellow
stockholders along with all other proposals * * * so that they can
see then what they are and vote accordingly. * * * The rights that
we are endeavoring to assure to the stockholders are those rights
that he has traditionally had under State law, to appear at the
meeting; to make a proposal; to speak on that proposal at
appropriate length; and to have his proposal voted on. But those
rights have been rendered largely meaningless through the process of
dispersion of security ownership through[out] the country. * * *
[T]he assurance of these fundamental rights under State laws which
have been, as I say, completely ineffective * * * because of the
very dispersion of the stockholders' interests throughout the
country[;] whereas formerly * * * a stockholder might appear at the
meeting and address his fellow stockholders[, t]oday he can only
address the assembled proxies which are lying at the head of the
table. The only opportunity that the stockholder has today of
expressing his judgment comes at the time he considers the execution
of his proxy form, and we believe * * * that this is the time when
he should have the full information before him and ability to take
action as he sees fit.''); see also S. Rep. 792. 73d Cong., 2d
Sess., 12 (1934) (``[I]t is essential that [the stockholder] be
enlightened not only as to the financial condition of the
corporation, but also as to the major questions of policy, which are
decided at stockholders' meetings.'').
    \33\ See, e.g., Unofficial Transcript of the Roundtable
Discussion on Proposals for Shareholders, May 25, 2007, comments of
Leo E. Strine Jr., Vice Chancellor, Court of Chancery of the State
of Delaware (Vice Chancellor Strine), at 112, available at: http://
www.sec.gov/news/openmeetings/2007/openmtg_trans052507.pdf
(observing that it is ``a little bit perverse'' that ``a bylaw
dealing with the election process that might well have been viable
under state law was kept off the ballot when you could have
something that was precatory mandated to be on the ballot'').
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    There are many competing policy arguments about the effect that
shareholder-nominated directors or shareholder-proposed nomination
procedures might have on a company and its governance. Some commenters
believe that the presence of shareholder-nominated directors would make
boards more accountable to the shareholders who own the company and
that this accountability would improve corporate governance and make
companies more responsive to shareholder concerns.\34\ Some commenters
further express the belief that, absent an effective way for
shareholders to exercise rights to nominate and elect directors that
state corporate law presumes shareholders have, the election of
directors is a self-sustaining process of the board determining its
members, with little actual input from shareholders.\35\ Commenters
have noted that without competition for director elections, directors
are effectively unaccountable to shareholders and may lose sight of
their proper role as representatives of the company.\36\
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    \34\ See, e.g., comment letters on the 2007 Proposals (SEC File
Nos. S7-16-07 and S7-17-07) from James McRitchie, Corporate
Governance (October 1, 2007) (``McRitchie 2007''); and Stephen
Abrecht, Executive Director, SEIU Master Trust (October 1, 2007)
(``SEIU'').
    \35\ See, e.g., 2004 Roundtable Submission of Lucian Bebchuk:
Lucian Arye Bebchuk, The Case for Shareholder Access to the Ballot,
59 The Business Lawyer 43, 49 (2003) (``Bebchuk 2003 Article'')
(``Suppose that there is a widespread concern among shareholders
that a board with a majority of independent directors is failing to
serve shareholder interests. It is precisely under such
circumstances that the nominating committee cannot be relied on to
make desirable replacements of members of the board or even of
members of the committee itself--at least not unless shareholders
have adequate means of applying pressure on the committee.'').
    \36\ See, e.g., comment letter on 2007 Proposals (SEC File Nos.
S7-16-07 and S7-17-07) from William Apfel, et al., Walden Asset
Management (September 11, 2007).
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    Similarly, foreign investors have noted the lack of accountability
of directors in the United States compared with other countries,
stating among other things that ``[t]he harsh reality is that U.S.
corporate governance practices are on a relative decline compared to
other leading markets.'' \37\ In that vein, the Committee on Capital
Markets Regulation has observed that this ``difference creates an
important potential competitiveness problem for U.S. companies.'' \38\
Other commenters have expressed concern that the relative inability of
shareholders of U.S. companies to participate in the selection of
directors compared with shareholders of their foreign competitors
creates a competitiveness problem for U.S. companies.\39\
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    \37\ Comment letter on 2007 Proposals (SEC File Nos. S7-16-07
and S7-17-07) from Michael O'Sullivan, President, Australian Council
of Super Investors, et al. (October 2, 2007). See also Michelle
Edkins, Acting Chairman, International Corporate Governance Network
Shareholder Rights Committee (October 2, 2007) and Knut Kjer, CEO,
Norges Bank Investment Management, et al. (September 28, 2007).
    \38\ Committee on Capital Markets Regulation, Interim Report
(November 30, 2006) at 109, available at: http://www.capmktsreg.org/
pdfs/11.30Committee_Interim_ReportREV2.pdf.
    \39\ See comment letter on 2007 Proposals (SEC File Nos. S7-16-
07 and S7-17-07) from Carl Levin, United States Senator, (September
27, 2007) at page 6.
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    Academic literature also has highlighted the roles of boards of
directors at companies that have demonstrated corporate governance
failings. Such literature points to a link between board accountability
and company performance.\40\ In recognition of this link, Congress
passed the Sarbanes-Oxley Act of 2002 to help strengthen corporate
governance at public companies.\41\ Commenters additionally have argued
that competition for board seats might lead companies to nominate
directors who are better qualified and more independent.\42\
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    \40\ See, e.g., Michael E. Murphy, The Nominating Process for
Corporate Boards of Directors--A Decision-Making Analysis, 5
Berkeley Bus. L.J. 131 (2008).
    \41\ See, e.g., Section 301 of the Sarbanes-Oxley Act of 2002,
inserting Section 10A(m) to the Exchange Act, which directed the
Commission to promulgate rules requiring the national securities
exchanges to ``prohibit the listing of any security of an issuer
that is not in compliance'' with the Act's audit committee
provisions. As a consequence, listed companies are now required to
have audit committees composed solely of independent directors.
    \42\ See generally Bebchuk 2003 Article. See also In re Oracle
Corp. Derivative Litigation, 824 A.2d 917, 941 (Del. Ch. 2003)
(``The recent reforms enacted by Congress and by the stock exchanges
reflect a narrower conception of who they believe can be an
independent director. These definitions, however, are blanket labels
that do not take into account the decision at issue. Nonetheless,
the definitions recognize that factors other than the ones
explicitly identified in the new exchange rules might compromise a
director's independence, depending on the circumstances.'').
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    On the other side of the debate, some commenters have raised
concerns that shareholder-nominated directors could impede the proper
functioning of companies and cause inefficiencies. For example, some
argue that a shareholder-nominated director may be beholden to and
focused solely on the concerns of the nominating shareholder or group,
with the potential result being that a small number of shareholders
could impose their unique concerns on the company and the rest of
shareholders.\43\ Additionally, some commenters have suggested that the
presence of a shareholder-nominated director could disrupt the
functioning of the board and could even lead to the company moving in a
direction that does not reflect the interests of its shareholders
overall.\44\ Others have raised concerns that the possibility of a
contested election could deter qualified candidates from seeking to
serve as members of a board.\45\
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    \43\ See, e.g., comment letters on 2007 Proposals from Thomas
Wilson, President, The Allstate Corporation (October 2, 2007) and
David T. Hirschmann, Senior Vice President, U.S. Chamber of Commerce
(October 2, 2007).
    \44\ See, e.g., comment letter on 2007 Proposals from Anne M.
Mulcahy, Chairman, Business Roundtable Corporate Governance Task
Force, Business Roundtable (October 1, 2007) (``Mulcahy, BRT'').
    \45\ Id.

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    We recognize that there are long-held and deeply felt views on both
sides of these issues. The action we take today is focused on removing
burdens that the federal proxy process currently places on the ability
of shareholders to exercise their basic rights to nominate and elect
directors. If we adopted rules to remove those burdens, we believe that
these rules would facilitate shareholders' ability to participate more
fully in the debates surrounding these issues. To the extent
shareholders have the right to nominate directors at meetings of
shareholders, the federal proxy rules should not impose unnecessary
barriers to the exercise of this right.\46\ The SEC's mission is
investor protection, and we believe that investors are best protected
when they can exercise the rights they have as shareholders, without
unnecessary obstacles imposed by the federal proxy rules.
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    \46\ See, e.g., Unofficial Transcript of the Roundtable on the
Federal Proxy Rules and State Corporation Law (May 7, 2007),
comments of R. Franklin Balotti, Director, Richards, Layton &
Finger, P.A., at 14-17, available at: http://www.sec.gov/spotlight/
proxyprocess/proxy-transcript050707.pdf; Unofficial Transcript of
the Roundtable on the Federal Proxy Rules and State Corporation Law
(May 7, 2007), comments of Vice Chancellor Strine, at 18-23; and
Unofficial Transcript of the Roundtable on the Federal Proxy Rules
and State Corporation Law (May 7, 2007), comments of Stanley Keller,
Edwards Angell Palmer & Dodge LLP, at 142-143.
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    Based on the staff's and Commission's review of the proxy
solicitation process and the extensive public input that we have
received over the past several years on the topic of shareholders'
ability to meaningfully exercise their rights to vote for and nominate
directors of the companies in which they invest, we have decided to
propose changes to the current proxy rules relating to the nomination
of directors. First, we believe that we can and should structure the
proxy rules to better facilitate the exercise of shareholders' rights
to nominate and elect directors. The right to nominate is inextricably
linked to, and essential to the vitality of, a right to vote for a
nominee.\47\ The failure of the proxy process to adequately facilitate
shareholder nomination rights has a direct and practical effect on the
right to elect directors.\48\ As noted, the proxy rules have been
designed to improve the proxy process so that it functions, as nearly
as possible, as a replacement for an in-person meeting of shareholders.
This is important because the proxy process today represents
shareholders' principal means of participating effectively at an annual
or special meeting of shareholders.\49\ Based on the feedback we have
received over the last few years, it appears that the federal proxy
process may not be adequately replicating the conditions of the
shareholder meeting. Second, we believe that parts of the federal proxy
process may unintentionally frustrate voting rights arising under state
law, and thereby fail to provide fair corporate suffrage. These two
potential shortcomings in our regulations provide compelling reasons
for us to reform the proxy process and our disclosure requirements
relating to director nominations.\50\ The comments received on the
Commission's recent proposals on this topic in 2003 and in 2007, as
well as the Roundtables held by the Commission in 2004 and 2007, helped
form the basis for our beliefs.\51\
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    \47\ See, e.g., Durkin v. Nat'l Bank of Olyphant, 772 F.2d 55,
59 (3d Cir. 1985) (stating that ``the unadorned right to cast a
ballot in a contest for office, a vehicle for participatory
decisionmaking and the exercise of choice, is meaningless without
the right to participate in selecting the contestants. As the
nominating process circumscribes the range of the choice to be made,
it is a fundamental and outcome-determinative step in the election
of officeholders. To allow for voting while maintaining a closed
candidate selection process thus renders the former an empty
exercise. This is as true in the corporate suffrage context as it is
in civic elections, where federal law recognizes that access to the
candidate selection process is a component of constitutionally-
mandated voting rights. See United States v. Classic, 313 U.S. 299,
316-317, 85 L.Ed. 1368, 61 S.Ct. 1031 (1941) (article I, section 2,
right to choose congressional representatives includes the right to
participate in primary elections); Smith v. Allwright, 321 U.S. 649,
661-662, 88 L.Ed. 987, 64 S.Ct. 757 (1944) (fifteenth amendment
prohibition of race-based abridgement of voting rights applies to
primary as well as general elections). Banks do not exist for the
purpose of creating an aristocracy of directors and officers which
can continue in office indefinitely, immune from the wishes of the
shareholder-owners of the corporation. And there is no more
justification for precluding shareholders from nominating candidates
for their board of directors than there would be for public
officials to deny citizens the right to vote because of their race,
poverty or sex. Cf. U.S. Const. amends. XV, XXIV, and XIX.'' id. at
59 (emphasis added)); and Hubbard v. Hollywood Park Realty
Enterprises, Inc., 1991 Del. Ch. LEXIS 9 (Del. Ch. Jan. 14, 1991)
(quoting Durkin).
    \48\ Shoen v. Amerco, 885 F.Supp. 1332, 1342 (D. Nev. 1994)
(``unadorned right to cast a ballot in a contest for office, after
all, is meaningless without the right to participate in selecting
the contestants'' (internal quotation marks omitted)).
    \49\ Historically, a shareholder's voting rights generally were
exercised at a shareholder meeting. As discussed above, in passing
the Securities Exchange Act, Congress understood that many companies
had become held nationwide through dispersed ownership, at least in
part facilitated by stock exchange listing of shares. Although
voting rights in public companies technically continued to be
exercised at a meeting, the votes cast at the meeting were by proxy
and the voting decision was made during the proxy solicitation
process. This structure persists to this day.
    \50\ The Commission's proxy rules have required shareholder
proposals on certain matters to be included in company proxy
materials since 1940 (see Release No. 34-2376 (January 12, 1940)),
subject to amendment from time to time pursuant to the Commission's
dynamic regulation of the proxy process.
    \51\ See 2003 Proposal; Shareholder Proposals Proposing Release;
Election of Directors Proposing Release; and Election of Directors
Adopting Release. See also, Section II, below, regarding the
Commission's consideration of the proxy rules.
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B. Shareholder Participation in the Nomination and Election Process

