

[Federal Register: August 3, 2007 (Volume 72, Number 149)]
[Proposed Rules]               
[Page 43465-43488]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03au07-28]                         


[[Page 43465]]

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Part V





Securities and Exchange Commission





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17 CFR Part 240



 Shareholder Proposals; Proposed Rules


[[Page 43466]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR PART 240

[Release No. 34-56160; IC-27913; File No. S7-16-07]
RIN 3235-AJ92

 
Shareholder Proposals

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing amendments to the rules under the Securities 
Exchange Act of 1934 concerning shareholder proposals and electronic 
shareholder communications, as well as to the disclosure requirements 
of Schedule 14A and Schedule 13G. Proposed amendments to Exchange Act 
Rule 14a-8 would enable shareholders to include in company proxy 
materials their proposals for bylaw amendments regarding the procedures 
for nominating candidates to the board of directors. Schedule 14A and 
Schedule 13G would be amended to provide shareholders with additional 
information about the proponents of these proposals, as well as any 
shareholders that nominate a candidate under such an adopted procedure. 
Included in these nominating shareholder disclosures would be the 
disclosure requirements that currently apply to traditional proxy 
contests. Finally, the proposed amendments would revise the proxy rules 
to clarify that participation in an electronic shareholder forum that 
may constitute a solicitation would be generally exempt from the proxy 
rules. This release accompanies a second release, Shareholder Proposals 
Relating to the Election of Directors, in which we publish an 
interpretation and propose a rule change to affirm the staff of the 
Division of Corporation Finance's historical application of Rule 14a-
8(i)(8).

DATES: Comments should be received by October 2, 2007.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml.
);     Send an e-mail to rule-comments@sec.gov. Please include 

File Number S7-16-07 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov
). Follow the instructions for submitting comments.


Paper Comments

     Send paper comments in triplicate to Nancy M. Morris, 
Secretary, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-16-07. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments 

also are available for public inspection and copying in the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549, on official business days between the hours of 10 a.m. and 3 
p.m. All comments received will be posted without change; we do not 
edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Lillian Brown, Steven Hearne, or 
Tamara Brightwell, at (202) 551-3700, in the Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-3010.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Rule 14a-
2,\1\ Rule 14a-6,\2\ Rule 14a-8,\3\ Schedule 14A,\4\ and Schedule 13G 
\5\ under the Securities Exchange Act of 1934,\6\ and proposing new 
Rule 14a-17 and Rule 14a-18 under the Exchange Act.
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    \1\ 17 CFR 240.a-2.
    \2\ 17 CFR 240.14a-6.
    \3\ 17 CFR 240.14a-8.
    \4\ 17 CFR 240.14a-100.
    \5\ 17 CFR 240.13d-102.
    \6\ 15 U.S.C. 78a et seq.
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Table of Contents

I. Overview
    A. Federal Regulation of the Proxy Process
    B. The Shareholder Proposal Process
    C. Commission Review of the Proxy Process
II. Proposed Amendments to the Proxy Rules and Related Disclosure 
Requirements
    A. Proposed Amendments Concerning Bylaw Proposals for 
Shareholder Nominations of Directors
    1. Background Regarding the Election Exclusion in Rule 14a-
8(i)(8)
    2. Proposed Amendment to Rule 14a-8(i)(8) Concerning Bylaw 
Amendments on Procedures for Shareholder Nominations of Directors
    3. Proposed Disclosure Requirements Related to Shareholder 
Proponents and Nominating Shareholders
    a. Overview of Requirements Applicable to Shareholder Proponents
    b. Proposed New Item 8B of Schedule 13G
    c. Proposed New Item 8C of Schedule 13G
    d. Proposed New Item 24 to Schedule 14A
    e. Disclosure by Nominating Shareholder--Proposed New Rule 14a-
17
    f. Liability for, and Incorporation by Reference of, Information 
Provided by the Nominating Shareholder
    g. Filing Requirements
    h. Proposed New Rule 14a-17(b)-(c) and Item 25 of Schedule 14A
    B. Electronic Shareholder Forums
    1. Background
    2. Proposed Amendment to Facilitate the Use of Electronic 
Shareholder Forums
    C. Request for Comment on Proposals Generally
    1. Bylaw Amendments Concerning Non-Binding Shareholder Proposals
    2. Other Requests for Comment
III. General Request for Comment
IV. Paperwork Reduction Act
V. Cost-Benefit Analysis
VI. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
VII. Initial Regulatory Flexibility Act Analysis
VIII. Small Business Regulatory Enforcement Fairness Act
IX. Statutory Basis and Text of Proposed Amendments

I. Overview

A. Federal Regulation of the Proxy Process

    Regulation of the proxy process is a core function of the 
Commission and is one of the original responsibilities that Congress 
assigned to the agency in 1934. Section 14(a) of the Exchange Act \7\ 
stemmed from a Congressional belief that ``fair corporate suffrage is 
an important right that should attach to every equity security bought 
on a public exchange.'' \8\ The Congressional committees recommending 
passage of Section 14(a) proposed that ``the solicitation and issuance 
of proxies be left to regulation by the Commission.'' \9\ Congress 
intended that Section 14(a) give the Commission the ``power to control 
the conditions under which proxies may be solicited'' \10\ and that 
this power be exercised ``as necessary or appropriate in the public 
interest or for the protection of investors.'' \11\ Because the 
Commission's authority under Section 14(a) encompasses both

[[Page 43467]]

disclosure and proxy mechanics,\12\ the proxy rules have long governed 
not only the information required to be disclosed to ensure that 
shareholders receive full disclosure of all information that is 
material to the exercise of their voting rights under state law and the 
corporation's charter, but also the procedure for soliciting 
proxies.\13\
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    \7\ 15 U.S.C. 78n(a).
    \8\ Mills v. Electric Auto-Lite Co., 396 U.S. 375, 381 (1970), 
quoting H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 13 (1934). See 
also J. I. Case Co. v. Borak, 377 U.S. 426, 431 (1964).
    \9\ S. Rep. No. 792, 73d Cong., 2d Sess., at 12 (1934).
    \10\ H.R. Rep. No. 1383, 73d Cong., 2d Sess., at 14 (1934). The 
same report demonstrated a congressional intent to prevent 
frustration of the ``free exercise of the voting rights of 
stockholders.'' Id.
    \11\ 15 U.S.C. 78n(a).
    \12\ See Business Roundtable v. SEC, 905 F.2d 406, 411 (D.C. 
Cir. 1990) (``We do not mean to be taken as saying that disclosure 
is necessarily the sole subject of Sec.  14''); Roosevelt v. E.I. du 
Pont de Nemours & Co., 958 F.2d 416, 421-22 (D.C. Cir. 1992) 
(Congress ``did not narrowly train section 14(a) on the interest of 
stockholders in receiving information necessary to the intelligent 
exercise of their'' state law rights); SEC v. Transamerica Corp., 
163 F.2d 511, 518 (3d Cir. 1947) (upholding the Commission's 
authority to promulgate Exchange Act Rule 14a-8), cert. denied, 332 
U.S. 847 (1948). See also John C. Coffee Jr., Federalism and the 
SEC's Proxy Proposals, New York Law Journal 5 (March 18, 2004) 
(Section 14(a) ``does not focus exclusively on disclosure; rather, 
it contemplates SEC rules regulating procedure in order to grant 
shareholders a `fair' right of corporate suffrage''); Louis Loss & 
Joel Seligman, Securities Regulation 1936-37 (3d ed. 1990) (The 
Commission's ``power under Sec.  14(a) is not necessarily limited to 
ensuring full disclosure. The statutory language is considerably 
more general than it is under the specific disclosure philosophy of 
the Securities Act of 1933'').
    \13\ E.g., Exchange Act Rule 14a-4 (17 CFR 240.14a-4), Exchange 
Act Rule 14a-7 (17 CFR 240.14a-7) and Exchange Act Rule 14a-8 (17 
CFR 240.14a-8). Each specifies procedural requirements that 
companies must observe in soliciting proxies. Exchange Act Rule 14a-
4(b)(2) requires that the form of proxy furnish the security holder 
with the means to withhold approval for the election of a director. 
Exchange Act Rule 14a-7 provides a procedure under which a security 
holder may be able to obtain a list of security holders. Exchange 
Act Rule 14a-8 provides a procedure under which a qualifying 
security holder can obligate the company to include certain types of 
proposals, along with statements in support of those proposals, in 
the company's proxy statement.
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    In assigning this responsibility to the Commission, Congress 
demonstrated its ``intent to bolster the intelligent exercise of 
shareholder rights granted by state corporate law.'' \14\ To identify 
the rights that the proxy process should protect, the Commission has 
taken as its touchstone the rights of security holders guaranteed to 
them under state corporate law. As Chairman Ganson Purcell explained to 
a committee of the House of Representatives in 1943:
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    \14\ Roosevelt, 958 F.2d at 421.

    The rights that we are endeavoring to assure to the stockholders 
are those rights that he has traditionally had under State law to 
appear at the meeting; to make a proposal; to speak on that proposal 
at appropriate length; and to have his proposal voted on.\15\
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    \15\ Securit[ies] and Exchange Commission Proxy Rules: Hearings 
on H.R. 1493, H.R. 1821, and H.R. 2019 Before the House Comm. on 
Interstate and Foreign Commerce, 78th Cong., 1st Sess., at 172 
(1943) (testimony of SEC Chairman Ganson Purcell).

Thus, the federal proxy authority is not intended to supplant state 
law, but rather to reinforce state law rights with a sturdy federal 
disclosure and proxy solicitation regime. To that end, the Commission 
has sought to use its authority in a manner that does not conflict with 
the primary role of the states in establishing corporate governance 
rights. For example, Rule 14a-8, the shareholder proposal rule, 
explicitly provides that a shareholder proposal is not required to be 
included in a company's proxy materials if it ``is not a proper subject 
for action by shareholders under the laws of the jurisdiction of the 
company's organization.'' \16\
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    \16\ 17 CFR 240.14a-8(i)(1).
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    One of the key rights that shareholders have under state law is the 
right to appear in person at an annual or special meeting and, subject 
to compliance with applicable state law requirements and the 
requirements contained in the company's charter and bylaws, such as an 
advance notice bylaw, present their own proposals for a vote by 
shareholders at that meeting.\17\ These proposals can relate to a wide 
variety of matters, including the nomination of the shareholders' own 
candidates for the election of directors.\18\ Most shareholders, 
however, vote through the grant of a proxy before the meeting instead 
of attending the meeting to vote in person. Therefore, an important 
function of the proxy rules is to provide a mechanism for shareholders 
to present their proposals to other shareholders, and to permit 
shareholders to instruct their proxy how to vote on these proposals. 
Our regulations have been designed to facilitate the corporate proxy 
process so that it functions, as nearly as possible, as a replacement 
for an actual, in-person gathering of security holders, thus enabling 
security holders ``to control the corporation as effectively as they 
might have by attending a shareholder meeting.'' \19\
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    \17\ For example, Section 211(b) of the Delaware General 
Corporation Law permits any ``proper business,'' in addition to the 
election of directors, to be conducted at an annual meeting of 
shareholders. In order to provide for an orderly period of 
solicitation before a meeting, many corporations have included 
provisions in their charter or bylaws to require advance notice of 
any shareholder resolutions, including nominations for director, to 
be presented at a meeting. See R. Franklin Balotti & Jesse A. 
Finkelstein, Delaware Law of Corporations & Business Organizations 
Sec.  7.9 (4th ed. 2006).
    \18\ Id.
    \19\ Business Roundtable, 905 F.2d at 410.
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    The Commission's proxy rules provide a means for shareholders to 
propose matters to other shareholders for a vote at an annual or 
special meeting. For example, under Rule 14a-8 a company must include 
in its proxy materials some proposals that shareholders could present 
at the annual or special meeting under state law. Other proposals can 
be included in proxy materials prepared by the shareholders themselves. 
In this regard, the proxy rules permit any shareholder to solicit votes 
for the election of a nominee to the board through a proxy solicitation 
by that shareholder. The proxy rules do not, however, require a company 
to include a shareholder's nominee for director in its proxy materials. 
Conversely, the proxy rules require the company to include in its proxy 
materials non-binding resolutions of eligible shareholders on subjects 
unrelated to the company's ordinary business unless the proposals fall 
within one of the substantive bases for exclusion in Rule 14a-8. The 
proposed amendments to the proxy rules discussed below address these 
matters.

