No-Action Letter for Eli Lilly & Co. Permitted Exclusion of Proposal to Eliminate Supermajority Voting Requirements
In Eli Lilly & Co., 2018 BL 7440 (Jan. 8, 2018), Eli Lilly & Company (“Eli Lilly”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit the omission of a proposal submitted by William Steiner (“Shareholder”) requesting the board to replace the company’s supermajority voting requirement with a simple majority requirement. The SEC issued the requested no-action letter allowing for the exclusion of the proposal from the 2018 proxy materials under Rule 14a-8(i)(10).
Shareholder submitted a proposal providing that:
RESOLVED, Shareholders request that our board take each step necessary so that each voting requirement in our charter and bylaws that calls for a greater than simple majority vote be eliminated, and replaced by a requirement for a majority of the votes cast for and against applicable proposals, or a simple majority in compliance with applicable laws. If necessary this means the closest standard to a majority of the votes cast for and against such proposals consistent with applicable laws. It is important that our company take each step necessary to adopt this proposal topic completely.
Eli Lilly argued the proposal may be excluded from the company’s proxy materials under Rule 14a-8(i)(10).
Rule 14a-8 provides shareholders with the right to insert a proposal in the company’s proxy statement. 17 CFR 240. 14a-8. The shareholder, however, must meet certain procedural and ownership requirements. In addition, the Rule includes thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC and The Shareholder Proposal Rule and the SEC (Part II).
Rule 14a-8(i)(10) allows a company to exclude a shareholder proposal from its proxy statement if the company has substantially implemented the proposal. The rule’s purpose is to avoid having shareholders considering matters which have already been favorably acted upon. Further, Rule 14a-8(i)(10) does not require that the company implement the exact proposal to be excluded. For additional information on the exclusion, see Aren Sharifi, Rule 14a-8(I)(10): How Substantial is “Substantially” Implemented in The Context of Social Policy Proposals?, 93 DU Law Rev. Online 301 (2016).
Eli Lilly argued that the board had approved amendments to the company’s articles of incorporation to eliminate the supermajority voting provisions and believed the amendments address the essential elements of the proposal. The amendments would be submitted to the shareholders for approval at the company’s next annual meeting of shareholders in 2018 and Eli Lilly would recommend that the shareholders approve the amendments. Accordingly, Eli Lilly asserted it had substantially implemented the proposal and it was therefore excludable under Rule 14a-8(i)(10).
The SEC agreed with Eli Lilly’s reasoning, and concluded Eli Lilly could omit the proposal under Rule 14a-8(i)(10).
The primary materials for this case may be found on the SEC website.