1. Existing Shareholder Options
    Many commenters have noted that current procedures available for
director nominations afford little practical ability for shareholders
to participate effectively in the nomination process and, through that
process, exercise their rights and responsibilities as owners of their
companies.\52\ If shareholders are dissatisfied with their company's
performance and believe that the problem lies with the ineffectiveness
of the company's board of directors, the existing proxy process
provides shareholders with three principal options to attempt to effect
change.\53\ First, shareholders can mount a proxy contest in accordance
with our proxy rules. Second, shareholders can use the shareholder
proposal procedure in Rule 14a-8 to submit proposals and have a vote on
topics that are important to them. Third, shareholders can conduct a
``withhold vote'' or ``vote no'' campaign against one or more
directors.\54\
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    \52\ See, e.g., 2003 Staff Report and summary of comments in
response to the Commission's May 1, 2003 solicitation of comments.
    \53\ Commenters on the 2003 Proposal discussed the range of
options currently available. See, e.g., comment letters from
Ashland, Inc. (December 17, 2003) (``Ashland''); Conoco-Phillips
(December 31, 2003); Delphi Corporation (December 10, 2003); Emerson
Electric Co. (December 15, 2003); Financial Services Roundtable
(December 22, 2003); Kerr-McGee Corporation (December 22, 2003)
(``Kerr-McGee''); Independent Community Bankers of America (December
22, 2003); Letter Type D; Malcom S. Morris (November 6, 2003)
(``Morris''); Office Depot, Inc. (December 22, 2003) (``Office
Depot''); Valero Energy Corporation (December 18, 2003)
(``Valero''); and Wachtell Lipton Rosen & Katz (November 14, 2003)
(``Wachtell''). Cf. Blasius, 564 A.2d at 659 (``Generally,
shareholders have only two protections against perceived inadequate
business performance. They may sell their stock (which, if done in
sufficient numbers, may so affect security prices as to create an
incentive for altered managerial performance), or they may vote to
replace incumbent board members.'').
    \54\ In the case of plurality voting, shareholders may vote in
the election of directors for, or withhold authority to vote for,
each nominee rather than vote for, against or abstain, as is the
case for other matters to be voted on by shareholders. See Exchange
Act Rule 14a-4(b)(2).
---------------------------------------------------------------------------

    Shareholders also can use options that exist outside of the proxy
process. For example, shareholders can sell their shares (sometimes
referred to as the ``Wall Street Walk''); they can engage in a dialogue
with management (including recommending a candidate to the

nominating committee); or they can propose a board nominee at a
shareholder meeting. Each of these options has drawbacks that limit its
effectiveness.\55\
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    \55\ See, e.g., comment letter on the 2003 Proposal from The
Corporate Library (December 22, 2003) (``Corporate Library'')
(``Shareholders can sell the stock at what they perceive to be a
substantial discount. Or they can run their own slate of candidates,
paying 100 percent of the costs, which may come to hundreds of
thousands or even millions of dollars, for only a pro rata share of
any increase in shareholder value as a result of the contested
election. Meanwhile, management will spend the shareholders' money
to fight them. This is not a level playing field. It is close to
perpendicular.'').
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a. Options Using the Proxy Process
    Shareholders' existing options under the proxy rules to exercise
their ownership rights are often criticized. The chief complaint from
shareholders about the existing options is the high cost involved in
mounting a proxy contest under the Commission's proxy rules. Because
this cost must be borne by the shareholders undertaking the contest,
the option generally is not used outside the corporate-control context,
where the cost may be better justified.\56\ A shareholder or group of
shareholders that is dissatisfied with the leadership of a company
generally, but is not seeking a change in control must, as a result of
our proxy rules, nevertheless undertake a proxy contest, along with its
related expenses and other burdens, to put nominees before the
shareholders for a vote. The shareholder proposal process in Rule 14a-
8, under which a company may be required to include a shareholder
proposal in the company proxy materials, also has been criticized as an
ineffective tool for exercising ownership rights, as Rule 14a-8 is not
available for proposals that relate to director elections.\57\ With
regard to withhold vote and vote no campaigns, because some companies
use plurality voting for board elections and therefore candidates can
be elected regardless of whether they receive more than 50% of the
shareholder vote, withhold vote campaigns may be limited in their
effectiveness. In addition, restrictions under the proxy rules may
limit the effectiveness of withhold vote and vote no campaigns because
shareholders cannot solicit proxy authority through these campaigns.
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    \56\ See, e.g., Corporate Library. See also Bebchuk 2003 Article
at 46. Surveying data from contested elections from 1996 to 2002,
Professor Bebchuk concludes that ``the safety valve of potential
ouster via the ballot is currently not working. In the absence of an
attempt to acquire the company, the prospect of being removed in a
proxy contest is far too remote to provide directors with incentives
to serve shareholders.'' The principal reason the costs could be
better justified in the corporate control context is because
benefits that are expected to arise from a successful contest are
internalized by the shareholder undertaking the contest.
    \57\ Exchange Act Rule 14a-8(i)(8).
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    Further, in any vote for the election of directors, customary
election processes may serve to amplify the practical effect that the
proxy rules have in impeding shareholder nominees.\58\ In particular,
as noted with regard to withhold vote campaigns, for companies using
plurality rather than majority voting for board elections, nominees
generally can be elected as director regardless of whether they receive
a majority of the shareholder vote.\59\ Therefore, in an election in
which there are the same number of nominees as there are board
positions open, each nominee receiving even a single vote will be
elected, regardless of the number of votes withheld from a nominee.
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    \58\ See, e.g., Unofficial Transcript of the Security Holder
Director Nominations Roundtable (March 10, 2004) (``2004 Roundtable
Transcript''), comments of Ira M. Millstein, Weil, Gotshal & Manges,
available at: http://www.sec.gov/spotlight/dir-nominations/
transcript03102004.txt.
    \59\ Under plurality voting, the nominee with the greatest
number of votes is elected. But see footnote 69, below (noting that
some companies using a plurality standard have adopted policies
requiring incumbent directors to resign if they receive less than
majority support). Shareholders at companies using majority voting,
or some other voting method other than plurality voting, may be
better able to express dissatisfaction with a company's nominee or
nominees. As discussed, in recent years, many companies have adopted
a majority voting standard.
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b. Options Outside the Proxy Process
    Shareholders also are critical of the options available to them
outside the proxy process. The ``Wall Street Walk'' is not an optimal
solution because it may not be practical for large institutional
shareholders and others who follow a passive management or indexing
strategy, and it may require investors to lock in a loss.\60\ Selling
shares may be very costly for these types of investors because they may
face liquidity issues as a result of the size of their holdings and may
be forced to sell their holdings in a manner that results in capital
gains and therefore is not tax efficient. In addition, while selling
shares may depress the stock price, leading to higher cost of capital
for the firm and thus may ultimately spur management changes,\61\ the
investor who sold its shares will not benefit from any improvement that
follows the management change.
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    \60\ See 2003 Summary of Comments, text at notes 9-10. Although
the AFL-CIO noted that active managers of mutual funds can sell
their shares in a company with an ``ineffective or unresponsive
board,'' pension fund managers, including the AFL-CIO and
Amalgamated Bank Longview Fund, noted that the issue of director
accountability is more important to them because they may manage
index funds that are necessarily long-term investors who cannot
easily sell. See comment letters from American Federation of Labor
and Congress of Industrial Organizations (December 19, 2003) (``AFL-
CIO'') and Amalgamated Bank LongView Funds (December 21, 2003)
(``LongView''). See also 2004 Roundtable Transcript, comments of
Richard H. Moore, Treasurer of North Carolina.
    \61\ See 2004 Roundtable Transcript, comments of Peter J.
Wallison, American Enterprise Institute.
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    Engaging management in a dialogue also may not be an effective
option for shareholders because company management may be unresponsive
to investor concerns.\62\ While shareholders can recommend an
individual for nomination as director to a company's nominating
committee, we understand these recommendations are rarely accepted by
nominating committees.\63\ Moreover, in some cases, shareholders may
not be able to exercise their state law rights effectively because they
have had difficulty gaining access to members of company boards and
their committees.\64\
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    \62\ See, e.g., comment letters on the 2003 Proposal from Lucian
A. Bebchuk (December 22, 2003) (``Bebchuk''); California Public
Employees' Retirement System (``CalPERS''); California State
Teachers' Retirement System (``CalSTRS'') (December 4, 2003);
Charles Capito (October 20, 2003); Council of Institutional
Investors (``CII'') (December 12, 2003); Creative Investment
Research (``CIR'') (December 22, 2003); Corporate Library; and Aaron
Rosenthal (October 20, 2003).
    \63\ See, e.g., Division of Corporation Finance, U.S. Securities
and Exchange Commission, Staff Report: Review of the Proxy Process
Regarding the Nomination and Election of Directors (July 15, 2003),
available at: http://www.sec.gov/news/studies/proxyreport.pdf; see
also, comment letter on the 2003 Proposal from CII; and Michael E.
Murphy, The Nominating Process for Corporate Boards of Directors--A
Decision-Making Analysis, 5 Berkeley Bus. L.J. 131 (2008).
    \64\ See, e.g., comment letter on the 2003 Proposal from CII;
comment letter on 2007 Proposals from SEIU. See also Michael E.
Murphy, The Nominating Process for Corporate Boards of Directors--A
Decision-Making Analysis, 5 Berkeley Bus. L.J. 131 (2008). See also
Division of Corporation Finance, U.S. Securities and Exchange
Commission, Staff Report: Review of the Proxy Process Regarding the
Nomination and Election of Directors (July 15, 2003), available at:
http://www.sec.gov/news/studies/proxyreport.pdf.
---------------------------------------------------------------------------