B. The Shareholder Proposal Process

    Rule 14a-8 creates a procedure under which shareholders, subject to 
certain requirements, may present in the company's proxy materials a 
broad range of binding and non-binding proposals, including non-binding 
proposals regarding matters that traditionally are within the province 
of the board and management. The rule permits a shareholder owning a 
relatively small amount of the company's shares \20\ to submit his or 
her proposal to the company, and the rule requires the company to 
include the proposal alongside management's proposals in the company's 
proxy materials. For example, a proposal concerning a matter that under 
state law would not be a proper subject for shareholder action alone if 
it were cast as a binding proposal, may nonetheless be included in the 
company's proxy materials under Rule 14a-8 if it is cast as a 
recommendation or request that the board take specified action.\21\ In 
all cases, the proposal may be excluded by the company if it fails to 
satisfy the rule's procedural requirements or falls within one of the 
rule's thirteen substantive categories of proposals that may be 
excluded.
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    \20\ Exchange Act Rule 14a-8(b)(1) (17 CFR 240.14a-8(b)(1)) 
provides that a holder of at least $2,000 in market value, or 1% of 
the company's securities entitled to be voted, may submit a 
shareholder proposal subject to other procedural requirements and 
substantive bases for exclusion under the rule.
    \21\ State corporation statutes generally provide that the 
business of the corporation shall be managed by, or under the 
direction of, the board of directors.
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    Because the proxy process is meant to serve, as nearly as possible, 
as a

[[Page 43468]]

replacement for an actual, in-person meeting of shareholders, it should 
facilitate proposals concerning only those subjects that could properly 
be brought before a meeting under the corporation's charter or bylaws 
and under state law. Most state corporation codes specify certain items 
of business that are required to be presented to the shareholders for a 
vote, such as the election of directors, and others that may or may not 
be brought to a vote, either in the discretion of the chair or as 
specified by the corporation's charter or bylaws.
    With respect to the chair's discretion, in general state law 
provides that the order of business at a meeting of shareholders and 
the rules for the conduct of the meeting are determined by the chair, 
who is usually appointed as provided in the bylaws, or in the absence 
of such provision, by the board of directors.\22\ In order to reinforce 
the state law rights and responsibilities of shareholders, therefore, 
the proxy rules should be neutral with respect to the manner in which 
meetings of shareholders are conducted, and should not interfere with 
the chair's ability to conduct the meeting in accordance with the 
requirements of state law and the corporation's governing documents.
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    \22\ See, e.g., Section 7.08, Model Business Corporation Act. 
The Comment to this Section states that it is expected that the 
chair will not misuse the power to determine the order of business 
and to establish rules for the conduct of the meeting so as to 
unfairly foreclose the right of shareholders--subject to state law 
and the corporation's charter and bylaws--to raise items which are 
properly a subject for shareholder discussion or action at some 
point in the meeting prior to adjournment.
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    With respect to subjects and procedures for shareholder votes that 
are specified by the corporation's governing documents, most state 
corporation laws provide that a corporation's charter or bylaws can 
specify the types of binding or non-binding proposals that are 
permitted to be brought before the shareholders for a vote at an annual 
or special meeting. Rule 14a-8(i)(1) supports these determinations by 
providing that a proposal that is violative of the corporation's 
governing documents may be excluded from the corporation's proxy 
materials.
    Rule 14a-8 specifies that companies must notify the Commission when 
they intend to exclude a shareholder's proposal from their proxy 
materials. This notice goes to the staff of the Division of Corporation 
Finance. In the notice, the company provides the staff with a 
discussion of the basis or bases upon which the company intends to 
exclude the proposal and requests that the staff not recommend 
enforcement action if the company excludes the proposal. A shareholder 
proponent may respond to the company's notice, but is not required to 
do so. Generally, the staff responds to each notice with a ``no-
action'' letter to the company, a copy of which is provided to the 
shareholder, in which the staff either concurs or declines to concur 
with the company's view that there is a basis for excluding the 
proposal.\23\
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    \23\ The staff's response is an informal expression of its 
views, and does not necessarily reflect the view of the Commission. 
Either the shareholder proponent or the company may obtain a 
decision on the excludability of a challenged proposal from a 
federal court.
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    Each proxy season, the Division of Corporation Finance responds to 
hundreds of these no-action requests.\24\ Although the Commission 
itself is not directly involved in responding to no-action requests, 
where a matter involves ``substantial importance and where the issues 
are novel or highly complex,'' the Division may present an issue to the 
Commission for review--either at the Division's own instance or at the 
request of the company or the shareholder proponent.\25\ Rule 14a-8 
thus places the Commission's staff at the center of frequent disputes 
over whether a proposal must be included in the company's proxy 
materials.
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    \24\ During the 2006-2007 proxy season, the Division of 
Corporation Finance responded to approximately 360 Exchange Act Rule 
14a-8 no-action requests. To respond to these requests, each proxy 
season the Division assembles a task force of attorneys who work 
full-time on the project from approximately January through April of 
each year.
    \25\ 17 CFR 202.1(d).
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C. Commission Review of the Proxy Process

    In meeting the Commission's statutory obligation under Section 
14(a) of the Exchange Act, this agency has monitored the development of 
the proxy process closely since 1934. Over the decades, we have made 
numerous improvements and refinements to the proxy rules based upon 
practical experience and the needs of investors.\26\ This ongoing 
evaluation of the proxy process leads us to consider changes whenever 
it appears that the process can be improved to better promote the 
interests of investors, the efficient functioning of the capital 
markets, and the health of capital formation.
    In 2003, the Commission directed the Division of Corporation 
Finance to review the proxy rules regarding procedures for the election 
of corporate directors and provide the Commission with recommendations 
regarding possible changes to the proxy rules. Following the Division's 
review of the proxy rules, the Commission proposed a comprehensive new 
set of rules, based on the Division's recommendations, which would have 
governed shareholder director nominations that are not control-
related.\27\ In connection with the rulemaking concerning shareholder 
director nominations, the Commission held a roundtable regarding the 
topic of shareholder director nominations generally, and more 
specifically, the shareholder director nominations release.\28\ The 
Commission also proposed and adopted a new set of disclosure standards 
concerning director nominations and communications between shareholders 
and companies.\29\
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    \26\ As long ago as 1940, observers noted that ``[t]he history 
of [C]ommission regulation pursuant to authority granted in Section 
14 of the Securities Exchange Act has been one of careful expansion 
based upon experience and demonstrated needs.'' Sheldon E. Bernstein 
& Henry G. Fischer, The Regulation of the Solicitation of Proxies: 
Some Reflections on Corporate Democracy, 7 U. Chi. L. Rev. 226, 228 
(1940).
    \27\ Exchange Act Release 34-48626 (Oct. 14, 2003).
    \28\ Security Holder Director Nominations Roundtable (March 10, 
2004).
    \29\ Exchange Act Release 34-48825 (Nov. 24, 2003).
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    More recently, the Commission held three roundtables in May 2007. 
This series of roundtables began with a re-examination of the 
fundamental principles of federalism that provide the context for our 
role under Section 14(a) of the Exchange Act. Specifically, the 
roundtables focused on the relationship between the federal proxy rules 
and state corporation law,\30\ proxy voting mechanics,\31\ and the 
evolution of both binding and non-binding shareholder proposals within 
the framework of the federal proxy rules.\32\
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    \30\ Roundtable on the Federal Proxy Rules and State Corporation 
Law (May 7, 2007). Materials related to the roundtable, including an 
archived broadcast and a transcript of the roundtable, are available 
on-line at http://www.sec.gov/spotlight/proxyprocess.htm.

    \31\ Roundtable on Proxy Voting Mechanics (May 24, 2007). 
Materials related to the roundtable, including an archived broadcast 
and a transcript of the roundtable, are available on-line at http://www.sec.gov/spotlight/proxyprocess.htm
.

    \32\ Roundtable on Proposals of Shareholders (May 25, 2007). 
Materials related to the roundtable, including an archived broadcast 
and a transcript of the roundtable, are available on-line at http://www.sec.gov/spotlight/proxyprocess.htm
.

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    Roundtable participants argued that, in contrast to the current 
operation of the federal proxy rules, the federal role should be to 
facilitate shareholders' exercise of their fundamental state law and 
company ownership rights to elect the board of directors.\33\ Some

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participants also observed that recent technological developments may 
provide promising possibilities for additional, complementary means for 
shareholders to interact and communicate with the management and the 
board of directors of the company that could be more effective and more 
efficient.\34\ Participants generally agreed that enhanced disclosure 
should accompany any changes the Commission might propose so that 
shareholders can make fully informed voting decisions.\35\
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    \33\ See, e.g., R. Franklin Balotti, Director, Richards, Layton 
& Finger, P.A, Transcript of Roundtable on the Federal Proxy Rules 
and State Corporation Law, May 7, 2007, at 14-17; Leo E. Strine, 
Jr., Vice Chancellor, Court of Chancery of the State of Delaware, 
Transcript of Roundtable on the Federal Proxy Rules and State 
Corporation Law, May 7, 2007, at 18-23; Stanley Keller, Edwards 
Angell Palmer & Dodge LLP, Transcript of Roundtable on the Federal 
Proxy Rules and State Corporation Law, May 7, 2007, at 142-143.
    \34\ See, e.g., Stanley Keller, Edwards Angell Palmer & Dodge 
LLP, Transcript of Roundtable on the Federal Proxy Rules and State 
Corporation Law, May 7, 2007, at 152-154.
    \35\ See, e.g., Roberta Romano, Yale Law School, Transcript of 
Roundtable on the Federal Proxy Rules and State Corporation Law, May 
7, 2007, at 26-27; Stephen P. Lamb, Vice Chancellor, Court of 
Chancery of the State of Delaware, Transcript of Roundtable on the 
Federal Proxy Rules and State Corporation Law, May 7, 2007, at 123-
125.
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    In light of these issues and developments, the Commission is 
proposing that the current proxy rules and related disclosure 
requirements be revised and updated to more effectively serve the 
essential purpose of facilitating the exercise of shareholders' rights 
under state law.

II. Proposed Amendments to the Proxy Rules and Related Disclosure 
Requirements

    We are proposing changes to Rule 14a-8 that would facilitate 
shareholders' exercise of their state law rights to propose bylaw 
amendments concerning shareholder nominations of directors. 
Additionally, we are proposing amendments to the proxy rules to make 
clear that director nominations made pursuant to any such bylaw 
provisions would be subject to the disclosure requirements currently 
applicable to proxy contests. These proposed amendments are intended to 
align the Commission's shareholder proposal rule more closely with the 
underlying state law rights of shareholders.
    As discussed above, in addition to governing the procedure for 
soliciting proxies, a primary purpose of the federal proxy rules is to 
provide shareholders with full disclosure of all information for the 
exercise of their voting rights under state law and the corporation's 
charter. The amendments we propose today are designed to provide 
shareholders with additional disclosure to allow for better-informed 
voting decisions. This additional disclosure is of great importance to 
informed voting decisions both when shareholders are presented with 
proposed bylaw amendments and when shareholders are presented with 
nominees for director submitted under the company's bylaws. As such, we 
are proposing amendments to Schedule 13G and Schedule 14A that would 
enhance the disclosure of information about the proponents of bylaw 
amendments concerning the nomination of directors, about any 
shareholders that submit director nominees under any adopted bylaw, and 
about any director nominee that is submitted by a shareholder under 
such a bylaw.

