No Action Letter for General Electric Company Permitting Exclusion of Proposal Images But Denying Exclusion of Cumulative Voting Proposal
In General Electric Co., 2018 BL 71731 (Mar. 1, 2018), General Electric Company (“GE”) asked the staff of the Securities and Exchange Commission (“SEC”) to permit omission of a proposal submitted by Martin Harangozo (“Shareholder”) requesting that GE’s board of directors provide cumulative voting in the election of directors. In addition, Shareholder submitted images he wished to be displayed in support of his proposal, three unattributed quotes, and the following statement: “The increase in shareholder voice as represented in cumulative voting may serve to better align shareholder performance to CEO performance (see image).” The SEC declined to issue the requested no action letter in its entirety under Rule 14a-8(i)(4) but found grounds to exclude the attached images under Rule 14a-8(i)(3).
Shareholder submitted a proposal providing that:
RESOLVED, That the stockholders of General Electric, assembled in Annual Meeting in person and by proxy, hereby request the Board of Directors to take the necessary steps to provide for cumulative voting in the election of directors, which means each stockholder shall be entitled to as many votes as shall equal the number of shares he or she owns multiplied by the number of directors to be elected, and he or she may cast all of such votes for a single candidate, or any two or more of them as he or she may see fit.
In the cover letter of the proposal, Shareholder stated, “Please include my attached proposal and images in the GE 2018 Proxy”. Attached to the proposal is a full-page image including a chart, text, equations, and emoji’s (collectively, the “Images”).
Rule 14a-8 provides shareholders with the right to insert a proposal in the company's proxy statement. 17 CFR 240.14a-8. The shareholders, however, must meet certain procedural and ownership requirements. In addition, the Rule indicates thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC & The Shareholder Proposal Rule and the SEC (Part II).
Rule 14a-8(i)(3) permits the exclusion of a shareholder proposal if the proposal or supporting statement is contrary to any of the SEC’s proxy rules or regulations, including Rule 14a-5(a), which requires information in a proxy statement to be clearly presented, and Rule 14a-9, which prohibits materially false or misleading statements in proxy soliciting materials. Rule 14a-8(i)(4) permits the exclusion of a shareholder proposal if the proposal relates to the redress of a personal claim or grievance against the company or any other person, or if it is designated to result in a benefit to the proponent of the proposal, or to further a personal interest not shared by the other shareholders at large. For additional discussion of exclusion 14a-8(i)(4), see Jon Wagner, Finding the Grievance in the Personal Grievance Exclusion, 94 Denv. L. Rev. Online 394 (2017).
GE argued the proposal should be excluded under 14a-8(i)(3) because the Images are irrelevant to the subject matter of the proposal. The Images, GE contended, were “nonsensical,” alluding to two stock transactions by the GE’s former CEO. The Images show a line of text next two transactions alluding to a “2,700%” gain in initial investment. Another line of text adds “during the same time” (without referring to a specific time frame) a shareholder investment that was “down” 46%. Without any further explanation, the image adds a sentence stating cumulating voting would better align shareholder and CEO performance. GE further contended there is no clear connection to how alleged historical securities transactions could be distributed and used by shareholders through adoption of cumulative voting. GE argued the remainder of supporting statements were also vague and misleading. GE believed these statements would make the entire proposal vague and indefinite—leaving shareholders unable to determine with reasonable certainty what the actions or measures of the proposal require. Finally, GE asserted that the Images and the supporting statements would personally benefit Shareholder.
Shareholder did not respond to the exclusion request by GE but was included in the correspondence between the SEC and GE. In his proposal, Shareholder argued that “[m]any states have mandatory cumulative voting, so do National Banks.” Further, Shareholder generally stated many corporations have adopted cumulative voting. Finally, Shareholder explained that the increase in shareholder voice as represented by cumulative voting may serve to “better align shareholder performance to CEO performance.”
The SEC was unable to agree with GE that the entire proposal could be excluded from its proxy materials in reliance on Rule 14a-8(i)(4) because the proposal does not relate to the redress of a personal claim or grievance against GE. Further, the SEC was unable to agree with GE that the proposal was designed to benefit Shareholder, or to further a personal interest not shared by other shareholders at large. The SEC, however, did find a basis to exclude the Images under rule 14a-8(i)(3) because the Images were irrelevant to a consideration of the subject matter of the proposal and a reasonable shareholder would be uncertain as to the matter on which her or she is being asked to vote. Accordingly, the SEC indicated it would not recommend enforcement if GE excluded the Images from its proxy materials, but recommended enforcement if GE excluded the entire proposal from its proxy materials.
The primary materials for this post can be found on the SEC website.