    Finally, given the near universal use of proxy voting and the
inability of shareholders to use the company proxy to vote for
shareholder nominees, it can be futile to nominate a director in person
at a shareholder meeting.\65\
---------------------------------------------------------------------------

    \65\ See Unofficial Transcript of the Roundtable Discussion
Regarding the Federal Proxy Rules and State Corporation Law (May 7,
2007), comments of Vice Chancellor Strine at 79 (commenting that
``this annual meeting thing could be a fix'' where the most active
shareholder institutions gain representation on the board through
other means such as through litigation settlement); see generally, 5
Fletcher Cyclopedia of Corporations Sec.  2049.10 (Perm. Ed.) (``In
large corporations, the shareholders' meeting is now only a
necessary formality; the shareholders' expression can only be had by
the statutory device of proxies and solicitation of proxies.'').

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2. Recent Corporate Governance and Other Reforms
    Over the past several years there have been a number of changes in
corporate governance practices and the federal securities laws that may
have mitigated some of the concerns expressed by commenters in 2003 and
2007 but, in our view, have not sufficiently addressed the central
problem that we are seeking to solve--shareholders' limited ability to
exercise their rights to nominate directors and have the nominations
disclosed to and considered by the shareholders. For example, some
commenters on the 2003 Proposal urged the Commission to defer action in
order to assess the effectiveness of the then recently-enacted
Sarbanes-Oxley Act of 2002 and other reforms, including enhanced
director independence requirements and expansion of the nominating
committee function at public companies.\66\ Other commenters, while
praising these reforms, doubted that they would be sufficient to
address the problems that they hoped would be remedied through reform
of the proxy process itself.\67\ In particular, commenters in 2003
argued that objective independence standards for directors and the use
of independent nominating committees, without more, may not counteract
the perceived tendency of some boards to defer to management, given
factors such as the significant personal relationships that can exist
between directors and officers.\68\ Therefore, shareholders may still
want, but currently may not be able, to effectively nominate and elect
directors that satisfy independence concerns specific to the companies
in which they invest.
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    \66\ See, e.g., comment letter from American Bar Association
(January 7, 2004) (``ABA'').
    \67\ 2004 Roundtable Transcript, comments of Nell Minow and
Ralph V. Whitworth.
    \68\ See generally, Bebchuk. See also In re Oracle Corp., 824
A.2d at 941. See footnote 42, above.
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    Since the 2003 Proposal, a number of other changes in the
governance landscape have occurred, including a significant movement by
larger companies toward majority voting rather than plurality voting in
director elections,\69\ and changes in state law to more expressly
indicate that corporate governing documents may set out shareholders'
right to nominate directors.\70\ The Commission also has adopted
changes to our rules, including enhanced disclosure requirements
concerning nominating committees \71\ and changes to our proxy rules to
facilitate the use of electronic shareholder forums.\72\ While these
and other changes have been significant, after considering the views
discussed throughout the release, we believe the federal proxy process
could still be improved to further remove impediments to the exercise
of shareholders' rights under state law to nominate directors.
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    \69\ The Corporate Library reports that as of December 2008,
49.5 percent of companies in the S&P 500 had made the switch to
majority voting for director elections and another 18.4 percent had,
while retaining a plurality standard, adopted a policy requiring
that a director that does not receive majority support must submit
his or her resignation. On the other hand, the plurality voting
standard is still the standard at the majority of smaller companies
in the Russell 1000 and 3000 indices, with 54.5 percent of companies
in the Russell 1000 and 74.9 percent of the companies in the Russell
3000 still using a straight plurality voting standard. The Corporate
Library Analyst Alert, December 2008. See also Broadridge letter
dated March 27, 2009 and attached analysis in response to File No.
SR-NYSE-2006-92 (stating that in calendar year 2007, 373 NYSE-listed
companies had a majority vote standard for the election of
directors).
    \70\ In CA, Inc. v. AFSCME, 953 A.2d 227 (Del. 2008), the
Delaware Supreme Court held that shareholders can propose and adopt
a bylaw regulating the process by which directors are elected. In
light of this ruling, Delaware recently amended the Delaware General
Corporation Law to add new Section 112, effective August 1, 2009,
clarifying that the bylaws of a Delaware corporation may provide
that, if the corporation solicits proxies with respect to an
election of directors, the corporation may be required to include in
its solicitation materials one or more individuals nominated by a
stockholder in addition to the individuals nominated by the board of
directors. The obligation of the corporation to include such
stockholder nominees will be subject to the procedures and
conditions set forth in the bylaw adopted under Section 112.
Delaware also added new Section 113, which will allow a Delaware
corporation's bylaws to include a provision that the corporation,
under certain circumstances, will reimburse a stockholder for the
expenses incurred in soliciting proxies in connection with an
election of directors. In addition, the American Bar Association's
Committee on Corporate Laws, which is responsible for the Model
Business Corporation Act, is considering similar changes to the
Model Act. See American Bar Association, Section of Business Law,
``Corporate Laws Committee To Address Current Governance Issues,''
April 29, 2009 (noting that Delaware's recent statutory amendments
``are being actively considered by the Committee'') (available at:
http://www.abanet.org/abanet/media/release/news_
release.cfm?releaseid=662). Thirty states have adopted all or
substantially all of the Model Act as their general corporation
statute.
    Also, in 2007, North Dakota amended its corporate code to permit
five percent shareholders to provide a company notice of intent to
nominate directors and require the company to include each such
shareholder nominee in its proxy statement and form of proxy. N.D.
Cent. Code Sec.  10-35-08 (2009); see North Dakota Publicly Traded
Corporations Act, N.D. Cent. Code section 10-35 et al. (2007).
    \71\ See Disclosure Regarding Nominating Committee Functions and
Communications Between Security Holders and Boards of Directors,
Release No. 33-8340 (December 11, 2003) [68 FR 69204].
    \72\ See Electronic Shareholder Forums, Release No. 34-57172
(January 18, 2008) [73 FR 4450] (``Electronic Shareholder Forums
Release'').
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II. Recent Commission Consideration of the Proxy Rules and Regulations
Addressing the Election of Directors\73\
---------------------------------------------------------------------------

    \73\ The Commission also has considered the topic on at least
three earlier occasions--in 1942, 1977, and 1992. For a discussion,
see 2003 Proposal.
---------------------------------------------------------------------------

A. 2003 Review of the Proxy Process and Subsequent Rulemaking

    In April 2003, the Commission directed the Division of Corporation
Finance to review the proxy rules and regulations and interpretations
regarding procedures for the nomination and election of corporate
directors\74\ and on May 1, 2003, the Commission solicited public input
with respect to the Division's review.\75\ Commenters generally
supported the Commission's decision to review the proxy rules and
regulations with respect to director nominations and elections and, in
July 2003, the Division of Corporation Finance provided to the
Commission its report and recommended changes to the proxy rules
related to the nomination and election of directors.\76\
    The Division recommended proposed changes in two areas: (1)
Disclosure related to nominating committee functions and shareholder
communications with boards of directors; and (2) enhanced shareholder
access to the proxy process relating to the nomination of
directors.\77\ The Commission proposed and adopted the recommended
disclosure requirements concerning nominating committee functions and
shareholder communications with boards of directors.\78\ In addition,
in October 2003, the Commission proposed rules that would have created
a mechanism for nominees of long-term shareholders, or groups of long-
term shareholders, with significant shareholdings to be included in
company proxy materials.\79\

The proposed new rules were intended to address perceived inadequacies
in the proxy process with respect to director nominations and
elections.\80\ The proposal generated significant public comment, with
shareholders generally supporting adoption of rules that would
facilitate their right to nominate directors and companies and their
advisors generally opposing such rules because of concerns that a
requirement to include shareholder director nominees in the company's
proxy materials would impede the proper functioning of boards and cause
inefficiencies.\81\ The Commission did not adopt final rules based on
the proposal.
---------------------------------------------------------------------------

    \74\ See Press Release No. 2003-46 (April 14, 2003).
    \75\ See Release No. 34-47778 (May 1, 2003) [68 FR 24530] and
comment file number S7-10-03.
    \76\ See Staff Report: Review of the Proxy Process Regarding the
Nomination and Election of Directors, Division of Corporation
Finance (July 15, 2003) (``2003 Staff Report''), available at:
http://www.sec.gov/news/studies/proxyrpt.htm. See also Summary of
Comments in Response to the Commission's Solicitation of Public
Views Regarding Possible Changes to the Proxy Rules (July 15, 2003),
attached as Appendix A to the Staff Report.
    \77\ See 2003 Staff Report.
    \78\ Disclosure Regarding Nominating Committee Functions and
Communications Between Security Holders and Boards of Directors,
Release No. 33-8340 (December 11, 2003) [68 FR 69204].
    \79\ See 2003 Proposal. The proposal would have required
shareholders to have held the requisite amount of securities to meet
the ownership threshold for two years as of the date of the
nomination.
    \80\ See 2003 Proposal (explaining that the proposal would
``apply only in those instances where criteria suggest that the
company has been unresponsive to security holder concerns as they
relate to the proxy process'').
    \81\ See 2003 Summary of Comments.
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B. 2007 Rulemaking Concerning Shareholder Proposals Seeking to
Establish Bylaw Procedures for Shareholder Director Nominations