A. Proposed Amendments Concerning Bylaw Proposals for Shareholder 
Nominations of Directors

1. Background Regarding the Election Exclusion in Rule 14a-8(i)(8)
    Rule 14a-8(i)(8) sets forth one of several substantive bases upon 
which a company may exclude a shareholder proposal from its proxy 
materials. Specifically, it provides that a company need not include a 
proposal that ``relates to an election for membership on the company's 
board of directors or analogous governing body.'' The purpose of this 
provision is to prevent the circumvention of other proxy rules that are 
carefully crafted to ensure that investors receive adequate disclosure 
and an opportunity to make informed voting decisions in election 
contests. Last year, the U.S. Court of Appeals for the Second Circuit, 
in American Federation of State, County and Municipal Employees, 
Employees Pension Plan v. American International Group, Inc.,\36\ held 
that AIG could not rely on Rule 14a-8(i)(8) to exclude a shareholder 
bylaw proposal under which the company would be required, under 
specified circumstances, to include shareholder nominees for director 
in the company's proxy materials at subsequent meetings.
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    \36\ 462 F.3d 121 (2d Cir. 2006) (AFSCME).
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    The effect of the AFSCME decision was to permit both the bylaw 
proposal and, had the bylaw been adopted, subsequent election contests 
conducted under it, to be included in the company's proxy materials, 
but without compliance with the disclosure requirements of Rule 14a-12 
solicitations. Because of the importance that we attach to the 
provision of meaningful disclosure to investors in election contests, 
we are revisiting the provisions of Rule 14a-8 in light of the AFSCME 
decision with a proposal that is designed to ensure that this objective 
is consistently achieved.
    Since the AFSCME case was decided last year, the Commission has 
undertaken a thorough review of the proxy process. That review, 
including three recent roundtables on the topic, has led us to conclude 
that the federal proxy rules can be better aligned with shareholders' 
fundamental state law rights to nominate and elect directors. At the 
same time, the vindication of these state law rights must be 
accomplished in a way that accommodates the abiding federal interest in 
the full and fair disclosure to shareholders of information that is 
material to a contested election. This is the policy interest, grounded 
firmly in Section 14 of the Securities Exchange Act of 1934, that 
underlies the election exclusion of Rule 14a-8(i)(8).
    To achieve the mutually reinforcing objectives of vindicating 
shareholders' state law rights to nominate directors, on the one hand, 
and ensuring full disclosure in election contests, on the other hand, 
we are proposing revisions to Rule 14a-8(i)(8) that would permit a 
shareholder who makes full disclosure in connection with a bylaw 
proposal for director nomination procedures, including a proposal such 
as that in the AFSCME case, to have that proposal included in the 
company's proxy materials.\37\ The basis for the disclosure that we are 
proposing is the familiar Schedule 13G regime, under which certain 
passive investors that beneficially own more than 5% of a company's 
securities, report their ownership of a company's securities. We 
believe that using this well-understood system of disclosure should 
reduce compliance costs for companies and shareholders. In addition, 
because shareholders eligible to file under Schedule 13G must not have 
acquired or held their securities for the purpose of or with the effect 
of changing or influencing the control of the company, the opportunity 
to use Rule 14a-8 to inappropriately circumvent the disclosure and 
procedural regulations that are intended to apply in contested 
elections should be minimized.
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    \37\ See proposed revision to Exchange Act Rule 14a-8(i)(8).
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    Under the proposed amendments, if the proponents of a bylaw to 
establish a procedure for shareholder nominations of directors do not 
meet both the threshold for required filing on Schedule 13G, and the 
eligibility requirements to file on Schedule 13G, the proposal could 
then be excluded

[[Page 43470]]

from the company's proxy materials under Rule 14a-8(i)(8). In this way, 
shareholders will be guaranteed the disclosure necessary to evaluate 
such proposals.
    In light of the need for full disclosure where the possibility of 
control over a company is present, we believe that our decision to link 
the ability to include a bylaw proposal for director nominations in a 
company's proxy materials to the 5% threshold set by Section 13(d) of 
the Exchange Act addresses the basic policy concerns previously 
articulated by both Congress and the Commission. Moreover, because the 
proposed expansion of shareholders' ability to submit proposals under 
Rule 14a-8 would be limited to specific situations in which 
shareholders would be assured of appropriate disclosure and procedural 
protections, if the proposal did not meet the eligibility requirements 
of the amended rule, the Commission's staff would continue to interpret 
the rule to permit companies to exclude the proposal.
    We believe that the amendments we are proposing today, including 
the amendments to the language of the election exclusion, will provide 
clarity and certainty in this area. We also believe they will 
facilitate shareholders' exercise of their state law rights to propose 
amendments to company bylaws concerning director nominations.
2. Proposed Amendment to Rule 14a-8(i)(8) Concerning Bylaw Amendments 
on Procedures for Shareholder Nominations of Directors
    We are proposing an amendment to Rule 14a-8(i)(8) \38\ that would 
enable shareholders to have their proposals for bylaw amendments 
regarding the procedures for nominating directors included in the 
company's proxy materials. Such a bylaw proposal would be required to 
be included in the company's proxy materials if:
---------------------------------------------------------------------------

    \38\ See proposed revision to paragraph (i)(8) of Exchange Act 
Rule 14a-8.
---------------------------------------------------------------------------

     The shareholder (or group of shareholders) that submits 
the proposal is eligible to file a Schedule 13G and files a Schedule 
13G that includes specified public disclosures regarding its background 
and its interactions with the company; \39\
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    \39\ The eligibility to file a Schedule 13G generally is 
available only for persons who have acquired and continue to hold 
the securities beneficially owned without ``a purpose or effect of 
changing or influencing the control of the issuer, or in connection 
with or as a participant in any transaction having that purpose or 
effect.'' See Rule 13d-1(e). Although proposing a bylaw amendment 
pursuant to proposed Rule 14a-8(i)(8) would not on its own eliminate 
the ability to file a Schedule 13G, a determination of whether a 
proposing shareholder is eligible to file a Schedule 13G will 
continue to be based on the specific facts and circumstances 
accompanying the activities of the proposing shareholder. See 
Release No. 34-39538 (Jan. 12, 1998) [63 FR 2854].
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     The proposal is submitted by a shareholder (or group of 
shareholders) that has continuously beneficially owned more than 5% of 
the company's securities entitled to be voted on the proposal at the 
meeting for at least one year by the date the shareholder submits the 
proposal; \40\ and
---------------------------------------------------------------------------

    \40\ The one-year holding requirement would apply individually 
to each member of a group that is aggregating its security holdings 
to make a proposal.
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     The proposal otherwise satisfies the requirements of Rule 
14a-8.\41\
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    \41\ To require a company to include the proposal in its proxy 
materials, the proposal would have to satisfy the procedural 
requirements of Exchange Act Rule 14a-8 and not fall within one of 
the other substantive bases for exclusion included in Exchange Act 
Rule 14a-8.
---------------------------------------------------------------------------

    As amended, Rule 14a-8 would allow proponents of bylaw proposals to 
offer shareholder nomination procedures as they see fit. The only 
substantive limitations on such procedures would be those imposed by 
state law or the company's charter and bylaws. For example, the 
procedure could specify a minimum level of share ownership for those 
making director nominations that would be included in the company's 
proxy materials; it could specify the number of director slots subject 
to the procedure; or it could prescribe a method for the allocation of 
any costs--so long as both the form and substance of any such 
requirements were consistent with applicable state law and the 
company's charter and existing bylaw provisions. Likewise, the voting 
threshold required in order to adopt the bylaw would be determined by 
the thresholds set forth by state law or in the company's charter and 
bylaws with respect to the adoption of bylaws or bylaw amendments.\42\
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    \42\ In the event the charter or bylaws are silent as to the 
voting threshold required, a company and its shareholders should 
look to the governing state corporation law. The staff of the 
Commission would not become involved in determining what this 
threshold is or whether it had been achieved. Interpretation and 
enforcement of any bylaw provision setting forth a procedure for 
shareholder director nominees to be included in the company's proxy 
materials would be the province of the appropriate state court since 
it would be a question of state law, not federal law. The staff of 
the Commission would not become involved in determining the correct 
interpretation or application of an adopted bylaw provision. In 
addition, the staff of the Commission would not become involved in 
determining whether a bylaw provision was properly adopted.
---------------------------------------------------------------------------

    The disclosure requirements and anti-fraud provisions of the 
federal proxy rules would, of course, apply to any solicitation of 
proxies conducted pursuant to a bylaw provision proposed and approved 
by shareholders. A shareholder proposal to establish bylaw procedures 
for shareholder nominations of directors would also be subject to any 
substantive bases for exclusion currently provided for in Rule 14a-8 
that do not relate to an election for membership on the company's board 
of directors.
    Shareholder proposals to amend the company's bylaws to establish a 
procedure for shareholder nominations of directors by proponents that 
do not meet the eligibility requirements of the proposed amendment to 
Rule 14a-8(i)(8)--including the requirements that the shareholder 
proponents have been more than 5% owners for at least one year and have 
filed a Schedule 13G--would be subject to exclusion.
    We believe that the amendments we are proposing today will not only 
provide consistency and certainty in this area of Rule 14a-8, but also 
will provide shareholders the ability to have a greater voice in their 
company's corporate governance, consistent with their rights under 
state law.
Request for Comment
     As proposed, a bylaw proposal may be submitted by a 
shareholder (or group of shareholders) that is eligible to and has 
filed a Schedule 13G that includes specified public disclosures 
regarding its background and its interactions with the company, that 
has continuously held more than 5% of the company's securities for at 
least one year, and that otherwise satisfies the procedural 
requirements of Rule 14a-8 (e.g., holding the securities through the 
date of the annual meeting). Are these disclosure-related requirements 
for who may submit a proposal, including eligibility to file on 
Schedule 13G, appropriate? If not, what eligibility requirements and 
what disclosure regime would be appropriate?
    [cir] For example, should the 5% ownership threshold be higher or 
lower, such as 1%, 3%, or 10%? Is the 5% level a significant barrier to 
shareholders making such proposals? Does the impediment imposed by this 
threshold depend on the size of the company? Should the ownership 
percentage depend on the size of the company? For example, should it be 
1% for large accelerated filers, 3% for accelerated filers and 5% for 
all others? Should an ownership threshold be applicable at all?
    [cir] If the eligibility requirement should be different from 5%, 
should we nonetheless require the filing of a Schedule 13G or otherwise 
require disclosure equivalent to a Schedule 13G?

