The Commission decided on non-access at an open meeting on November 28.  The accompanying release was only published on December 6.  The adopting release ishere.  It is not a good example of responsible agency rulemaking.

Leave aside the merits of access versus non-access.  If the Commission simply wanted to maintain the status quo but clarify that access was not permitted, it could simply have added a phrase indicating that access was included in the exclusion.  In fact, the Agency (and Chairman Cox) noted that it was doing nothing but reaffirming the status quo that existed prior to the decision in AFSCME.  In fact, it is doing no such thing.  The Commission is using the non-access issue to sneak into Rule 14a-8 language that will make it far more difficult for shareholders to propose other types of changes connected to the election/nomination process, a substantial change in the status quo.   

Rule 14a-8(i)(8) currently provides that a proposal can be excluded if it "relates to an election for membership to the company's board of directors"  Whatever this means, and the Second Circuit in AFSCME described it as confusing, the exclusion was limited to proposals that somehow related to the election of directors.  The new non-access language provides that proposals can be excluded that "related to a nomination or an election for membership on the company's board of directors . . . or a procedure for such nomination of election" (emphasis added).  In other words, the provision does not reaffirm the status quo but puts in play proposals that affect nominations and procedures for electing/nominating. 

On its face, the exclusion covers matters relating to nominations (director qualifications for example) or procedures for electing directors (cumulative voting, majority voting provisions, for example).  As a result, the release is forced to add an interpretive gloss.  The provision applies that "'relates to an election' in subsequent years as well."  As a result, the provision allows for the exclusion of proposals "that would result in a contested election."  Put aside that this is not in the rule.  Access proposals do not automatically result in a contested election.  They might not be used.  In addition, the company could nominate fewer directors, avoiding any contest and ensuring the election of the access directors.  In other words, the most that can be said about access is that it increase the odds of a contest.

But so does cumulative voting, proposals that would require the company to pay the costs of a solicitation, and so on.  In other words, the Commission has added to the exclusion extremely broad language then added an interpretive gloss that is likewise quite broad and easily extended to other types of proposals.  While the release more or less reaffirms prior positions, see footnote 56, including majority and cumulative voting, it provides no principled reasons for distinguishing these proposals (which increase the likelihood of a contest) from access.  The distinction set out by the Commission is, therefore, arbitrary and would allow the staff to exclude any proposal that it decided was likely to increase the likelihood of a contest.  

Moreover, the Commission is wrong to suggest that the broad language in the adopted rule applied only to proposals that would increase the likelihood of a contest.  In fact, as footnote 56 notes, the Commission has in the past allowed for the exclusion of proposals that would disqualify existing board members from standing for reelection.  Such a proposal requires management to come up with a new nominee but does not in any way increase the risk of a contest.  In other words, the language adopted by the Commission is extraordinarily broad on its face and is not significantly limited by the adopting release.  The staff can, as it did with the 1976 proposals, turn it into whatever it wants, even changing the interpretation contained in the adopting release (which of course is what the Commission argues is permissible under Long Island Care).  And, there is no denying that the language of the rule puts into play a much wider category of proposals than had previously been the case.

Whatever one can say about the new language of Rule 14a-8, reaffirmation of the status quo is not one of them.  If the Commission really just wanted to prevent access, it should have said so, without using language that could be the basis for the exclusion of other types of proposals.