    One of the means that shareholders use to express their views on
the management and affairs of a company is through shareholder
proposals, which are addressed in Rule 14a-8. Rule 14a-8 provides
shareholders with an opportunity to place a proposal in a company's
proxy materials for a vote at an annual or special meeting of
shareholders. Under this rule, a company generally is required to
include the proposal unless the shareholder has not complied with the
rule's procedural requirements or the proposal falls within one of the
rule's 13 substantive bases for exclusion. One of the substantive bases
that a company may rely on in excluding a shareholder proposal is Rule
14a-8(i)(8), which addresses shareholder proposals concerning director
elections.\82\ This provision frequently is referred to as the
``election exclusion.'' In interpreting this provision, the Commission
took the position in 2007 that Rule 14a-8(i)(8) permits exclusion of a
proposal that would establish a procedure that may result in contested
elections to the board.\83\
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    \82\ Rule 14a-8(i)(8) provides that a company need not include a
proposal that ``relates to a nomination or an election for
membership on the company's board of directors or analogous
governing body or a procedure for such nomination or election[.]''
    \83\ See Election of Directors Adopting Release (citing
Commission statements made in Release No. 34-12598 (July 7, 1976)
(``[T]he principal purpose of [Rule 14a-8(i)(8)] is to make clear,
with respect to corporate elections, that Rule 14a-8 is not the
proper means for conducting campaigns or effecting reforms in
elections of that nature, since other proxy rules, including Rule
14a-[12], are applicable thereto.'')). See also Division of
Corporation Finance no-action letters to Citigroup, Inc. (January
31, 2003) and AOL Time Warner (February 29, 2003). As noted in the
Election of Directors Proposing Release, in each of 1993 and 1995,
the Division issued one letter that took a contrary view. See Dravo
Corp. (February 21, 1995); and Pinnacle West Capital Corp. (March
26, 1993) (not permitting exclusion under Rule 14a-8(i)(8) of
proposals seeking to include qualified nominees in the company's
proxy statement).
---------------------------------------------------------------------------

    In 2006, the U.S. Court of Appeals for the Second Circuit, in
American Federation of State, County and Municipal Employees, Employees
Pension Plan v. American International Group, Inc.,\84\ held that AIG
could not rely on Rule 14a-8(i)(8) to exclude a shareholder proposal
that, if adopted, would have amended AIG's bylaws to require the
company, under specified circumstances, to include shareholder nominees
for director in the company's proxy materials at subsequent meetings.
The Second Circuit interpreted the language of the rule \85\ and the
Commission's statements in adopting the rule in 1976 as limiting the
election exclusion ``to shareholder proposals used to oppose
solicitations dealing with an identified board seat in an upcoming
election and reject[ing] the somewhat broader interpretation that the
election exclusion applies to shareholder proposals that would
institute procedures making such election contests more likely.'' \86\
The effect of the AFSCME decision was to permit the bylaw proposal to
be included in company proxy materials and, had the bylaw been approved
by shareholders, for subsequent election contests conducted under it to
take place in the company's proxy materials without compliance with the
disclosure requirements applicable to election contests under the
Commission's other proxy rules.\87\ The Commission was concerned that
the Second Circuit's decision resulted in uncertainty and confusion
with respect to the appropriate application of Rule 14a-8(i)(8), and
that it could lead to contested elections for directors without the
disclosure otherwise required under the proxy rules for contested
elections.\88\ This concern led the Commission to reopen the issue of
shareholder involvement in the nomination and election process.\89\
---------------------------------------------------------------------------

    \84\ 462 F.3d 121 (2d Cir. 2006) (AFSCME).
    \85\ At the time of the AFSCME decision, Rule 14a-8(i)(8)
provided that a company need not include a proposal that ``relates
to an election for membership on the company's board of directors or
analogous governing body.'' See id. at 125. This language was
amended in 2007. See Election of Directors Adopting Release.
    \86\ 462 F.3d at 128.
    \87\ Exchange Act Rule 14a-12(c) [17 CFR 240.14a-12(c)] defines
an election contest as ``[s]olicitations by any person or group of
persons for the purposes of opposing a solicitation subject to this
regulation by any other person or group of persons with respect to
the election or removal of directors at any annual or special
meeting of security holders * * *.'' Items 4(b) and 5(b) of Exchange
Act Schedule 14A set out special disclosure requirements for
solicitations subject to Rule 14a-12(c).
    \88\ See Election of Directors Proposing Release. In this
regard, the Commission was concerned that shareholders and companies
would be unable to know with certainty whether a proposal that could
result in an election contest may be excluded under Rule 14a-
8(i)(8), depending on where the company was incorporated or
conducting business, and that the staff would be severely limited in
their ability to interpret Rule 14a-8 in responding to companies'
notices of intent to exclude shareholder proposals.
    \89\ Although the Second Circuit's decision was binding only
within that Circuit, it created uncertainty elsewhere about the
continuing validity of the interpretation of Rule 14a-8(i)(8). After
the AFSCME decision and prior to the Commission's codification of
the interpretation in December 2007, the staff of the Division of
Corporation Finance received three no-action requests seeking to
exclude similar proposals under Rule 14a-8(i)(8). In Hewlett-Packard
(January 22, 2007), the staff took a position of ``no view'' on the
company's request for no-action relief. A second request for no-
action relief was submitted by Reliant Energy. Subsequent to the
staff of the Division of Corporation Finance taking a ``no view''
position on Hewlett-Packard's request, Reliant Energy filed a
complaint in the U.S. District Court for the Southern District of
Texas seeking a declaratory judgment that the company could properly
omit a similar proposal that it had received for inclusion in its
proxy materials. During the pendency of this litigation and prior to
the staff's response to Reliant's no-action request, the shareholder
withdrew the proposal and the company therefore withdrew its no-
action request. (See Reliant Energy, Inc. (February 23, 2007)). A
third request for no-action relief from UnitedHealth Group, Inc. was
withdrawn after the company agreed to include the proposal in its
proxy materials. (See UnitedHealth Group, Inc. (March 29, 2007)).
---------------------------------------------------------------------------

    In May 2007, the Commission hosted three roundtables on the proxy
process during which a number of individuals and representatives from
the public and private sector focused on the relationship between the
proxy rules and state corporate law,\90\ proxy voting mechanics,\91\
and shareholder proposals.\92\ Following the roundtables, in July 2007,
the Commission published for comment two alternative proposals
addressing the election exclusion in Rule 14a-8. The first would have
amended Rule 14a-8 to enable

shareholders to include proposals on shareholder director nomination
bylaws in company proxy materials where certain conditions were
met.\93\ The conditions that could be included in such a proposal would
not have been limited under the rule proposal so long as they complied
with applicable state law and governing corporate documents. As noted
in the proposing release, the goal underlying the proposal was to
better align the proxy rules with shareholders' rights under state law,
in particular the right to nominate directors. The Commission's
alternative proposal sought to amend Rule 14a-8 so that a shareholder
nomination bylaw proposal could be excluded by a company.\94\ The
Commission adopted this proposal in December 2007 to provide certainty
to companies and shareholders in light of the AFSCME decision.\95\ The
Commission did not take final action on the first proposal, with the
exception of the portion of the first proposal intended to facilitate
the creation and use of electronic shareholder forums, which the
Commission adopted in January 2008.\96\
---------------------------------------------------------------------------

    \90\ Roundtable on the Federal Proxy Rules and State Corporation
Law (May 7, 2007). Materials related to the roundtable, including an
archived broadcast and a transcript of the roundtable, are available
at: http://www.sec.gov/spotlight/proxyprocess.htm.
    \91\ Roundtable on Proxy Voting Mechanics (May 24, 2007).
Materials related to the roundtable, including an archived broadcast
and a transcript of the roundtable, are available at: http://
www.sec.gov/spotlight/proxyprocess.htm.
    \92\ Roundtable on Proposals of Shareholders (May 25, 2007).
Materials related to the roundtable, including an archived broadcast
and a transcript of the roundtable, are available at: http://
www.sec.gov/spotlight/proxyprocess.htm.
    \93\ See Shareholder Proposals Proposing Release.
    \94\ See Election of Directors Proposing Release.
    \95\ See Election of Directors Adopting Release.
    \96\ See Electronic Shareholder Forums Release.
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III. Proposed Changes to The Proxy Rules

A. Introduction

    We are proposing amendments to the proxy rules to require companies
to include disclosures about shareholder nominees for director in the
companies' proxy materials, under certain circumstances, so long as the
shareholders are not seeking to change the control \97\ of the issuer
or to gain more than a limited number of seats on the board. These
proposed amendments build on the Commission's 2003 and 2007 proposals.
They also reflect our experience with, and continued consideration of,
the issue of shareholder involvement in the proxy process, the
interaction between the proxy rules and state law, and the extensive
comment that we have received over the past six years on these topics.
As stated previously, due to dispersed ownership, director elections
are largely conducted by proxy rather than in person and, as a result,
impediments that the Federal proxy rules create to shareholders
nominating directors through the proxy process translate into the
inability of shareholders to effectively exercise their rights to
nominate and to elect those directors. We believe the proposed rule
changes will provide shareholders with a greater voice and an avenue to
exercise the rights they have to effect change on the boards of the
companies in which they invest that they no longer can exercise
effectively through attending a shareholder meeting in person.
---------------------------------------------------------------------------

    \97\ A change in control could include any number of
extraordinary transactions, including a sale of substantially all of
the company's assets. See, e.g., Item 14(a) of Schedule 14A.
---------------------------------------------------------------------------

    The Commission's proposals would provide shareholders with two ways
to more fully exercise their rights to nominate directors. First, we
are proposing a new proxy rule (Exchange Act Rule 14a-11) that would,
under certain circumstances, require companies to include shareholder
nominees for director in the companies' proxy materials. This
requirement would apply unless state law or a company's governing
documents\98\ prohibits shareholders from nominating directors.\99\ In
this regard, state law or a company's governing documents may provide
for nomination or disclosure rights in addition to those provided
pursuant to Rule 14a-11 (e.g., a company could choose to provide a
right for shareholders to have their nominees disclosed in the
company's proxy materials regardless of share ownership--in that
instance, the company's provision would apply for certain shareholders
who would not otherwise have their nominees included in the company's
proxy materials pursuant to Rule 14a-11). Second, we are proposing an
amendment to Exchange Act Rule 14a-8(i)(8), the election exclusion, to
preclude companies from relying on Rule 14a-8(i)(8) to exclude from
their proxy materials shareholder proposals by qualifying shareholders
that would amend, or that request an amendment to, a company's
governing documents regarding nomination procedures or disclosures
related to shareholder nominations, provided the proposal does not
conflict with proposed Rule 14a-11.
---------------------------------------------------------------------------

    \98\ Under state law, a company's governing documents may have
various names. When we refer to governing documents throughout the
release, we generally are referring to a company's charter, articles
of incorporation, certificate of incorporation, and/or bylaws, as
applicable.
    \99\ We are not aware of any law in any state or in the District
of Columbia that prohibits shareholders from nominating directors.
Nonetheless, should any such law be enacted in the future, then this
condition would not be satisfied.
---------------------------------------------------------------------------