[[Page 43471]]

    [cir] The proposed one-year holding requirement is consistent with 
the existing holding period in Rule 14a-8(b)(1) to submit a shareholder 
proposal. Is it appropriate to limit use of the proposed rules to 
shareholder proponents that have held their securities for any length 
of time? If so, is the one-year period that we have proposed 
appropriate, or should the holding period be longer (e.g., two years or 
three years) or shorter than proposed (e.g., six months)? Why? With 
regard to the one-year holding requirement, is it appropriate to 
require that each member of a group of shareholders individually 
satisfy this holding requirement?
    [cir] Shareholders of some companies, e.g., open-end management 
investment companies, are not eligible to file Schedule 13G because the 
securities of those companies are not defined as ``equity securities'' 
for purposes of Rule 13d-1, which governs the filing of Schedule 13G by 
beneficial owners of equity securities. Should we permit security 
holders of such companies to file a Schedule 13G for the purpose of 
relying upon proposed Rule 14a-8(i)(8) if the holder otherwise would be 
eligible to file a Schedule 13G but for the exclusion of the company's 
securities from the definition of ``eligible security?'' If we were to 
do this, what, if any, amendments would be required to Schedule 13G? 
Should we instead use an eligibility requirement, other than 
eligibility to file Schedule 13G, in Rule 14a-8(i)(8) for shareholders 
of companies whose securities are not ``equity securities?''
     If a shareholder acquires shares with the intent to 
propose a bylaw amendment, could that be deemed to constitute an intent 
to influence control of the company and thus potentially bar them from 
filing on 13G? If so, should the Commission provide an exemption that 
would enable such a shareholder to file on Schedule 13G?
     Proposals to establish a procedure for shareholder 
nominees would be subject to the existing limit under Rule 14a-8 of 500 
words in total for the proposal and supporting statement. Is this 
existing word limit sufficient for such a proposal? If not, what 
increased word limit would be appropriate?
     In seeking to form a group of shareholders to satisfy the 
5% threshold, shareholders may seek to communicate with one another, 
thereby triggering application of the proxy rules. In order not to 
impose an undue burden on such shareholders, should such communications 
be exempt from the proxy rules? If so, what should the parameters of 
any such exemption be?
     Is there any tension between the requirement in Schedule 
13G that the securities not be acquired or held for the purpose of 
changing or influencing control of the company and the desire of the 
holder of such shares to propose a bylaw amendment seeking to establish 
procedures for including shareholder-nominated candidates to the board? 
Does the answer to this question depend on the number of candidates 
sought to be included in the proposal? If there is tension, should we 
establish a safe harbor of some kind?
3. Proposed Disclosure Requirements Related to Shareholder Proponents 
and Nominating Shareholders
a. Overview of Requirements Applicable to Shareholder Proponents
    Under the revisions to Rule 14a-8 that we are proposing today, a 
company would be required to include in its proxy materials bylaw 
proposals to establish procedures governing shareholder nominations for 
director so long as the bylaw is consistent with state law and the 
company's charter and bylaws. To trigger that requirement, an essential 
element is that the shareholder (or group of shareholders) proposing 
the bylaw provide disclosure about its own background, intentions, and 
course of dealings with the company to enable other shareholders to 
vote intelligently on the proposal. This disclosure requirement is 
being implemented through proposed amendments to existing Schedule 13G 
and a new reporting requirement under proposed Item 24 of Regulation 
14A.
    The already significant role that full disclosure plays in our 
proxy rules is rendered still more important when individual 
shareholders or groups of shareholders, who do not owe a fiduciary duty 
to the company or to other shareholders, use company assets and 
resources to propose changes in the company's governing documents. Our 
proposed amendments would require that certain information concerning 
proposals that could cause a fundamental change in the relationship 
between the company and its shareholders be placed before all 
shareholders entitled to vote. This information, in this context, 
includes background information on the shareholder proponent that other 
shareholders ordinarily would find to be important and relevant to a 
decision when asked to consider a proposed bylaw amendment setting 
forth procedures for director nominations. In addition, we believe that 
the use of such a proposal, or the possibility of such a proposal, to 
influence the company's management or board of directors to take or not 
to take other related or unrelated actions should be rendered 
transparent. It would be useful to the company's shareholders to know 
of any course of dealing between the shareholder proponent and the 
company when they are deciding how they will vote on the proposal. The 
additional Schedule 13G and Regulation 14A disclosure requirements that 
we are proposing address these concerns.
    Therefore, we propose to require disclosure on Schedule 13G of 
significant background information regarding the shareholder proponent, 
as well as an extensive description of the course of dealing between 
the shareholder proponent and the company. In addition, we propose to 
require the company to disclose similar information with regard to the 
nature and extent of its relationships with the shareholder proponent. 
We believe that this additional disclosure will provide transparency to 
shareholders voting on such bylaw amendments.
    Specifically, we are proposing that any shareholder (or group of 
shareholders) that forms any plans or proposals regarding an amendment 
to the company's bylaws \43\ concerning shareholder director 
nominations, file or amend Schedule 13G to include the following 
information that would be required by new Item 8A, Item 8B, and Item 
8C:
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    \43\ In this regard, the formation of any plans or proposals 
regarding an amendment to the company's bylaws would include the 
submission of a proposal to amend the company's bylaws, and 
discussions in which the shareholder indicated to management an 
intent to submit such a proposal or indicated an intent to refrain 
from submitting such a proposal conditioned on the taking or not 
taking of an action by the company. See proposed Note to Item 8A of 
Schedule 13G. In the proposed disclosure requirements, and in the 
following discussion of those proposed requirements, the term 
``shareholder proponent'' refers to a person that has formed any 
plans or proposals regarding an amendment to the company's bylaws 
for a shareholder director nomination procedure; any affiliate, 
executive officer or agent acting on behalf of that person with 
respect to the plans or proposals; and anyone acting in concert 
with, or who has agreed to act in concert with, that person with 
respect to the plans or proposals. See proposed Item 8A(a) of 
Schedule 13G.
---------------------------------------------------------------------------

     The shareholder proponent's relationships with the 
company; and
     Additional relevant background information on the 
shareholder proponent. The shareholder proponent also would be required 
to amend its Schedule 13G to update this information as necessary.
    To permit reliance on the existing disclosure scheme set forth in 
Regulation 13D, the proposed amendments to Rule 14a-8 will require 
shareholder bylaw proposals to be

[[Page 43472]]

included in a company's proxy materials only if the shareholder 
proponent is subject to Regulation 13D and eligible to file on Schedule 
13G.\44\ Regulation 13D, which requires the disclosure of specified 
information in filings with the Commission on Schedule 13D, applies to 
persons that directly or indirectly beneficially own more than 5% of a 
class of voting equity securities registered pursuant to Section 12 of 
the Exchange Act.\45\ Schedule 13G requires less disclosure than 
Schedule 13D and is available for use by persons who beneficially own 
more than 5% of a class of equity securities registered with the 
Commission pursuant to Section 12(g) of the Exchange Act and who meet 
the criteria for one of three types of Schedule 13G filers.\46\ 
Generally, persons, including groups and others who file on Schedule 
13G must certify that the securities have not been acquired with the 
purpose nor with the effect of changing or influencing control of the 
company.\47\
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    \44\ See proposed revisions to paragraph (i)(8) of Rule 14a-8.
    \45\ See 17 CFR 240.13d-1.
    \46\ Regulation 13D permits filing on Schedule 13G for a 
specified list of qualified institutional investors who have 
acquired the securities in the ordinary course of their business and 
not with the purpose nor the effect of changing or influencing 
control of the company. See Exchange Act Rule 13d-1(b) (17 CFR 
240.13d-1(b)). In addition, persons who are beneficial owners of 
more than 5% of a class of equity securities may file Schedule 13G, 
if they have not acquired the securities with the purpose nor with 
the effect of changing or influencing control of the company, and if 
they are not directly or indirectly the beneficial owner of 20% or 
more of the class of securities. See Exchange Act Rule 13d-1(c) (17 
CFR 240.13d-1(c)). Finally, certain persons may file a Schedule 13G, 
in lieu of Schedule 13D, if they qualify under Exchange Act Section 
13(d)(6) or Rule 13d-1(d) (17 CFR 240.13d-1(d)).
    \47\ Reports of beneficial ownership filed on Schedule 13G 
pursuant to Rule 13d-1(d) are not required to make this 
certification.
---------------------------------------------------------------------------

    The proposed amendments to Rule 14a-8 and Schedule 13G, which would 
enable a shareholder that had provided specified disclosures to propose 
a bylaw amendment, would apply to a shareholder (or group of 
shareholders) that:
     Has continuously held more than 5% of the company's shares 
entitled to be voted on the proposal for at least one year as of the 
date of submitting the proposal;
     Was eligible to file a report of beneficial ownership on 
Schedule 13G; and
     Has filed a report of beneficial ownership on Schedule 
13G, or an amendment thereto, that includes information about the 
shareholder or group's background and relationships with the company.
    The requirement that a shareholder or group of shareholders hold 
more than 5% of the company's shares entitled to be voted on the 
proposal corresponds with the filing requirement on Schedule 13G for 
beneficial owners of more than 5% of a company's shares, and 
facilitates the provision of the additional disclosures concerning the 
shareholder proponent that the amendments to Rule 14a-8 would require. 
The proposed requirement that the shares be continuously held for at 
least one year as of the date of submitting the proposal has the 
additional benefit of ensuring that proposals are made by shareholders 
with a significant long-term stake in the company, and it is consistent 
with the current requirement in Rule 14a-8 that has worked well 
historically. The proposed requirement that the shareholder (or group 
of shareholders) be eligible to report on Schedule 13G would not only 
ensure that they are subject to the disclosure requirements of the 
Williams Act, but also that their shares were not acquired and are not 
held with the purpose or effect of changing or influencing control of 
the company.
b. Proposed New Item 8B of Schedule 13G
    A shareholder proponent may have a variety of relationships with 
the company. Because these relationships will often be relevant to an 
informed decision by other shareholders as to whether to vote in favor 
of a proposed bylaw amendment, disclosure of information concerning the 
proposal should include information about such relationships. 
Accordingly, we are proposing to add a new Item 8B to Schedule 13G 
concerning the nature and extent of relationships between the 
shareholder proponent and the company.\48\ As proposed, new Item 8B 
disclosure would include:
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    \48\ In proposed Item 8A of Schedule 13G we define a shareholder 
proponent to include a person or group that has formed any plans or 
proposals with regard to the amendment, any affiliate, executive 
officer, or agent of such shareholder proponent, or anyone acting in 
concert with, or who has agreed to act in concert with such 
shareholder proponent with respect to the proposed bylaw amendment.
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     Any direct or indirect interest of the shareholder 
proponent in any contract with the company or any affiliate of the 
company (including any employment agreement, collective bargaining 
agreement, or consulting agreement);
     Any pending or threatened litigation in which the 
shareholder proponent is a party or a material participant, involving 
the company, any of its officers or directors, or any affiliate of the 
company; and
     Any other material relationship between the shareholder 
proponent and the company or any affiliate of the company not otherwise 
disclosed.\49\
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    \49\ A material relationship between the proponent and the 
company or an affiliate of the company may include, but is not 
limited to, a current or prior employment relationship, including 
consulting arrangements.
---------------------------------------------------------------------------

    Additionally, Item 8B would require a shareholder proponent to 
describe the following items that occurred during the 12 months prior 
to the formation of any plans or proposals, or during the pendency of 
any proposal or nomination:
     Any material transaction of the shareholder proponent with 
the company or any affiliate of the company; and
     Any discussion regarding the proposal between the 
shareholder proponent and a proxy advisory firm.
    As proposed, new Item 8B also would require disclosure of any 
holdings of more than 5% of the securities of any competitor of the 
company, including the number and percentage of securities owned, as of 
the date the shareholder proponent first formed a plan or proposal 
regarding an amendment to the company bylaws in accordance with Rule 
14a-8(i)(8).\50\ The shareholder proponent also would be required to 
disclose any material relationship with any competitor other than as a 
security holder, as of the date the shareholder proponent first formed 
a plan or proposal regarding an amendment to the company bylaws in 
accordance with Rule 14a-8(i)(8).
---------------------------------------------------------------------------

    \50\ For this purpose, a ``competitor'' of the company is 
proposed to include any enterprise with the same Standard Industrial 
Classification code.
---------------------------------------------------------------------------

    Finally, new Item 8B would require disclosure regarding any 
meetings or contacts, including direct or indirect communication by the 
shareholder proponent, with the management or directors of the company 
that occurred during the 12-month period prior to the formation of any 
plans or proposals, or during the pendency of any proposal. The 
proposed disclosure would provide:
     A description, in reasonable detail, of the content of 
such direct or indirect communication;
     A description of the action or actions sought to be taken 
or not taken;
     The date of the communication;
     The person or persons to whom the communication was made;
     Whether that communication included any reference to the 
possibility of such a proposal; and
     Any response by the company or its representatives to that 
communication

[[Page 43473]]

prior to the date of filing the required disclosure.
    To the extent that the shareholder proponent and management or the 
directors of the company have an ongoing dialogue, the shareholder 
proponent may describe the frequency of the meetings and the subjects 
covered at the meetings rather than providing the information 
separately for each meeting. However, if an event or discussion 
occurred at a specific meeting that is material to the shareholder 
proponent's decision to submit a proposal, that meeting would be 
required to be discussed in detail separately.
c. Proposed New Item 8C of Schedule 13G
    When a shareholder (or group of shareholders) proposes a bylaw 
amendment regarding the procedures for nominating directors, background 
information regarding the proposing shareholder often will be relevant 
to an informed voting decision by the other shareholders. Accordingly, 
we are proposing to add a new Item 8C to Schedule 13G concerning the 
following information about the shareholder proponent:
     If the shareholder proponent is not a natural person:

--The identity of the natural person or persons associated with the 
entity responsible for the formation of any plans or proposals;
--The manner in which such person or persons were selected, including a 
discussion of whether or not the equity holders or other beneficiaries 
of the shareholder proponent entity played any role in the selection of 
such person or persons, and whether they played any role in connection 
with the formation of any plans or proposals;
--Any fiduciary duty to the equity holders or other beneficiaries of 
the entity that the person or persons associated with the entity 
responsible for the formation of any plans or proposals have in forming 
such plans or proposals;
--The qualifications and background of such person or persons relevant 
to the plans or proposals; and
--Any interests or relationships of such person or persons, and of that 
entity, that are not shared generally by the other shareholders of the 
company and that could have influenced the decision by such person or 
persons and the entity to submit a proposal.

