Rule 14a-8, the Ordinary Business Exclusion, and the Need for Reform: Bank Policies and Loan Foreclosures (Part 6)

Perhaps worst of all are the costs imposed on the staff.  Shareholder proposals are subject to a tight deadline.  Under Rule 14a-8,

• must be received at the company's principal executive offices not less than 120 calendar days before the date of the company's proxy statement released to shareholders in connection with the previous year's annual meeting. 

Most public companies have calendar years.  Most also distribute proxy statements in the first four months of the calendar year in order to be able to use the audited financial statements prepared for submission with the annual report on Form 10-K.  As a result, the 120 day deadline falls at roughly the same time for most public companies.  Thus, the companies receive them at the same time and invoke the no action process at the same time.  The result is a veritable tsunami of requests in a very short period of time. 

Lets look at the actual numbers.  In the realm of 14a-8 no action letters, things begin to heat up in December.  Thus, in December 2010 the staff issued 24 no action letters under the rule.  With the Christmas holidays over, matters explode.  The number jumped to 80 letters in January 2011 and 91 in February.  As of March 29, 78 additional no action letters had been issued. This does not, by the way, include the approximately 17 requests during the first three months of 2011 for reconsideration or consideration by the full Commission.

To give some sense of the bubble, from May through November of 2010, the staff never issued more than six no action letters under Rule 14a-8 in a single month. 

The staff must, therefore, devote considerable resources to this area in a short period of time.  Moreover, it is likely, in an under funded and under staffed agency, that one result is less attention to each proposal.  This probably explains why most proposals contain little legal analysis. 

The issues surrounding the "ordinary business" exclusion and some proposed reforms are discussed in much greater detail in Essay: The Politicization of Corporate Governance: Bureaucratic Discretion, the SEC, and Shareholder Ratification of Auditors.