Request for Comment
    A.1. Does the Commission need to facilitate shareholder director
nominations or remove impediments to help make the proxy process better
reflect the rights a shareholder would have at a shareholder meeting?
    A.2. Should the Commission adopt revisions to the proxy rules to
facilitate the inclusion of shareholder nominees in company proxy
materials, or are the existing means that are available to shareholders
to exercise their rights to nominate directors adequate? How have
changes in corporate governance over the past six years, including the
move by many companies away from plurality voting to majority voting,
affected a shareholder's ability to place nominees in company proxy
materials? How have other developments, as well as ongoing developments
such as some states adopting statutes allowing companies to reimburse
shareholders who conduct director election contests and enabling
companies to include in their bylaws provisions for inclusion of
shareholder director nominees in company proxy materials, affected a
shareholder's ability to nominate directors? Have other changes in law
or practice created a greater or lesser need for such a rule?
    A.3. Would the proposed amendments enable shareholders to effect
change in a company's board of directors? Please explain and provide
any empirical data in support of any arguments or analyses.
    A.4. What would be the costs and benefits to companies and
shareholders if the Commission adopted new proxy rules that would
facilitate the inclusion of shareholder director nominees in company
proxy materials? What would be the costs and benefits to companies if
the Commission adopted the proposed amendment to Rule 14a-8(i)(8)?
    A.5. What direct or indirect effect, if any, would the proposed
changes to the proxy rules have on companies' corporate governance
policies relating to the election of directors?
    A.6. Could the proposed amendments to the proxy rules be modified
to better meet the Commission's stated intent? If so, how? Please
explain and provide empirical data or other specific information in
support of any arguments or analyses. Please identify and discuss any
other rules that would need to be amended.
    A.7. We note concerns regarding investor confidence. Would amending
the proxy rules as proposed help restore investor confidence? Why or
why not? Please explain and provide empirical data or other specific
information in support of any arguments or analyses.
    A.8. We also note concerns about board accountability and
shareholder participation in the proxy process. Would the proposed
amendments to the proxy rules address concerns about board
accountability and shareholder

participation on the one hand, and board dynamics, on the other? If so,
how? If not, why not? Please explain and provide empirical data in
support of any arguments or analyses.
    A.9. Would adoption of only proposed Rule 14a-11 meet the
Commission's stated objectives? If so, why? If not, why not? What
modifications to the proposed rule and related disclosure requirements
would be necessary, if any?
    A.10. Would adoption of only the proposed amendment to Rule 14a-
8(i)(8) and the related disclosure requirements meet the Commission's
stated objectives? If so, why? If not, why not? What modifications to
the proposed rule amendment and related disclosure requirements would
be necessary, if any?
    A.11. Would other revisions to our proxy rules achieve the same or
similar objectives as the Commission's proposal? For example,
regardless of what other action the Commission may take in this area,
should we adopt new disclosure requirements and liability provisions to
address recent changes in some state laws concerning the inclusion of
shareholder nominees for director in company proxy materials pursuant
to a company's governing documents?
    A.12. Are there any states that prohibit, or permit companies to
prohibit, shareholders from nominating a candidate or candidates for
election as director?

B. Proposed Exchange Act Rule 14a-11

1. Overview
    As discussed, currently, a shareholder or group of shareholders
must undertake a proxy contest and incur the related expenses to have
any reasonable chance at successfully putting director nominees before
the shareholders for a vote. A board's nominees, on the other hand, are
listed in the company's proxy materials, which are funded out of
corporate assets.
    We believe it is an appropriate time for us to revisit whether and
how the federal proxy rules may be impeding the ability of shareholders
to exercise their fundamental rights to nominate and elect board
members. As mentioned above, we are aware of the concerns and questions
about the accountability and responsiveness of some companies and
boards of directors to the interests of shareholders, particularly in
the current market environment. Additionally, based on the comments
received in response to our solicitation of public input on the topic
in prior releases and roundtables, we have learned that shareholders
face significant obstacles to efficiently exercising their right to
determine the leadership of the companies in which they invest. Much of
the public input that we have received suggests that including
shareholder nominees for director in company proxy materials would be
the most direct and effective method of facilitating shareholders'
rights in connection with the nomination and election of
directors.\100\
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    \100\ See 2003 Summary of Comments.
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    On the other hand, the business community and many of its legal
advisors have expressed concern that mandating shareholder access to
company proxy materials could turn every election of directors into a
contest, which would be costly and disruptive to companies and could
discourage some qualified board candidates from agreeing to appear on a
company's slate of nominees. Because the composition of the board of
directors is fundamental to a company's governance, the current filing
and other requirements applicable to shareholders who wish to propose
an alternate slate are, in the view of these commenters, more
appropriate than including shareholder nominees for director in company
proxy materials.\101\
---------------------------------------------------------------------------

    \101\ See id.
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    In light of the erosion of investor confidence that has taken place
over the past several months, and after further consideration of the
issue, we have determined to propose a rule that would require
companies to include disclosure about shareholder nominees for director
in company proxy materials under specified conditions.\102\ These
nominees would then also be included on a company's form of proxy in
accordance with the requirements of Rule 14a-4.\103\ Rule 14a-11 would
not apply where shareholders relying on the rule are seeking to change
the control of the issuer or to gain more than a limited number of
seats on the board of directors. In this regard, we believe that
shareholders who are seeking such a change should continue to use the
procedures currently available for election contests.
---------------------------------------------------------------------------

    \102\ See proposed Exchange Act Rule 14a-11.
    \103\ See proposed amendment to Rule 14a-4.
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2. Application of Exchange Act Rule 14a-11
    Proposed Rule 14a-11 would apply to all companies subject to the
Exchange Act proxy rules \104\ (including investment companies
registered under Section 8 of the Investment Company Act of 1940),\105\
other than companies that are subject to the proxy rules solely because
they have a class of debt registered under Section 12 of the Exchange
Act. As proposed, a company would be subject to Rule 14a-11 unless
applicable state law or a company's governing documents prohibits
shareholders from nominating candidates for the board of directors.
When a company's governing documents do prohibit nomination rights,
shareholders who want to amend the provision may seek to do so by
submitting a shareholder proposal.\106\
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    \104\ Exchange Act Rule 3a12-3 [17 CFR 240.3a12-3] exempts
foreign private issuers from the Commission's proxy rules. As such,
the proposed rule would not apply to foreign private issuers.
    \105\ 15 U.S.C. 80a et seq. Investment companies currently are
required to comply with the proxy rules under the Exchange Act when
soliciting proxies, including proxies relating to the election of
directors. See Investment Company Act Rule 20a-1 [17 CFR 270.20a-1]
(requiring registered investment companies to comply with
regulations adopted pursuant to Section 14(a) of the Exchange Act
that would be applicable to a proxy solicitation if it were made in
respect of a security registered pursuant to Section 12 of the
Exchange Act).
    \106\ A company generally would not be permitted to exclude such
a shareholder proposal under our proposed amendment to Rule 14a-
8(i)(8), discussed in Section III.C., below.
---------------------------------------------------------------------------

    In the 2003 Proposal, the Commission proposed to make the new
requirement concerning shareholder director nominations operative for a
company only after the occurrence of one or both of two possible
triggering events. The first triggering event was that at least one of
the company's nominees for the board of directors for whom the company
solicited proxies received withhold votes from more than 35% of the
votes cast at an annual meeting of shareholders at which directors were
elected (provided, that this triggering event could not occur in a
contested election to which Rule 14a-12(c) would apply or an election
to which the proposed shareholder nomination procedure would have
applied). The second proposed triggering event was that a shareholder
proposal submitted under Rule 14a-8 providing that the company become
subject to the proposed shareholder nomination procedure was submitted
for a vote of shareholders at an annual meeting by a shareholder or
group of shareholders that (1) held more than 1% of the company's
securities entitled to vote on the proposal and (2) held those
securities for one year as of the date the proposal was submitted, and
the proposal received more than 50% of the votes cast on that proposal
at that meeting.\107\
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    \107\ Only votes for and against a proposal would have been
included in the calculation of the shareholder vote.
---------------------------------------------------------------------------

    Today's proposal does not require a triggering event. Instead, Rule
14a-11 would apply to all companies subject to

Exchange Act Section 14(a), other than companies that are subject to
the proxy rules solely because they have a class of debt registered
under Exchange Act Section 12. Accordingly, a company would be required
to disclose the nominee or nominees of any shareholder or shareholder
group meeting the proposed eligibility standards and other conditions
in Rule 14a-11, discussed below. Our decision not to include triggering
events in the current proposal reflects our concern that the federal
proxy rules may be impeding the exercise of shareholders' ability under
state law to nominate directors at all companies, not just those with
demonstrated governance issues. In addition, we note that many
commenters on the 2003 Proposal expressed concern about that proposal's
complexity \108\ and indicated that the multi-year process created by
the trigger requirement could make it more difficult for shareholders
to efficiently effect change in the composition of boards of
directors.\109\ Finally, in light of our concerns about restoring
investor confidence to the greatest number of shareholders as quickly
as possible, we do not want to add a layer of complexity and delay to
the operation of the proposed rule that would frustrate our stated
objectives.
---------------------------------------------------------------------------

    \108\ See 2003 Summary of Comments and Letter Type I from 5,858
individuals or entities.
    \109\ See 2003 Summary of Comments; see also comment letter from
American Federation of State, County, and Municipal Employees
(September 24, 2003) (``AFSCME 2003'').
---------------------------------------------------------------------------