     If the shareholder proponent is a natural person:

--The qualifications and background of such person or persons relevant 
to the plans or proposals; and
--Any interests or relationships of such person or persons that are not 
shared generally by the other shareholders of the company and that 
could have influenced the decision by such person or persons to submit 
a proposal.

    With regard to these disclosures, examples of any interests or 
relationships of the shareholder proponent not shared by other 
shareholders of the company may include, but are not limited to, 
contractual arrangements, current or previous employment with the 
company, employment agreements, consulting agreements, and supplier or 
customer relationships.
d. Proposed New Item 24 to Schedule 14A
    Because a shareholder proponent's relationships with the company 
often will be relevant to an informed voting decision by other 
shareholders, background information regarding these relationships 
should be disclosed not only by the shareholder proponent, but also the 
company. Accordingly, we are proposing to add a new Item 24 to Schedule 
14A to require the disclosure by the company of the nature and extent 
of the relationship between the shareholder proponent, any affiliate, 
executive officer or agent of the shareholder proponent, or anyone 
acting in concert with, or who has agreed to act in concert with, the 
shareholder proponent with respect to the proposed bylaw amendment 
submitted in accordance with Rule 14a-8(i)(8), on the one hand, and the 
company, on the other. Item 24 disclosures would include:
     Any direct or indirect interest of the shareholder 
proponent in any contract with the company or any affiliate of the 
company (including any employment agreement, collective bargaining 
agreement, or consulting agreement);
     Any pending or threatened litigation in which the 
shareholder proponent is a party or a material participant, involving 
the company, any of its officers or directors, or any affiliate of the 
company; and
     Any other material relationship between the shareholder 
proponent and the company or any affiliate of the company not otherwise 
disclosed.
    Additionally, Item 24 of Schedule 14A would require disclosure of 
the following with respect to the 12 months prior to the shareholder 
proponent forming any plans or proposals, or during the pendency of any 
proposal, regarding an amendment to the company bylaws in accordance 
with Rule 14a-8(i)(8):
     Any material transaction of the shareholder proponent with 
the company or any affiliate of the company; and
     Any meetings or contacts between the shareholder proponent 
and management or directors of the company.\51\
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    \51\ As with the corresponding disclosure requirement for 
shareholder proponents, the proposed disclosures would include: a 
description, in reasonable detail, of the content of such direct or 
indirect communication; a description of the action or actions 
sought to be taken or not taken; the date of the communication; the 
person or persons to whom the communication was made; whether that 
communication included any reference to the possibility of such a 
proposal; and any response by the company or its representatives to 
that communication prior to the date of filing the required 
disclosure. See proposed Item 24(d)(2) of Schedule 14A.
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    As with the shareholder proponent requirement, to the extent that 
the shareholder proponent and management or directors of the company 
have an ongoing dialogue, the company would be required to merely 
describe the frequency of and the subjects covered at the meetings, 
except where an event or discussion occurred that is material to the 
shareholder proponent's decision to submit a proposal.
    For purposes of meeting these proposed disclosure requirements, the 
company would be entitled to rely on the Schedule 13G disclosures of 
the shareholder proponent concerning the date on which the shareholder 
proponent formed any plans or proposals regarding an amendment to the 
company bylaws in accordance with Rule 14a-8(i)(8).
Request for Comment
     The proposed disclosure standards relate to the 
qualifications of the shareholder proponent, any relationships between 
the shareholder proponent and the company, and any efforts to influence 
the decisions of the company's management or board of directors. To 
assure that the quality of disclosure is sufficient to provide 
information that is useful to shareholders in making their voting 
decisions and to limit the potential for boilerplate disclosure, we 
have proposed that the disclosure standards require specific 
information concerning these qualifications, relationships, and efforts 
to influence the company's management or board of directors. Is the 
proposed level of required disclosure appropriate? Are any of the 
proposed disclosure requirements unnecessary to

[[Page 43474]]

shareholders' ability to make an informed voting decision? If so, which 
specific requirements are not necessary? Should we require 
substantially similar disclosure from both the proponent and the 
company as proposed or should the company be allowed to avoid 
duplicating disclosure relating to the proponent where the company 
agrees with the disclosure provided? Is any additional disclosure 
appropriate?
     We solicit comments with respect to any other types of 
background information regarding a shareholder proponent that should be 
disclosed in Schedule 13G or Item 24 of Schedule 14A. What other types 
of information do shareholders need to have about the shareholder 
proponent, or the shareholder proponent's course of dealing with the 
company, when voting on a proposal?
     Would the proposed Schedule 13G disclosure requirements 
for shareholder proponents be useful to other shareholders in forming 
their voting decisions? Are the requirements practical? Is any aspect 
of the proposed disclosure overly burdensome for shareholder proponents 
to comply with?
     As proposed, shareholder proponents would be required to 
disclose discussions with a proxy advisory firm prior to submitting a 
proposal. Is this disclosure requirement appropriate? Why or why not?
     We also propose that companies would be responsible for 
disclosure regarding their relationships and course of dealing with the 
shareholder proponent in Item 24 of Schedule 14A. Is this proposed 
additional disclosure useful? Would any aspect of this disclosure 
requirement be impractical or overly burdensome?
     As proposed, the disclosures concerning the shareholder 
proponent and company's relationship must be provided for the 12 months 
prior to forming any plans or proposals, or during the pendency of any 
proposals, with regard to an amendment to the company bylaws. Is this 
the appropriate timeframe? If not, should the timeframe be shorter 
(e.g., 6 or 9 months) or longer (e.g., 18 or 24 months)? Is any federal 
holding period requirement appropriate?
     Is the proposed reliance on the existing Schedule 13G 
framework appropriate? Should we require the type of disclosure found 
in Schedule 13G, but nevertheless permit a shareholder who holds less 
than 5% of a company's shares to file a Schedule 13G and to submit 
bylaw proposals of the type described herein? Is there another 
disclosure provision in the federal securities laws with a lesser 
ownership requirement that would more appropriate upon which to rely?
     Is it appropriate to require any additional disclosure by 
shareholders and/or the company, beyond what is currently required, in 
connection with a proposed amendment to the company's bylaws in 
accordance with proposed Rule 14a-8(i)(8)? Rather, should we require 
disclosure only when a shareholder actually seeks to nominate a 
director using a nominating procedure established pursuant to a 
company's bylaws?
e. Disclosure by Nominating Shareholders--Proposed New Rule 14a-17
    One of our primary concerns with using Rule 14a-8 to nominate or 
establish a procedure for shareholders to nominate a candidate for 
director is that doing so could result in shareholders being asked to 
vote on a director nominee without the disclosure that otherwise would 
be required under the federal proxy rules applicable to elections 
involving solicitations in opposition to the company's nominees. To 
address this concern, we are proposing a new Rule 14a-17 that would 
provide that the existing disclosure requirements for solicitations in 
opposition (either for a short slate or for a majority of board seats) 
would apply to nominating shareholders and their nominees under any 
shareholder nomination procedure.\52\ These disclosure requirements are 
found in Item 4(b), Item 5(b), Item 7, and Item 22(b) of Schedule 14A, 
and provide basic information regarding the nominating shareholder (or 
shareholder group) and nominee or nominees, including biography and 
shareholdings, other interests of the individuals (or group), methods 
and costs of the solicitation, and other information to enable voting 
shareholders to make an informed decision.
---------------------------------------------------------------------------

    \52\ See proposed Exchange Act Rule 14a-17(c).
---------------------------------------------------------------------------

    Because the shareholder nominee would be included in the company's 
proxy materials, the company would be required to include the 
disclosure in its proxy statement or, in the Internet version of its 
proxy statement, to link to a Web site address where those disclosures 
would appear. The nominating shareholder would be responsible for 
providing the information to the company.\53\ Further, the nominating 
shareholder would be required to provide a statement that the 
shareholder nominee consented to being named in the proxy materials and 
to serve if elected.\54\ Finally, a company would not be required to 
include a nominating shareholder's nominee in its proxy materials if 
the shareholder fails to provide the information required by proposed 
Rule 14a-17(b)-(c).\55\
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    \53\ Id.
    \54\ See Exchange Act Rule 14a-4(d)(4) (17 CFR 240.14a-4(d)(4)). 
The rule provides that such consent is required in order for a 
person to be named in the proxy statement as a bona fide nominee.
    \55\ See proposed Exchange Act Rule 14a-17(d).
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f. Liability for, and Incorporation by Reference of, Information 
Provided by the Nominating Shareholder
    It is our intent that a shareholder who nominates a director under 
a bylaw provision concerning the nomination of directors would be 
liable for any materially false or misleading statements in the 
disclosure provided to the company and included by the company in its 
proxy materials. The proposed rules contain express language, modeled 
on Exchange Act Rule 14a-8(l)(2),\56\ providing that the company would 
not be responsible for that disclosure.\57\ In addition, it is our 
intention that any information that is provided to the company for 
inclusion in its proxy materials by the nominating shareholder and 
included in the company's proxy statement would not be incorporated by 
reference into any filing under the Securities Act or the Exchange Act 
unless the company determines to incorporate that information by 
reference specifically into that filing.\58\ However, to the extent the 
company does so incorporate that information by reference, we would 
consider the company's disclosure of that information as the company's 
own statement for purposes of the anti-fraud and civil liability 
provisions of the Securities Act or the Exchange Act, as applicable.
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    \56\ 17 CFR 240.14a-8(l)(2). Exchange Act Rule 14a-8(l)(2) 
applies with respect to proposals and supporting statements that are 
submitted by shareholders and then required to be repeated in the 
company's proxy materials by Exchange Act Rule 14a-8. In this 
regard, Exchange Act Rule 14a-8 states that ``the company is not 
responsible for the contents of [the shareholder proponent's] 
proposal or supporting statement.''
    \57\ See proposed Exchange Act Rule 14a-17(e).
    \58\ See proposed Exchange Act Rule 14a-17(f).
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g. Filing Requirements
    When, in accordance with a shareholder nomination bylaw procedure, 
a shareholder nominates a candidate for director, the company would be 
required to file its proxy statement in preliminary rather than 
definitive form, in the same manner as under the existing proxy rules

