This Cooley Alert penned by Brad Goldberg and Michael Mencher delves into the “now what” in the wake of the SEC’s position on shareholder proposals for this upcoming proxy season, including an exploration of the potential use of binding bylaws (and the related bylaw defenses), the inevitability of pressure tactics and the “Trojan Horse” dynamic.
Here’s an excerpt: “If precatory proposals are not a guaranteed option, proponents could look to submit binding shareholder proposals under Rule 14a-8 as an alternative, which in practice means binding bylaw proposals that would have direct binding effect on companies.
Binding bylaw proposals, which would directly amend a company’s bylaws upon receiving requisite shareholder support, historically have been extremely rare. 2024 was a recent high-water mark, when at least 15 binding bylaw proposals were submitted, including 13 proposals developed by Michael Levin of The Activist Investor and submitted by John Chevedden, which aimed to directly amend company bylaws to require annual binding shareholder votes to approve director compensation.
Where these proposals went to a vote, they uniformly received low support. While proponents might hope that shareholders would be more receptive to binding proposals in a world where precatory proposals are no longer an option, simply converting all precatory proposals to binding bylaw proposals is likely not a panacea for proponents.
Even if Delaware 14a-8(i)(1) letters are successful, Rule 14a-8 would not automatically bar proponents from submitting precatory proposals, and companies would retain discretion over whether to seek exclusion. Some companies may continue including certain precatory proposals in their proxy materials on the theory that a nonbinding vote is less disruptive than a binding bylaw proposal, withhold campaign or proxy contest. This decision would be a company-specific judgment considering, among other things, potential proxy advisory firm responses, investor reactions and the risk of more aggressive tactics discussed above.”
Authored by
Broc Romanek