Request for Comment
    B.1. Would adoption of Rule 14a-11 conflict with any state law,
federal law, or rule of a national securities exchange or national
securities association? To the extent you indicate that the rule would
conflict with any of these provisions, please be specific in your
discussion of those provisions that you believe would conflict. How
should the Commission address these conflicts? Should the rule also
address conflicts with a company's country of incorporation where the
company is organized in a non-U.S. jurisdiction but does not meet the
definition of foreign private issuer? Should the rule also explicitly
refer to conflicts with laws of U.S. possessions or territories?
    B.2. Should Rule 14a-11 apply as proposed? Is it appropriate for
proposed Rule 14a-11 to be unavailable where state law or a company's
governing documents prohibit shareholders from nominating candidates
for director? Would the proposed rule effectively facilitate
shareholders' basic rights, particularly the right to nominate
directors?
    B.3. As proposed, Rule 14a-11 would apply to all companies subject
to the proxy rules, other than companies that are subject to the proxy
rules solely because they have a class of debt registered under
Exchange Act Section 12. What effect, if any, will this application
have on any particular group of companies (e.g., on smaller reporting
companies)? Are there modifications that would accommodate the needs of
a particular group of companies (e.g., smaller reporting companies)
while accomplishing the goals of the proposal? Would it instead be more
appropriate to exclude from operation of the procedure smaller
reporting companies, either on a temporary basis through staggered
compliance dates based on company size, or on a permanent basis? Should
any other groups of companies be excluded from operation of the rule
(e.g., companies subject to the proxy rules for less than a specified
period of time (e.g., one year, two years, or three years))? If so, for
what period of time should the companies be excluded from operation of
the rule (e.g., one year, two years, three years, permanently)?
    B.4. Should proposed Rule 14a-11 apply to registered investment
companies? Are there any aspects of the proposed nomination procedure
that should be modified in the case of registered investment companies?
    B.5. Should companies that are subject to the proxy rules solely
because they have a class of debt registered under Exchange Act Section
12 be excluded from application of Rule 14a-11, as proposed? Please
explain why or why not.
    B.6. As proposed, Rule 14a-11 would apply to companies that have
voluntarily registered a class of equity securities pursuant to
Exchange Act Section 12(g). Should companies that have registered on a
voluntary basis be subject to Rule 14a-11? If so, should nominating
shareholders of these companies be subject to the same ownership
eligibility thresholds as those shareholders of companies that were
required to register a class of equity securities pursuant to Section
12? Should we adjust any other aspects of Rule 14a-11 for companies
that have voluntarily registered a class of equity securities pursuant
to Section 12(g)?
    B.7. Should proposed Rule 14a-11 be inapplicable to a company that
has or adopts a provision in its governing documents that provides for
or prohibits the inclusion of shareholder director nominees in the
company proxy materials? Should the Commission's rules respond to
variations in shareholder director nomination disclosures and
procedures adopted, for example, under state corporate laws that
specify that a company's governing documents may address the use of a
company's proxy materials for shareholder nominees to the board of
directors? Would it be more appropriate to only permit companies to
comply with governing document provisions or state laws where those
provisions or laws provide shareholders with greater nomination or
proxy disclosure rights than those provided under proposed Rule 14a-11?
Should Rule 14a-11 provide that a company's governing documents may
render the rule inapplicable to a company only if the shareholders have
approved, as contrasted to the board implementing without shareholder
approval, a provision in the company's governing documents addressing
the inclusion of shareholder nominees in company proxy materials?
Should Rule 14a-11 be inapplicable if such shareholder-approved
provisions are more restrictive than Rule 14a-11? Should Rule 14a-11 be
inapplicable if such shareholder-approved provisions are less
restrictive than Rule 14a-11? Or both?
    B.8. The New York Stock Exchange has filed with the Commission a
proposed rule change to amend NYSE Rule 452 and corresponding Section
402.08 of the Listed Company Manual to eliminate broker discretionary
voting for the election of directors. The Commission published the
proposed rule change, as amended on February 26, 2009, for comment in
the Federal Register on March 6, 2009.\110\ If the amendment to Rule
452 is approved, what would be its effect on operation of proposed Rule
14a-11? Would any changes to Rule 14a-11 be required? Please be
specific in your response.
---------------------------------------------------------------------------

    \110\ See Release No. 34-59464 (February 26, 2009) [74 FR 9864].
---------------------------------------------------------------------------

    B.9. Should proposed Rule 14a-11 exempt companies where state law
or the company's governing documents require that directors be elected
by a majority of shares present in person or represented by proxy at
the meeting and entitled to vote? What specific issues would arise in
an election where state law or the company's governing documents
provided for other than plurality voting (e.g., majority voting)? What
specific issues would arise in an election that is conducted by
cumulative voting? Would these issues need to be addressed in revisions
to the proposed rule text? If so, how?
    B.10. Should companies be able to take specified steps or actions,
such as

adopting a majority vote standard or bylaw specifying procedures for
the inclusion of shareholder nominees in company proxy materials, to
prevent application of proposed Rule 14a-11 where it otherwise would
apply? If so, what such steps or actions would be appropriate and why
would they be appropriate? For example, should companies that agree
with a shareholder proponent not to exclude a shareholder proposal
submitted by an eligible shareholder pursuant to Rule 14a-8 be exempted
from application of the proposed rule for a specified period of time?
Should a company that implements any shareholder proposals that receive
a majority of votes cast in a given year be exempted?
    B.11. Should companies subject to Rule 14a-11 be permitted to
exclude certain shareholder proposals that they otherwise would be
required to include? If so, what categories of proposals? For example,
should the company be able to exclude proposals that are non-binding,
proposals that relate to corporate governance matters generally,
proposals that relate to the structure or composition of boards of
directors, or other proposals?
    B.12. One concern that has been raised about the effectiveness of
the present proxy rules is the high cost to a shareholder to conduct a
solicitation to nominate a director. Should the proposed rule provide
that it does not apply to a company whose governing documents include a
provision for reimbursement of expenses incurred by a participant or
participants in the course of a solicitation in opposition as defined
in Rule 14a-12(c)? If so, should the rule specify what manner of
reimbursement would be sufficient for proposed Rule 14a-11 not to
apply?
    B.13. Should Rule 14a-11 be widely available, as proposed, or
should application of the rule be limited to companies where specific
events have occurred to trigger operation of the rule? If so, what
events should trigger operation of the rule?
    B.14. If the Commission were to include triggering events in Rule
14a-11, would either of the triggering events proposed in 2003 and
described above be appropriate? In responding, please discuss how any
changes in corporate governance practices over the past six years have
affected the usefulness of the triggering events proposed in 2003. For
example, over the past six years many companies have adopted majority
voting. If the triggering events proposed in 2003 are not appropriate,
are there alternative events that the Commission should consider in
place of, or in addition to, the above events? For example, should
application of Rule 14a-11 be triggered by other factors such as
economic performance (e.g., lagging a peer index for a specified number
of consecutive years), being delisted by an exchange, being sanctioned
by the Commission or other regulators, being indicted on criminal
charges, having to restate earnings, having to restate earnings more
than once in a specified period, or failing to take action on a
shareholder proposal that received a majority shareholder vote?
    B.15. In the 2003 Proposal, the rule proposed would have been
triggered by withhold votes for one or more directors of more than 35%
of the votes cast. Is it appropriate to apply such a trigger to current
proposed Rule 14a-11? If so, what would be an appropriate percentage
and why? Would it be appropriate to base this trigger on votes cast
rather than votes outstanding? Please provide a basis for any alternate
recommendations, including numeric data, where available. Is the
percentage of withhold votes the appropriate standard in all cases? For
example, what standard is appropriate for companies that do not use
plurality voting? If your comments are based upon data with regard to
withhold votes for individual directors, please provide such data in
your response.
    B.16. If the Commission were to include a triggering event
requirement, for what period of time after a triggering event should
Rule 14a-11 apply (e.g., one year, two years, three years, or
permanently)? Should there be a means other than the adoption of a
provision in the company's governing documents for the company or
shareholders to terminate application of the requirement at a company?
If so, what other means would be appropriate?
    B.17. What would be the possible consequences of the use of
triggering events? Would the withhold vote trigger result in more
campaigns seeking withhold votes? How would any such consequences
affect the operation and governance of companies?
    B.18. If the proposed requirement applied only after a specified
triggering event, how would the company make shareholders aware when a
triggering event has occurred? If the rule became operative based on
the occurrence of triggering events, should the rule require additional
disclosures in a company's Exchange Act Form 10-Q,\111\ 10-K,\112\ or
8-K \113\ or, in the case of a registered investment company, Form N-
CSR? \114\ For example, the rule could require the following:
---------------------------------------------------------------------------

    \111\ 17 CFR 249.308a.
    \112\ 17 CFR 249.310.
    \113\ 17 CFR 249.308.
    \114\ 17 CFR 249.331 and 17 CFR 274.128.
---------------------------------------------------------------------------

     A company would be required to disclose the shareholder
vote with regard to the directors receiving a withhold vote or a
shareholder proposal, either of which may result in a triggering event,
in its quarterly report on Form 10-Q for the period in which the matter
was submitted to a vote of shareholders or, where the triggering event
occurred during the fourth quarter of the fiscal year, on Form 10-K;
\115\ and
---------------------------------------------------------------------------

    \115\ Item 4 of Part II to Exchange Act Form 10-Q and Item 4 of
Part I to Exchange Act Form 10-K currently require that companies
disclose the results of the voting on all matters submitted to a
vote of shareholders during the period covered by the report. We
could add a provision to these items that would require disclosure
of specific information relating to the application of Rule 14a-11
or a shareholder director nomination process provided for under
applicable state law or in a company's governing documents.
---------------------------------------------------------------------------

     A company would be required to include in that Form 10-Q
or 10-K information disclosing that it would be subject to Rule 14a-11
as a result of such vote, if applicable.
    B.19. Should the company's disclosure regarding the applicability
of Rule 14a-11 be filed or made public in some other manner? If so,
what manner would be appropriate?
    B.20. Should companies be exempted from complying with Rule 14a-11
for any election of directors in which another party commences or
evidences its intent to commence a solicitation in opposition subject
to Rule 14a-12(c) prior to the company mailing its proxy materials?
What should be the effect if another party commences a solicitation in
opposition after the company has mailed its proxy materials?
    B.21. If a triggering event is required and companies are exempted
from complying with Rule 14a-11 because another party has commenced or
evidenced its intent to commence a solicitation in opposition subject
to Rule 14a-12(c), should the period in which Rule 14a-11 applies be
extended to the next year? What should be the effect if another party
commences a solicitation in opposition after the company has mailed its
proxy materials?
    B.22. What provisions, if any, would the Commission need to make
for the transition period after adoption of a rule based on this
proposal? Would it be necessary to adjust the timing requirements of
the rule depending on the effective date of the rule (e.g., if the
rules are adopted shortly before a proxy season)?
    B.23. Should the Commission consider rulemaking under Section 19(c)
of the Exchange Act to amend the

listing standards of registered exchanges to require that shareholders
have access to the company's proxy materials to nominate directors
under the requirements and procedures described in connection with
proposed Rule 14a-11 to reflect, for example, changes the Sarbanes-
Oxley Act made to director and independence requirements, among other
matters?
3. Eligibility To Use Exchange Act Rule 14a-11
    In seeking to balance shareholders' ability to participate more
fully in the nomination and election process against the potential cost
and disruption to companies subject to the proposed new rule, we are
proposing that only holders of a significant, long-term interest in a
company be able to rely on Rule 14a-11 to have disclosure about their
nominees for director included in company proxy materials. We are
proposing that the requirement for a company to include a shareholder's
nominee or nominees for director in the company's proxy materials and
on its form of proxy be based on a minimum ownership threshold, which
would be tiered according to company size. Assuming the other
conditions of proposed Rule 14a-11 are met, companies would not be able
to exclude a shareholder nominee or nominees if the nominating
shareholder or group:
     Beneficially owns, as of the date of the shareholder
notice on Schedule 14N, either individually or in the aggregate: \116\
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    \116\ The manner in which a nominating shareholder or group
would establish its eligibility to use proposed Rule 14a-11 is
discussed further, below.
---------------------------------------------------------------------------