[[Page 43475]]

applicable to proxy contests.\59\ This is the same result that would be 
obtained in a traditional contested election in which the shareholder 
nominees appeared in a separate proxy statement.
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    \59\ See proposed amendment to Exchange Act Rule 14a-6.
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    It is possible that either the company or a nominating shareholder 
(or group of shareholders) may wish to solicit in favor of their 
nominee or nominees outside the company proxy materials. As in a 
traditional contested election, it is important that any soliciting 
materials in addition to the proxy statement be filed publicly with the 
Commission so that such materials are available to all shareholders, to 
the company, and to the Commission staff for review. Accordingly, where 
a shareholder or company chooses to solicit outside the company proxy 
materials, we intend that the existing filing requirements applicable 
to definitive additional soliciting materials would apply.\60\ Under 
these requirements, all soliciting materials are required to be filed 
with the Commission in the same form as the materials sent to 
shareholders no later than the date they are first sent or given to 
shareholders.\61\
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    \60\ See Exchange Act Rule 14a-6(b) (17 CFR 240.14a-6(b)) and 
Exchange Act Rule 14a-12 (17 CFR 240.14a-12).
    \61\ Id.
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h. Proposed New Rule 14a-17(b)-(c) and Item 25 of Schedule 14A
    As noted above, one of the primary concerns with using Rule 14a-8 
to establish a procedure for shareholders to nominate directors is that 
doing so would not provide shareholders with disclosure they otherwise 
would be given in a proxy contest. In this regard, we note that it is 
of substantial importance to provide shareholders with clear, 
transparent disclosure regarding any shareholder or group of 
shareholders using a nominating procedure established pursuant to a 
company's bylaws to nominate a candidate for director. Therefore, the 
additional disclosures that are proposed to be added to Schedule 13G 
for shareholder proponents of a bylaw amendment concerning shareholder 
director nominations also would apply to a nominating shareholder under 
an adopted bylaw. In this regard, we are proposing to add new Rule 14a-
17(b), which would require any nominating shareholder to provide to the 
company the disclosures required by Item 8A, Item 8B, and Item 8C of 
Schedule 13G.\62\ These disclosures would be required at the time the 
shareholder forms any plans or proposals with respect to submission of 
a nominee for director to the company for inclusion in the proxy 
materials.\63\ Immediately after the nominating shareholder provides 
the company with the disclosure, under Rule 14a-17(c), the company 
would be required to provide the information on its Web site or provide 
a link on its Web site to a Web site address where the disclosure would 
appear. In addition, pursuant to Item 25 of Schedule 14A, the company 
would be required to include the disclosure in its proxy statement or 
provide a link to a Web site address where the disclosure would appear 
in the Internet version of its proxy statement. Under Rule 14a-17(d), 
if a nominating shareholder fails to provide the required information, 
the shareholder's nominee will not be required to be included in the 
company's proxy materials.
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    \62\ In this regard, it is important to note that a shareholder 
director nomination bylaw may establish any ownership threshold for 
nominating a director. Because we believe that the disclosure 
required by these items is important for an informed voting decision 
by shareholders, we are proposing new Item 25 of Schedule 14A in 
order to provide complete disclosure regarding nominating 
shareholders utilizing procedures established in bylaw amendments 
that allow for nominations by shareholders.
    \63\ We have proposed a Note to Exchange Act Rule 14a-17(a) 
stating that the formation of any plans or proposals includes 
instances where the shareholder has indicated an intent to 
management to submit a nomination or has indicated an intent to 
management to refrain from submitting a nomination conditioned on 
the taking or not taking of a corporate action.
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Request for Comment
     As proposed, a nominating shareholder would be required to 
provide to the company, for inclusion in the company's proxy materials, 
disclosure responsive to Item 8A, Item 8B, and Item 8C of Schedule 13G, 
as well as Item 4(b), Item 5(b), Item 7, and Item 22(b) of Schedule 
14A, as applicable. Is this the appropriate type and amount of 
disclosure for a nomination under a shareholder nomination procedure? 
If not, what disclosure requirement would be appropriate? Is the timing 
requirement for providing this disclosure appropriate? If not, when 
should such disclosures be provided?
     Is it appropriate for the disclosure to be provided to the 
company for inclusion on its Web site and in its proxy materials, or 
should the shareholder instead be responsible for filing the 
information provided that they beneficially own more than 5% of the 
company's securities entitled to be voted and are eligible to file on 
Schedule 13G?
     Does the proposal make sufficiently clear that the 
nominating shareholder would be responsible for the information 
submitted to the company? Should the proposal include language 
addressing a company's responsibility for including statements made by 
the shareholder that it knows are not accurate?
     Should information provided by a nominating shareholder be 
deemed incorporated by reference into Securities Act or Exchange Act 
filings? If so, why?
     Should companies that receive a nomination for director 
from a shareholder be required to file their proxy statement in 
preliminary form, as is proposed? If not, why would it be appropriate 
for companies to file directly in definitive form?
     Should solicitations in favor of or against a nominee for 
director, by either the company or the shareholder, be filed as 
definitive additional soliciting materials on the date of first use, as 
is proposed? If not, how should such materials be filed?
     As proposed, a nominating shareholder would be required to 
provide the information required by Item 8A, Item 8B and Item 8C of 
Schedule 13G to the company for inclusion on the company's Web site and 
in its proxy. Would it be appropriate to add a disclosure requirement 
on Form 8-K that would apply where a company does not maintain a Web 
site? Would it be appropriate to allow a company to choose between Web 
site disclosure and Form 8-K disclosure even where a company maintains 
a Web site? Why or why not?
     Is there disclosure other than that proposed concerning 
shareholder nominees that would be material to investors? If so, what 
are those disclosures and why would they be material? For example, 
should we require disclosure regarding the relationship between the 
nominating shareholder and shareholder nominee? If so, what disclosures 
would be appropriate and useful to shareholders?

B. Electronic Shareholder Forums

1. Background
    The Commission's recent series of roundtables on the proxy process 
considered, among other issues, the role of technology in facilitating 
communications not only between shareholders and companies, but also 
among shareholders. Given the opportunities for collaborative 
discussion afforded by the Internet and related technological 
innovations, the proxy mechanism by comparison offers limited 
opportunities--usually only the

[[Page 43476]]

annual meeting--for shareholders to provide advice to management. 
Accordingly, the proxy system may not be the only, or the most 
efficient, means of shareholder communication with management on purely 
advisory matters.
    Alternatives or supplements to the proxy machinery that exploit the 
advantages of telecommunications technology have been suggested that 
could offer shareholders other means to communicate, including with 
regard to resolutions such as those typically submitted as non-binding 
proposals under Rule 14a-8. For example, an online forum, restricted to 
shareholders of the company whose anonymity is protected through 
encrypted unique identifiers, could offer the opportunity for 
shareholders to discuss among themselves the subjects that most concern 
them, and which today are considered--if at all--only indirectly 
through the proxy process. Shareholder expressions of interest on 
particular suggested actions, tabulated based on their ownership 
interest, could be determined on a real-time basis. The company could 
use the form to provide information, such as a copy of press release 
information regarding record dates and expression of views by the 
company. Moreover, the opportunity for this enhanced level of 
shareholder participation could be extended throughout the year, rather 
than only at annual meetings. From the company's standpoint, such a 
shareholder forum could provide more frequent information about the 
interests and concerns of investors.
    We are not seeking, through the proxy rules or otherwise, to devise 
an approved regulatory version of an electronic shareholder forum. 
Myriad uses of the Internet to facilitate shareholder communication are 
already well under way, and as technology continues to develop, 
individuals and entities will find increasingly creative ways to 
address the challenges they face in presenting proposals to companies, 
determining support for proposals among other shareholders, conducting 
referenda on non-binding proposals, and organizing online petitions to 
management, among other potential activities. The Commission strongly 
encourages these developments. Rather than prescribe any specific 
approach to an online shareholder forum in the proxy rules, the 
proposed amendment is designed to remove any unnecessary real and 
perceived impediments to continued private sector experimentation and 
use of the Internet for communication among shareholders, and between 
shareholders and their company.
2. Proposed Amendment To Facilitate the Use of Electronic Shareholder 
Forums
    We propose to facilitate greater online interaction among 
shareholders by removing obstacles in the current rules to the use of 
an electronic shareholder forum. To facilitate the establishment of 
such forums, which can be conducted and maintained in any number of 
ways, we propose to clarify that a company is not liable for 
independent statements by shareholders on a company's electronic 
shareholder forum. In addition, in order to enhance the efficacy of the 
forum, we propose to address any ambiguity concerning whether use of an 
electronic shareholder forum could constitute a proxy solicitation.
    Proposed Rule 14a-18(a) would make clear that both companies and 
shareholders are entitled to establish and maintain an electronic 
shareholder forum under the federal securities laws, provided that the 
forum is conducted in compliance with the federal securities laws, 
applicable state law, and the company's charter and bylaws. While the 
proxy rules currently do not prohibit or delimit such activities, 
neither were they written in contemplation of the wide-ranging 
communications potential of the Internet. By addressing specific 
concerns relating to the use of the electronic shareholder forum in the 
proposed rule, we are seeking to remove legal ambiguity that might 
inhibit shareholders and companies from energetic exploitation of the 
potential of communications technology, and to encourage shareholders 
and companies to take advantage of this technology to facilitate better 
communication among shareholders and between shareholders and 
companies.
    Liability for statements made on an electronic shareholder forum is 
one area of concern for companies and shareholders when making the 
decision whether to establish such a forum. To alleviate this concern, 
we propose to clarify in Rule 14a-18(b) that, for simply establishing, 
maintaining, or operating the electronic shareholder forum, a company 
or shareholder would not be liable under the federal securities laws 
for any statement or information provided by another person to the 
forum. The intent is for the person establishing, maintaining, or 
operating an electronic shareholder forum to be protected from 
liability in a similar way as the federal telecommunications laws 
protect an interactive computer service.\64\
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    \64\ See Section 230(c)(1) of the Telecommunications Act of 1996 
(47 U.S.C. Sec.  230(c)(1)) (``No provider or user of an interactive 
computer service shall be treated as the publisher or speaker of any 
information provided by another information content provider.'').
---------------------------------------------------------------------------

    Persons providing information to or making statements on the 
electronic shareholder forum would remain liable for the content of 
those communications under traditional liability theories in the 
federal securities laws, such as those in Section 17(a) of the 
Securities Act and Section 10(b), Rule 10b-5, and Section 20(e) of the 
Exchange Act. The prohibitions in the anti-fraud laws against primary 
or secondary participation in fraud, deception, or manipulation would 
continue to apply to those supplying information to the site, and 
claims would not face any additional obstacle because of the new rule. 
Any other applicable federal or state law would also continue to apply 
to a person providing information or statements to an electronic 
shareholder forum.
    An additional concern regarding the use of an electronic 
shareholder forum relates to the broad general application of our proxy 
rules under Section 14(a) of the Exchange Act. Under the proxy rules, a 
solicitation encompasses any request for a proxy, any request to 
execute or revoke a proxy, and the furnishing of a form of proxy or 
other communication under circumstances reasonably calculated to result 
in the procurement, withholding, or revocation of a proxy.\65\ This 
broad definition of solicitation limits the kinds of activities that a 
shareholder or the company may undertake in a public forum when 
discussing issues that may be voted on at the company's annual or 
special meeting.
---------------------------------------------------------------------------

    \65\ See Exchange Act Rule 14a-1(l ) (17 CFR 240.14a-1(l )).
---------------------------------------------------------------------------

    To facilitate greater use of the electronic shareholder forum 
concept and to encourage more robust communication with the company and 
among shareholders, we propose to exempt any solicitation in an 
electronic shareholder forum by or on behalf of any person who does not 
seek directly or indirectly, either on its own or another's behalf, the 
power to act as proxy for a shareholder and does not furnish or 
otherwise request, or act on behalf of a person who furnishes or 
requests, a form or revocation, abstention, consent or 
authorization.\66\ The solicitation would be exempt so long as it 
occurs more than 60 days prior to the date announced by the

[[Page 43477]]

company for its annual or special meeting of shareholders or if the 
company announces the meeting less than 60 days before the meeting date 
the solicitation may not occur more than two days following the 
company's announcement.\67\ We further propose to clarify in proposed 
Rule 14a-18(c) that a person who participates in an electronic 
shareholder forum and makes solicitations in reliance on the proposed 
exemption would continue to be eligible to solicit proxies outside of 
Rule 14a-2(b)(6) provided that any such solicitation complies with 
Regulation 14A.
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    \66\ See proposed Exchange Act Rule 14a-2(b)(6).
    \67\ The proposal would not affect the application of any other 
exemptions under Regulation 14A. For example, a person could rely on 
the other applicable exemptions in Exchange Act Rule 14a-2 (17 CFR 
240.14a-2).
---------------------------------------------------------------------------

