When I was in-house, one of the nerve-wracking aspects of the annual shareholders meeting was bracing yourself for the unexpected. Preparing as much as you can for something unexpected is a good idea – and one way to do that is to refresh your memory about what to do in case someone attending the meeting offers a proposal from the floor.
We saw a number of floor proposals last proxy season, including from the AFL-CIO, which used this approach to submit multiple proposals to particular companies, bypassing Rule 14a-8 and soliciting proxies using its own materials. In addition, some activists used “zero-slate” tactics, where they solicited votes on shareholder proposals without proposing an alternative slate of directors. Even more creative tactics could be wielded this proxy season.
Here are a few points to help refresh your memory about floor proposals:
- What is a “floor proposal”? – Floor proposals allow shareholders to raise issues at an annual meeting if they properly notify the company in accordance with the company’s bylaws. Knowing what your bylaws say is important here. Bring a copy of your bylaws to your annual meeting.
- How do they compare to Rule 14a-8 shareholder proposals? – Floor proposals don’t face the same hurdles imposed by the procedural requirements of Rule 14a-8. But most bylaws include advance notice and other requirements that limit the ability of shareholders to offer a proposal from the floor.
That’s why it’s important to understand what your bylaws say, as well as what state law is in this area (the state in which your company is incorporated). - Promptly assess floor proposals – If you receive advance notice of a floor proposal, assuming your bylaws require that, take that seriously and jump into action to determine whether the proposal is appropriate for consideration, including whether it has been raised in accordance with your bylaws.
It is key to train those who might receive advance notice to recognize that it is a floor proposal and route it to the proper people within your company so the assessment can take place. - Preserving discretionary proxy authority under Rule 14a-4 – Companies should make the effort to maintain discretionary voting authority over floor proposals by including the proper verbiage in their proxy statement and proxy card. Rule 14a-4(c)(1) sets the standard for when a company retains discretionary authority for proposals submitted outside Rule 14a-8, including dictating specific deadlines and notices.
Authored by
Broc Romanek