     For large accelerated filers as defined in Exchange Act
Rule 12b-2,\117\ and registered investment companies with net assets of
$700 million or more, at least 1% of the company's securities that are
entitled to be voted on the election of directors at the annual meeting
of shareholders (or, in lieu of such an annual meeting, a special
meeting of shareholders); \118\
---------------------------------------------------------------------------

    \117\ 17 CFR 240.12b-2.
    \118\ See proposed Rule 14a-11(b)(1)(i).
---------------------------------------------------------------------------

     For accelerated filers as defined in Rule 12b-2, and
registered investment companies with net assets of $75 million or more
but less than $700 million, at least 3% of the company's securities
that are entitled to be voted on the election of directors at the
annual meeting of shareholders (or, in lieu of such an annual meeting,
a special meeting of shareholders); \119\ and
---------------------------------------------------------------------------

    \119\ See proposed Rule 14a-11(b)(1)(ii).
---------------------------------------------------------------------------

     For non-accelerated filers as defined in Rule 12b-2, and
registered investment companies with net assets of less than $75
million, at least 5% of the company's securities that are entitled to
be voted on the election of directors at the annual meeting of
shareholders (or, in lieu of such an annual meeting, a special meeting
of shareholders); \120\
---------------------------------------------------------------------------

    \120\ See proposed Rule 14a-11(b)(1)(iii).
---------------------------------------------------------------------------

     Has beneficially owned the securities that are used for
purposes of determining the ownership threshold continuously for at
least one year as of the date of the shareholder notice on Schedule 14N
(in the case of a shareholder group, each member of the group must have
held the securities that are used for purposes of determining the
ownership threshold for at least one year as of the date of the
shareholder notice on Schedule 14N); \121\ and
---------------------------------------------------------------------------

    \121\ See proposed Rule 14a-11(b)(2). The one-year holding
period requirement applies only to the securities that are used for
purposes of determining the ownership threshold.
---------------------------------------------------------------------------

     Represents that it intends to continue to own those
securities through the date of the annual or special meeting.\122\
---------------------------------------------------------------------------

    \122\ Id. Pursuant to proposed Rule 14a-18(b), the nominating
shareholder or group would be required to include in its notice to
the company of the intent to nominate a representation that the
nominating shareholder or group satisfies the conditions in Rule
14a-11(b).
---------------------------------------------------------------------------

    The issue of the appropriate eligibility ownership threshold
generated a great deal of comment when proposed in the 2003
Proposal.\123\ While some commenters believed that all shareholders,
regardless of the amount of shares owned, should be able to include
nominees in the company proxy materials for the purpose of nominating
one or more directors, others advocated share ownership thresholds
ranging from the $2,000 threshold required to submit a Rule 14a-8
proposal to share ownership percentages such as 3%, 5% or 10% of a
company's outstanding common stock.\124\ Those who advocated no
threshold or a nominal dollar amount argued that the imposition of a
threshold would discriminate against smaller investors or unfairly
advantage larger shareholders who already may have the resources to run
their own slates using the existing rules for contested elections.\125\
Those who advocated a larger share ownership threshold argued that a
nominating shareholder should have a substantial, long-term stake in
the company in order to require the use of company funds to nominate a
candidate.\126\ In addition, advocates of a larger share ownership
threshold pointed out that the composition of the board of directors is
critical to a corporation's functions and, accordingly, shareholders
should have to evidence a significant financial interest by satisfying
a substantial ownership threshold in order to require a company to
include in its proxy materials a shareholder director nominee or
nominees.\127\
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    \123\ See 2003 Summary of Comments; comment letter on the
Shareholder Proposals Proposing Release from California Public
Employees' Retirement System (September 26, 2007) (``CalPERS 2007'')
(noting that a 2003 analysis of the holdings of three of the largest
public pension funds showed that their combined ownership exceeded
2% in only one instance, and exceeded 1.5% in only 12 instances).
    \124\ See 2003 Summary of Comments.
    \125\ See id.
    \126\ See id.
    \127\ See id.
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    The tiered beneficial ownership thresholds that we are proposing
represent an effort to balance the varying considerations and address
the possibility that certain companies could be impacted
disproportionately based on their size.\128\ In determining the
proposed ownership thresholds, we considered two different samples of
data on security ownership as an indicator of the ownership of
securities that are entitled to be voted on the election of directors.
First, we considered the current ownership make-up of a sample provided
by an outside source of 5,327 companies that have held meetings between
January 1, 2008 and April 15, 2009.\129\ In this sample, roughly 26% of
the firms are classified as large accelerated filers, 35% are
classified as accelerated filers, and 38% are classified as non-
accelerated filers. The second sample is derived from CDA Spectrum and
is based on filings of Forms 13F in the third quarter of 2008.\130\ In
this sample, roughly 26% of the firms are classified as large
accelerated filers, 33% are classified as accelerated filers, and 40%
are classified as non-accelerated filers.\131\
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    \128\ In this regard, we believe that the relative resource
requirement for larger issuers to fund and administer the process
would be smaller. Therefore, the thresholds we are proposing will
more likely result in more large accelerated and accelerated filers
receiving qualifying nominations than non-accelerated filers.
    \129\ The staff received beneficial ownership information for
these companies aggregated at various thresholds and matched the
information on market value of the float (obtained from Datastream).
The sample excludes mutual funds.
    \130\ Institutional investment managers who exercise investment
discretion over $100 million or more in Section 13(f) securities
must report their holdings on Form 13F with the SEC. The sample
includes 6,700 companies that are referenced in the Form 13F form
that have common equity and are traded on NYSE, NYSE Amex Equities,
or NASDAQ. Of these we were able to match the information on the
market value of float (obtained from Datastream) for 5,877
observations.
    \131\ Under Rule 12b-2, a large accelerated filer must have an
aggregate worldwide market value of the voting and non-voting common
equity held by its non-affiliates of $700 million or more, and an
accelerated filer must have an aggregate worldwide market value of
the voting and non-voting common equity held by its non-affiliates
of $75 million or more but less than $700 million. Filers that do
not meet the criteria for accelerated or large accelerated filer
status are classified as non-accelerated filers.

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    In the first sample, nearly all (above 99%) of large accelerated
filers have at least one shareholder that could meet the 1% threshold
individually, while a somewhat greater number of large accelerated
filers (also above 99%) have two or more shareholders that each have
held at least 0.5% of the shares outstanding for the appropriate period
and, thus, could more easily aggregate their securities in order to
meet the 1% ownership requirement. In the CDA sample, 98% of large
accelerated filers have at least one shareholder that could meet the 1%
threshold individually, while 99% of large accelerated filers have two
or more shareholders that each have held at least 0.5% of the shares
outstanding for the appropriate period. By contrast, based on the first
sample, using an ownership threshold of 3% would reduce the number of
large accelerated filers where a single shareholder could make a
nomination to 77% of large accelerated filers and reduce the number of
large accelerated filers that have two or more shareholders that have
held at least 1.5% of the shares for the appropriate period to 89%.
Using the CDA sample these numbers would drop to 96% and 97%
respectively.
    With regard to accelerated filers, roughly 85% of filers have at
least one shareholder that could meet the 3% threshold individually,
while roughly 92% of accelerated filers have two or more shareholders
that each have held at least 1.5% of the shares outstanding for the
appropriate period and, thus, could more easily aggregate their
securities in order to meet the 3% ownership requirement. In the CDA
sample, 91% of accelerated filers have at least one shareholder that
could meet the 3% threshold individually, while 93% of accelerated
filers have two or more shareholders that each have held at least 1.5%
of the shares outstanding for the appropriate period. By contrast,
based on the first sample, using an ownership threshold of 5% would
reduce the number of accelerated filers where a single shareholder
could make a nomination to 58% of accelerated filers. Further, 78% of
accelerated filers have two or more shareholders that have held at
least 2.5% of the shares for the appropriate period. Using the CDA
sample these numbers would drop to 66% and 88% respectively.
    With regard to non-accelerated filers, roughly 59% of filers in the
first sample have at least one shareholder that could meet the 5%
threshold individually, while roughly 71% of non-accelerated filers
have two or more shareholders that each have held at least 2.5% of the
shares outstanding for the appropriate period and, thus, could more
easily aggregate their securities in order to meet the 5% ownership
requirement. In the CDA sample, 41% of non-accelerated filers have at
least one shareholder that could meet the 5% threshold individually,
while 49% of non-accelerated filers have two or more shareholders that
each have held at least 2.5% of the shares outstanding for the
appropriate period. By contrast, based on the first sample, using an
ownership threshold of 7% would reduce the number of non-accelerated
filers where a single shareholder could make a nomination to 41% of
non-accelerated filers. Further, only 43% of non-accelerated filers
have two or more shareholders that have held at least 4% and 62% have
two or more shareholders that have held at least 3% of the shares for
the appropriate period.\132\ Using the CDA sample these numbers would
drop to 33%, 37% and 45% respectively.
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    \132\ The staff did not have information regarding the
beneficial ownership for the 3.5% threshold.
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    With regard to registered investment companies, we are proposing
tiered thresholds based on the net assets of the companies.\133\
Consistent with our approach to reporting companies (other than
registered investment companies), the tiered beneficial ownership
thresholds that we are proposing represent an effort to balance the
various competing views and address the possibility that certain
registered investment companies could be impacted disproportionately
based on their size. Because registered investment companies are not
classified as large accelerated filers, accelerated filers, and non-
accelerated filers, we propose to base the tiers on the net assets of
the companies.\134\ In particular, we are proposing tiers for
registered investment companies that are based on the worldwide market
value levels used by reporting companies (other than registered
investment companies) to determine filing status.\135\ Under the
proposal, the amount of net assets of a registered investment company
for these purposes would be the amount of net assets of the company as
of the end of the company's second fiscal quarter in the fiscal year
immediately preceding the fiscal year of the meeting, as disclosed in
the company's Form N-CSR filed with the Commission, except that, for a
series investment company the amount of net assets would be the
company's net assets as of June 30 of the calendar year immediately
preceding the calendar year of the meeting, as disclosed in a Form 8-K
filed in connection with the meeting where directors are to be
elected.\136\
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    \133\ In the case of a registered investment company, in
determining the securities that are entitled to be voted on the
election of directors for purposes of establishing whether the
applicable threshold has been met, the nominating shareholder or
group may rely on information set forth in the following documents,
unless the nominating shareholder or group knows or has reason to
know that the information contained therein is inaccurate: (1) In
the case of a series company, a Form 8-K that would be required to
be filed in connection with the meeting where directors are to be
elected (for a further discussion of Form 8-K filing requirements
for registered investment companies, see footnote 138, below, and
accompanying text); or (2) in the case of other registered
investment companies, the company's most recent annual or semi-
annual report filed with the Commission on Form N-CSR. See
Instruction 1 to proposed Rule 14a-11(b).
    \134\ See Instruction 2 to proposed Rule 14a-11(b). For
registered investment companies that are organized in series form,
we are proposing that the net assets thresholds apply to the company
as a whole, and not on a series by series basis, because directors
are elected for the company by the shareholders of all series rather
than separately for each series of the company. See Investment
Company Act Rule 18f-2(g) [17 CFR 270.18f-2(g)].
    \135\ See footnote 131, above.
    \136\ See Instructions 2 and 3 to proposed Rule 14a-11(b).
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    The requirement that the net asset determination for investment
companies other than series investment companies be made as of the end
of the company's second fiscal quarter in the fiscal year immediately
preceding the fiscal year of the meeting is similar to the requirements
for reporting companies (other than registered investment companies),
which determine large accelerated filer, accelerated filer, and non-
accelerated filer status as of the end of the fiscal year, using the
market value of the issuer's common equity as of the last business day
of the immediately preceding second fiscal quarter.\137\ However, we
have chosen a single date, June 30 of the calendar year immediately
preceding the calendar year of the meeting, for series investment
companies, due to the fact that different series of a series company
may have different fiscal year and semi-annual period ending dates.
Moreover, although registered investment companies generally are not
required to file Form 8-K, we are proposing to require a registered
investment company that is a series company to file Form 8-K within
four business days after the company determines the anticipated meeting
date, disclosing the company's net assets as of June 30 of the