    The purpose of these amendments is to encourage the free flow of 
information, ideas, and opinions in an electronic shareholder forum. It 
is not the purpose of these amendments to allow such a forum to be used 
to circumvent the proxy or anti-fraud rules. We believe that there is 
less risk of an electronic shareholder forum being used for proxy 
solicitation more than 60 days prior to an annual or special meeting 
and therefore have proposed a 60-day limitation.\68\ Communications 
within an electronic shareholder forum that occur less than 60 days 
prior to the annual or special meeting, or more than two days after the 
announcement of the meeting, would continue to be treated as any other 
communication would be treated today, and would be required to comply 
with our proxy rules if they are a solicitation unless they fall within 
an existing exemption. In addition, we propose to limit the exemption 
to persons who do not seek to act as a proxy for a shareholder or 
request a form of proxy from them.
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    \68\ 60 days corresponds with the maximum amount of time prior 
to a scheduled meeting that the company may fix the record date for 
determining the stockholders entitled to notice of or to vote at a 
meeting under the Delaware Code. See Del. Code title 8, Sec.  213 
(2007).
---------------------------------------------------------------------------

    We propose limitations to the exemption because, though we believe 
that an electronic shareholder forum should provide a medium for, among 
other things, open discussion, debate, and the conduct of referenda, we 
believe that the solicitation of proxies for an upcoming meeting is 
more appropriate under the protections of our proxy rules. Any proxies 
obtained prior to the application of our proxy rules would not benefit 
from the full and fair disclosure required under the regulations.
Request for Comment
     Our proposals are intended to provide a company or its 
shareholders with the flexibility under the federal securities laws to 
establish an electronic shareholder forum that permits interaction 
among shareholders and between shareholders and the company's 
management or board of directors, and permits the operator of the 
electronic shareholder forum to provide for non-binding referenda votes 
of forum participants. Do our proposals provide this flexibility? Are 
there additional steps that are necessary to assure that the federal 
securities laws do not hinder the development of these electronic 
shareholder forums?
     We propose to amend Regulation 14A to encourage the 
development of electronic shareholder forums that could be used by 
companies to better communicate with shareholders and by shareholders 
to better communicate both with their companies and among themselves. 
In addition, the electronic shareholder forum concept could offer 
shareholders a means of advancing referenda that might otherwise be 
proposed as non-binding shareholder proposals under Rule 14a-8. Is this 
appropriate and, if so, how can we further encourage the development of 
electronic shareholder forums?
     As proposed, the new rules would allow companies and 
shareholders to develop electronic shareholder forums as they see fit, 
as long as the forums are conducted in compliance with Section 14(a) of 
the Exchange Act, other federal laws, applicable state law, and the 
company's charter and bylaw provisions. Should we be more prescriptive 
in our approach, such as by providing direction or guidance relating to 
whether a forum is available for non-binding referenda, whether access 
is limited to shareholders, the frequency with which shareholder 
records are updated for purposes of enabling participation, or whether 
the forum assures the anonymity of shareholders who access it?
     As proposed, we make clear that a company or shareholder 
that establishes, maintains, or operates a forum is not liable for any 
statements or information provided by another person. Does the proposed 
rule adequately address the liability concerns that might face sponsors 
of and participants in an electronic shareholder forum?
     In order to encourage use of electronic shareholder 
forums, we are proposing an exemption for solicitations on an 
electronic shareholder forum. As proposed, solicitations that do not 
seek to act as a proxy for a shareholder or request a form of proxy 
from them and occur more than 60 days prior to an annual or special 
meeting (or within two days of the announcement of the meeting) are 
exempt under the proxy rules. Is it appropriate to provide this 
exemption from regulation for communications on an electronic 
shareholder forum? Should the exemption apply more broadly to all 
communications? Would it be possible to conduct an effective proxy 
solicitation on the forum despite the limitations? Is the 60-day 
limitation sufficiently long to protect shareholders from unregulated 
solicitations? Should the time period be shortened (e.g., 30 or 35 
days) or lengthened (e.g., 75 or 90 days)? Is there a better 
alternative that would encourage free and open communication on 
electronic shareholder forums, but limit the use of the forums as a way 
to solicit proxies without providing the full and fair disclosure 
required in our proxy rules?
     As proposed, we have provided no guidance on what should 
happen to the communications and data on the forum within the 60-day 
period prior to the annual or special meeting. Solicitations that 
remain posted on the forum that were exempt under proposed Rule 14a-
2(b)(6) may no longer be exempt. Should we require that the electronic 
shareholder forums be taken down within 60 days of a scheduled meeting? 
Alternatively, if the forum continues to run, should shareholders who 
continue making communications on the forum file any communications 
that are solicitations in compliance with Regulation 14A? Should those 
shareholders be required to file any solicitations on the forum that 
occurred more than 60 days prior to the meeting? How would the forums 
be policed to ensure that the responsible parties are properly filing?
     What would be the appropriate use of an electronic 
shareholder forum with regard to a bylaw proposal, as contemplated in 
this release? For example, should shareholders be able to use a forum 
to solicit other shareholders to form a 5% group in order to submit a 
bylaw proposal?

C. Request for Comment on Proposals Generally

1. Bylaw Amendments Concerning Non-Binding Shareholder Proposals
    Several participants in the Commission's recent proxy roundtables 
expressed concern that by requiring the inclusion of non-binding 
shareholder proposals in company proxy materials, Rule 14a-8 expands 
rather than

[[Page 43478]]

vindicates the framework of shareholder rights in state corporate 
law.\69\ A number of other participants in the roundtables indicated, 
however, that non-binding shareholder proposals have a useful role in 
the proxy process and in corporate governance.\70\ Based, in part, on 
these and other views expressed by participants at the roundtables, we 
are requesting comment as to whether the Commission should adopt rules 
that would enable shareholders, if they choose to do so, to determine 
the particular approach they wish to follow with regard to non-binding 
proposals. Such an approach was proposed once before by the Commission 
but ultimately was not adopted; \71\ however, in light of developments 
in the last 25 years that may have diminished the concerns about 
shareholders' ability to act as a group, which formed the basis of 
arguments for a mandated federal approach, we are again requesting 
comment on this approach. These developments include the increasing 
importance of institutional investors in contemporary capital markets, 
the significant role of private organizations that collect and 
disseminate information to institutional investors concerning corporate 
governance issues, the prevalence of widely published voting guidelines 
for market participants of all sizes, and the significantly enhanced 
opportunities for collaborative discussion and decision-making afforded 
by the Internet and related technological innovations.
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    \69\ See, e.g., Leo E. Strine, Jr., Vice Chancellor, Court of 
Chancery of the State of Delaware, Transcript of Roundtable on the 
Federal Proxy Rules and State Corporation Law, May 7, 2007, at 18-
23.
    \70\ See, e.g., Ted White, Strategic Advisor, Knight Vinke Asset 
Management, Transcript of Roundtable on the Federal Proxy Rules and 
State Corporation Law, May 7, 2007, at 94-95; Damon A. Silvers, 
Associate General Counsel, AFL-CIO, Transcript of Roundtable on 
Proposals of Shareholders, May 25, 2007, at 8-11. See also Form 
Letters B and C, available on the Commission's Web site at 
http://www.sec.gov.

    \71\ In 1982, during a comprehensive review of the shareholder 
proposal process, the Commission proposed permitting companies and 
shareholders to formulate and adopt procedures for including 
shareholder proposals in the company's proxy materials. See Release 
No. 34-19135 (Oct. 14, 1982) [47 FR 47420]. Under the proposed 
approach, the Commission would have continued to have a rule that 
specified the procedures governing the submission and inclusion of 
shareholder proposals, but would have adopted a supplemental rule to 
permit a company and its shareholders to adopt a plan providing 
their own procedures to govern the process. The proposed approach 
would have allowed a company's board of directors and shareholders, 
rather than the Commission or its staff, to make judgments as to 
what proposals should be included in the company's proxy materials 
at the company's expense. The plan could have been proposed by 
either the company's board of directors or shareholders, and subject 
to certain minimum requirements, the provisions of the plan could 
have been as liberal or restrictive as shareholders were willing to 
approve. In 1983, the Commission adopted final rules amending 
Exchange Act Rule 14a-8, but left the Exchange Act Rule 14a-8 
framework intact, concluding that, at that time, a federal framework 
for including shareholder proposals in company proxy materials was 
in the best interests of shareholders and issuers. See Release No. 
34-20091 (Aug. 16, 1983) [48 FR 38218].
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    We therefore are requesting comment on whether a company or its 
shareholders should have the ability to propose and adopt bylaws that 
would establish the procedures that the company will follow for 
including non-binding proposals in the company's proxy materials. In 
addition to general comment, we encourage commenters to address the 
following specific questions:
     Would it be appropriate to require the shareholder (or 
group of shareholders) that submits the proposal to file a Schedule 13G 
that includes specified public disclosures regarding its background and 
its interactions with the company, that corresponds to the proposed 
disclosure requirements for shareholder proponents of bylaw amendments 
concerning shareholder director nominations?
     Should a shareholder (or group of shareholders) proposing 
such a bylaw amendment be required to have continuously held a certain 
percentage of the company's securities entitled to be voted on the 
proposal at the meeting? What would the appropriate percentage be? 
Should a holding period be required? If so, how long should the holding 
period be?
     Should a proposal be required to otherwise satisfy the 
requirements of Rule 14a-8 (e.g., the proposal would have to satisfy 
the procedural requirements of Rule 14a-8 and not fall within one of 
the other substantive bases for exclusion included in Rule 14a-8)?
     Under current Rule 14a-8, all shareholder proposals and 
supporting statements are limited to 500 words in total. Should the 
word limit be different for shareholder submissions of proposed bylaw 
amendments to establish procedures for non-binding proposals? If so, 
should the word limit be increased to 3,000 words in order to permit a 
more thorough description of the proposed procedural framework and in 
accordance with the approximate word count in current Rule 14a-8? If 
not 3,000, should the word limit be higher or lower than 3,000 (e.g., 
1,000, 2,000, 4,000)?
     Should the proxy statement for the shareholder vote be 
required to explain that approval of the bylaw would establish 
procedures that would govern in all circumstances with regard to 
shareholder requests for the inclusion of non-binding proposals? Should 
the bylaw itself be required to provide this explanation?
     Would it be appropriate for the Commission to provide that 
the substance of the procedure for non-binding proposals contained in a 
bylaw amendment would not be defined or limited by Rule 14a-8, but 
rather by the applicable provisions of state law and the company's 
charter and bylaws? For example, the Commission could provide that the 
framework could be more permissive or more restrictive than the 
requirements of existing Rule 14a-8 (e.g., the framework could specify 
different eligibility requirements than provided in current Rule 14a-8, 
different subject-matter criteria, different time periods for 
submitting non-binding proposals to the company, or different 
resubmission thresholds; or it could specify that non-binding proposals 
would not be eligible for inclusion in the company's proxy materials, 
or alternatively that all non-binding proposals would be included in 
the company's proxy materials without restriction, if these approaches 
were consistent with state law and the company's charter and bylaws).
     To ensure that any new rule is consistent with the 
principle that the federal proxy rules should facilitate shareholders' 
exercise of state law rights, and not alter those rights, should any 
rule adopted include a specific requirement that, to be included in a 
company's proxy materials, a shareholder proposal establishing bylaw 
procedures for non-binding proposals would have to be binding on the 
company under state law if approved by shareholders?
     Would it be appropriate for the Commission to provide 
that, if shareholders approve a bylaw procedure for non-binding 
proposals, interpretation and enforcement of that procedure would be 
the province of the appropriate state court? Under such an approach, 
the Commission and its staff would not resolve such questions. Should 
the Commission or its staff instead become involved in interpreting or 
enforcing the company's bylaws? Is there any reasonably foreseeable 
situation where intervention by the Commission or its staff would be 
critical to the proper functioning of bylaw procedures for non-binding 
proposals? In addition, we solicit comments with respect to the 
practicality and feasibility of relying on state courts as the arbiter 
of disagreements between companies and shareholder proponents over the 
company's bylaws as they apply to non-binding shareholder resolutions.