calendar year immediately preceding the calendar year of the meeting
and the total number of the company's shares that are entitled to vote
for the election of directors (or if votes are to be cast on a basis
other than one vote per share, then the total number of votes entitled
to be voted and the basis for allocating such votes) at the annual
meeting of shareholders (or, in lieu of such an annual meeting, a
special meeting of shareholders) as of the end of the most recent
calendar quarter.\138\ Registered investment companies, including
series investment companies, currently disclose net asset and
outstanding share information in their annual and semi-annual reports
filed on Form N-CSR, but we believe that the additional Form 8-K filing
is necessary for series companies because a series company may file
multiple Form N-CSRs with respect to different series covering
different fiscal year and semi-annual period ending dates and is
required to disclose net asset and outstanding share information on a
series by series basis, rather than for the company as a whole.
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    \137\ See Rule 12b-2.
    \138\ See proposed General Instruction B.1 and proposed Item
5.07(b) of Form 8-K; proposed Rules 13a-11(b)(3) and 15d-11(b)(3);
and Instruction 3 to proposed Rule 14a-11(b).
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    The purpose of the proposed rule would be to remove impediments the
federal proxy rules create to shareholders' exercise of their rights to
nominate and elect members of boards of directors. At the same time, we
recognize that there are competing concerns that also need to be taken
into account, such as the potential cost and disruption to the company
of a rule with no shareholder eligibility requirements. To balance
those interests, we are proposing a rule that includes shareholder
eligibility requirements. In particular, we are proposing eligibility
requirements based on the duration of ownership and minimum ownership
levels.
    With respect to duration of ownership eligibility criteria, we
believe that long-term shareholders are more likely to have interests
that are better aligned with other shareholders and are less likely to
use the rule solely for short-term gain. We are proposing a one year
holding requirement for each nominating shareholder or member of a
nominating group rather than the two year requirement proposed in 2003.
The holding period generated less comment in 2003 than the ownership
threshold, with the majority of commenters that addressed the topic
supporting the proposed holding period.\139\ Some commenters, however,
advocated either lowering the holding period to one year,\140\ or
raising it (e.g., to 5 years).\141\ Some of these commenters suggested
that the two year holding period was too onerous.\142\ After further
consideration, we believe that a one year holding requirement would be
sufficient to appropriately limit use of Rule 14a-11 to long-term
shareholders without placing an undue burden on shareholders seeking to
use the rule. In addition, a one year requirement is consistent with
the existing eligibility requirement for shareholders to submit
proposals under Rule 14a-8.
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    \139\ See 2003 Summary of Comments; see also comment letters
from AFL-CIO; Alliance Capital Management L.P. (December 15, 2003)
(``Alliance Capital''); American Society of Corporate Secretaries
(December 22, 2003) (``ASCS''); Henry A. McKinnell, Chairman, The
Business Roundtable (December 22, 2003) (``McKinnell, BRT''); United
States Chamber of Commerce (December 19, 2003) (``Chamber''); Carl
T. Hagberg (December 22, 2003); Committee on Securities Regulation,
New York State Bar Association (December 22, 2003) (``NYS Bar'');
State Teachers Retirement System of Ohio (December 18, 2003) (``STRS
Ohio''); Sullivan & Cromwell LLP (December 22, 2003) (``Sullivan'');
T. Rowe Price Associates, Inc. (December 24, 2003) (``T. Rowe'');
Valero; and Wachtell.
    \140\ See 2003 Summary of Comments; see also comment letters
from CalPERS; CIR; Gary K. Duberstein (December 22, 2003)
(``Duberstein''); Gary Tannahill (December 6, 2003) (``Tannahill'');
and Wolf Haldenstein Adler Freeman & Herz LLP (December 19, 2003)
(``Wolf Haldenstein'').
    \141\ See 2003 Summary of Comments; see also letters from
Compass Bancshares, Inc. (December 22, 2003) (``Compass''); and W.
Paul Fitzgerald, Director, EMC Corporation (December 19, 2003), Gail
Deegan, Director, EMC Corporation (December 22, 2003), and Alfred
Zeien, Director, EMC Corporation (December 22, 2003) (collectively,
``EMC Corporation'').
    \142\ See 2003 Summary of Comments; see also comment letters
from CalPERS; CIR; Duberstein; Tannahill; and Wolf Haldenstein.
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    With regard to a minimum ownership level as a shareholder
eligibility requirement, we believe it is important that any
shareholder or group that intends to submit a nominee to a company for
inclusion in the company's proxy materials continue to have a
significant economic interest in the company. Therefore, we have
proposed the requirement that a nominating shareholder or group provide
a statement as to the nominating shareholder's or group's intent to
continue to hold the requisite amount of securities through the date of
the meeting. Commenters in 2003 generally supported a holding
requirement through the date of the meeting,\143\ with some suggesting
an even longer holding period (e.g., through the term of the nominee's
service on the board, if elected).\144\ We continue to believe that a
requirement to hold the securities through the date of the meeting is
appropriate to demonstrate the nominating shareholder's commitment to
the director nominee and the election process; however, we also have
proposed a disclosure requirement under which a nominating shareholder
or group would state their intent with respect to continued ownership
of their shares after the election.\145\
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    \143\ See 2003 Summary of Comments; see also comment letters
from America's Community Bankers (December 18, 2003) (``ACB'');
Alliance Capital; ASCS; Blackwell Sanders Peper Martin LLP (December
22, 2003) (``Blackwell Sanders''); McKinnell, BRT; CalPERS; Chamber;
CIR; Compass; FedEx Corporation (December 19, 2003) (``FedEx'');
Intel Corporation (December 22, 2003) (``Intel''); International
Paper Company (December 22, 2003) (``International Paper''); Peter
O. Clauss and J. Peter Wolf of Pepper Hamilton, LLP (December 16,
2003) (``Clauss & Wolf''); Sullivan; Tannahill; Valero; Wachtell;
and Wells Fargo & Company (December 19, 2003) (``Wells Fargo'').
    \144\ See 2003 Summary of Comments; see also comment letters
from ACB; McKinnell, BRT; Chamber; Compass; FedEx; Intel;
International Paper; Clauss & Wolf; Sullivan; Valero; Wachtell; and
Wells Fargo.
    \145\ See proposed Rule 14a-18(f) and proposed Item 5(b) of
Schedule 14N.
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    In addition, to rely on proposed Rule 14a-11 to have disclosure
about their nominee or nominees included in the company proxy
materials, a nominating shareholder or group must:
     Not acquire or hold the securities for the purpose of or
with the effect of changing control of the company or to gain more than
a limited number of seats on the board;
     Provide and file with the Commission a notice to the
company on proposed new Schedule 14N \146\ of the nominating
shareholder's or group's intent to require that the company include
that nominating shareholder's or group's nominee in the company's proxy
materials by the date specified by the company's advance notice
provision or, where no such provision is in place, no later than 120
calendar days before the date that the company mailed its proxy
materials for the prior year's annual meeting,\147\ except that if the
company did not hold an annual meeting during the prior year, or if the
date of the meeting has changed by more than 30 days from the prior
year, then the nominating shareholder or group must provide notice a
reasonable time before the company mails its proxy materials, as
specified by the company in a Form 8-K filed within four business days
after the company determines the anticipated meeting date pursuant to
proposed Item 5.07; \148\ and
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    \146\ See Section III.B.6. for a discussion of Schedule 14N and
the disclosure required to be filed.
    \147\ This date would be calculated by determining the release
date disclosed in the previous year's proxy statement, increasing
the year by one, and counting back 120 calendar days.
    \148\ See proposed Instruction 2 to paragraph (a) of Rule 14a-11
and proposed General Instruction B.1. to Form 8-K. A late filing of
such form would result in the registrant losing eligibility to file
on Form S-3.

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     Include in the shareholder notice on Schedule 14N
disclosure about the amount and percentage of securities owned by the
nominating shareholder or group, length of ownership of such
securities, and the nominating shareholder's or group's intent to
continue to hold the securities through the date of the meeting as well
as intent with respect to continued ownership after the election, a
certification that the nominating shareholder or group is not seeking
to change the control of the company or to gain more than a limited
number of seats on the board of directors, and disclosure meeting the
requirements of Rule 14a-18.\149\
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    \149\ See proposed Exchange Act Rules 14a-18 and 14n-1. See
discussion in Section III.B.5. regarding proposed Rule 14a-11(d),
which limits the number of nominees a company would be required to
include in its proxy materials.
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Request for Comment
    C.1. Are the proposed shareholder eligibility criteria for Rule
14a-11 necessary or appropriate? If not, why not? Should there be any
restrictions regarding which shareholders can use proposed Rule 14a-11
to nominate directors for inclusion in company proxy materials? Should
those restrictions be consistent with the requirements of Rule 14a-8 or
should they be more extensive than the minimum requirements in Rule
14a-8?
    C.2. The proposed eligibility threshold is based on the percentage
of securities owned and entitled to vote on the election of directors.
This threshold is based on current Rule 14a-8 and reflects our intent
to focus on those shareholders eligible to vote for directors. Is the
proposed threshold appropriate or could it be better focused to
accomplish our objective? For example, should eligibility instead be
based on record ownership? Should eligibility be based on the value of
shares owned? If so, on what date should the value be measured? What
would be an appropriate value amount? Is there another standard or
criteria? Is submission of the nomination the correct date on which to
make these eligibility determinations? If not, what date should be
used?
    C.3. For companies that have more than one class of securities