[[Page 43479]]

     Should the Commission encourage the proponent of any bylaw 
procedure governing non-binding proposals to include in the procedure a 
fair and efficient mechanism for resolving any disagreements between 
the company and the shareholder as to the bases for inclusion or 
exclusion of a proposal?
     Should the Commission specify that, even after the 
shareholders approve a bylaw procedure for non-binding shareholder 
proposals, a shareholder meeting the proposed eligibility requirements 
could later submit another bylaw procedure that removes or amends the 
previously-adopted non-binding procedure and that bylaw would not 
generally be excludable by a company under Rule 14a-8(i)(2) or Rule 
14a-8(i)(3)?
     How might shareholders' overall ability to communicate 
with management and other shareholders be improved or diminished if 
shareholders were able to choose different procedures for non-binding 
proposals than those currently in Rule 14a-8? Are there additional or 
different procedures that the Commission should require, encourage or 
seek to prevent?
    With respect to subjects and procedures for shareholder votes that 
are specified by the corporation's governing documents, most state 
corporation laws provide that a corporation's charter or bylaws can 
specify the types of binding or non-binding proposals that are 
permitted to be brought before the shareholders for a vote at an annual 
or special meeting. Further, most state corporation laws permit a 
company's board of directors to adopt, amend, or repeal bylaws without 
a shareholder vote. Because a company's board of directors could adopt 
a bylaw establishing procedures for the consideration of non-binding 
proposals at meetings of shareholders, we have not included in the 
above request for comment any discussion of a board of directors 
adopting bylaws that would limit the ability of shareholders to raise 
non-binding proposals for a vote at meetings of shareholders. To the 
extent a company had in place a bylaw under which non-binding 
shareholder proposals were not permitted to be raised at meetings of 
shareholders, a company may be able to look to Rule 14a-8(i)(1) with 
regard to the exclusion of such proposals. Such ability to exclude the 
proposals would, of course, be reliant on the bylaw's compliance with 
applicable state law and the company's governing documents. In light of 
the board's power to adopt such a bylaw under state law, please 
consider the following specific requests for comment:
     Should the board of directors be able to adopt a bylaw 
setting up a separate procedure for non-binding shareholder proposals 
and be able, under our proxy rules, to follow that procedure in lieu of 
Rule 14a-8 with regard to non-binding proposals? Should such procedures 
be deemed to comply with Rule 14a-8 if the bylaw is not approved by a 
shareholder vote, provided that state law authorizes the adoption of 
such a bylaw without a shareholder vote?
     Should a bylaw proposed and adopted by a company prior to 
becoming subject to Exchange Act Section 14(a) be deemed to comply with 
Rule 14a-8 once the company became subject to Exchange Act Section 
14(a)? If so, should such companies be required to provide disclosure 
regarding the rights of shareholders with respect to the submission of 
non-binding shareholder proposals for inclusion in the company's proxy 
materials as part of the description of its equity securities in its 
Securities Act and Exchange Act registration statements. If not, should 
companies instead be required to submit the bylaw to a shareholder vote 
once the company becomes public and subject to Section 14(a) of the 
Exchange Act, either at a special meeting or an annual meeting?
     Is there a concern that affiliates of a company could 
obtain a sufficient number of votes to adopt a bylaw without obtaining 
a vote of the non-affiliates? Should the federal proxy rules further 
restrict the operation of bylaw provisions that are otherwise 
permissible under state law by requiring, for example, that once a 
company is subject to Section 14(a), the shareholders who are not 
affiliates of the company ratify the bylaw, or that the bylaw procedure 
be periodically re-approved by shareholders after its initial approval? 
Does the fact that the company's bylaws can generally be revised or 
repealed at any time after adoption mitigate the need for such 
extraordinary procedures?
     Should the Commission adopt a provision to enable 
companies to follow an electronic petition model for non-binding 
shareholder proposals in lieu of Rule 14a-8? Such a model could include 
some or all of the following parameters:
     Electronic petitions would be submitted by shareholders 
and posted by the company on the electronic proxy notice and access Web 
site;
     Only shareholders as of the record date could sign the 
electronic petition through the close of the applicable shareholder 
meeting;
     Execution of the electronic petition would occur through 
the same control numbers used to vote under electronic proxy;
     Communications would be subject to Rule 14a-9, but 
otherwise would be minimally restricted by the proxy rules;
     Results of petitions would be reported as a percentage of 
total outstanding shares;
     The decision to sign or not to sign an electronic petition 
would not be considered a shareholder vote;
     Petitions would follow current Rule 14a-8 guidelines 
(e.g., would be limited to 500 words) and require the identification of 
the shareholder-sponsor;
     Companies would be permitted to post a response to each 
petition; and
     Petition sponsors could use an ``electronic-only'' 
solicitation approach with no obligation to send paper copies.
     Are there additional changes to Rule 14a-8 that would 
improve operation of the rule? If so, what changes would be appropriate 
and why? For example, should the Commission amend the rule to change 
the existing ownership threshold to submit other kinds of shareholder 
proposals? If so, what should the threshold be? Would a higher 
ownership threshold, such as $4,000 or $10,000, be appropriate? Should 
the Commission amend the rule to alter the resubmission thresholds for 
proposals that deal with substantially the same subject matter as 
another proposal that previously has been included in the company's 
proxy materials? If so, what should the resubmission thresholds be--
10%, 15%, 20%? Are there any areas of Rule 14a-8 in which changes or 
clarifications should be made (e.g., Rule 14a-8(i)(7) and its 
application with respect to proposals that may involve significant 
social policy issues)? If so, what changes or clarifications are 
necessary?
     Currently, Item 4 in Part I of Form 10-K and Form 10-KSB 
and Item 4 in Part II of Form 10-Q and 10-QSB require a company to 
disclose information regarding the submission of matters to a vote of 
security holders. The required disclosure includes a description of 
each matter voted upon at the meeting and the number of votes cast for, 
against, or withheld, as well as the number of abstentions and broker 
non-votes as to each such matter. In the interest of increased 
transparency, should additional disclosure be provided with regard to 
the voting results for non-binding shareholder proposals? For example, 
should the company be required to disclose votes for non-binding 
shareholder proposals as a percentage of the total outstanding

[[Page 43480]]

securities entitled to vote on the proposal? Or as a percentage of the 
total votes cast? Would shareholders benefit from receiving this type 
of information?
2. Other Requests for Comment
     Would adoption of the proposed rules conflict with any 
state law, federal law, or rule of a national securities exchange or 
national securities association? To the extent you indicate that the 
proposed rules would conflict with any of these provisions, please be 
specific in your discussion of those provisions that you believe would 
be violated.
     As the Commission staff noted in its July 15, 2003 Staff 
Report entitled ``Review of the Proxy Process Regarding the Nomination 
and Election of Directors,'' \72\ the cost to shareholders of 
soliciting proxies in opposition to the company's solicitation has been 
considered to be prohibitive and, as such, has been a key component of 
arguments in favor of increasing the opportunity for the inclusion of 
shareholder nominees for director in the company's proxy materials. 
Significant recent technological advances appear to have the potential 
to substantially reduce the costs of such a proxy solicitation, 
including the Commission's recently adopted ``E-Proxy'' rules \73\ and 
the electronic shareholder forum discussed in this release. Will these 
technological advances reduce the costs of proxy solicitations for both 
companies and those that solicit in opposition to a company?
---------------------------------------------------------------------------

    \72\ See Staff Report: Review of the Proxy Process Regarding the 
Nomination and Election of Directors, Appendix A (Summary of 
Comments in Response to the Commission's Solicitation of Public 
Views Regarding Possible Changes to the Proxy Rules) (July 15, 
2003).
    \73\ Release No. 34-55146 (Jan. 22, 2007) [72 FR 4148].
---------------------------------------------------------------------------

     Should bylaw proposals establishing a shareholder director 
nomination procedure be subject to a different resubmission standard 
than other Rule 14a-8 proposals? If so, what standard would be 
appropriate and why?
     As proposed, the federal proxy rules would not establish a 
threshold for the votes required to adopt a bylaw procedure. This is 
because the voting thresholds for the adoption of bylaw amendments are 
established by state law and a company's governing documents. Is this 
reliance on state law and the company's governing documents 
appropriate? Should the proxy rules establish a different federal 
standard for the required vote to adopt a bylaw procedure, such as the 
majority of shares present in person or represented by proxy and 
entitled to vote on the proposal, or a supermajority vote?
     Our proposals assume that the existing exemptions for 
solicitations are sufficient to include soliciting activities of 
shareholders that are seeking to form a more than 5% group. 
Accordingly, the release does not address any such soliciting 
activities or propose any new rules in this regard. Is our assumption 
that the existing exemptions are sufficient for the purpose of forming 
a shareholder group to submit a bylaw proposal correct? If not, what 
would be the appropriate scope of any new exemption or amendment to an 
existing exemption?
     Is there an alternative to the proposal regarding 
shareholder director nomination bylaws that would provide a preferable 
method by which shareholders could establish procedures to place their 
candidates for director in the company proxy materials? For example, 
should shareholders be able to propose a bylaw amendment only where 
there has been a majority withhold vote for a specified director or 
directors, and the director or directors do not resign? If so, what 
ownership threshold would be appropriate in those circumstances?
     In light of developments that reduce the costs of proxy 
solicitations by shareholder proponents, such as the adoption of ``E-
proxy,'' general advances in communication technology, the proposals 
concerning electronic shareholder forums, and, in some instances the 
ability of shareholders to request and receive reimbursement for 
election contest expenses, is there an alternative to the proposal 
regarding shareholder director nomination bylaws that would enable 
shareholders to conduct election contests without incurring the expense 
of a traditional contest and without being placed on the company 
ballot? For example, should our proxy rules be amended to permit pure 
electronic solicitation? Should we amend Rule 14a-2(b)(1) to enable 
shareholders to solicit a greater number of other shareholders than 
currently is permitted under the rule (the rule limits the number 
solicited to ten) without being required to furnish a proxy statement?
     Would additional amendments to the system for reporting 
beneficial and other ownership interests in securities be appropriate? 
If so, what additional amendments would be appropriate and why? Are 
there areas where additional disclosures would be appropriate (e.g., 
with regard to the exercise of voting rights without an economic 
interest in the underlying security)? Are there ways in which the 
system could be simplified (e.g., by combining the reports required to 
report beneficial and other ownership interests)?

III. General Request for Comment

    We request and encourage any interested person to submit comments 
regarding:
     The proposed amendments that are the subject of this 
release;
     Additional or different changes; or
     Other matters that may have an effect on the proposals 
contained in this release.
    We request comment from the point of view of companies, investors 
and other market participants. With regard to any comments, we note 
that such comments are of great assistance to our rulemaking initiative 
if accompanied by supporting data and analysis of the issues addressed 
in those comments.

IV. Paperwork Reduction Act

A. Background

    The proposed amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995, 
the PRA.\74\ We are submitting the proposal to the Office of Management 
and Budget for review in accordance with the PRA.\75\ The titles for 
the collections of information are:
---------------------------------------------------------------------------

    \74\ 44 U.S.C. 3501 et seq.
    \75\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    (1) ``Proxy Statements--Regulation 14A (Commission Rules 14a-1 
through 14a-15 and Schedule 14A)'' (OMB Control No. 3235-0059); and
    (2) ``Securities Ownership--Regulation 13D and 13G (Commission 
Rules 13d-1 through 13d-7 and Schedules 13D and 13G)'' (OMB Control No. 
3235-0145).
    These regulations were adopted pursuant to the Exchange Act and the 
Investment Company Act of 1940 and set forth the disclosure 
requirements for securities ownership reports filed by investors and 
proxy statements filed by companies to help investors make informed 
voting or investing decisions.
    The hours and costs associated with preparing and filing the 
disclosure, filing the forms and schedules and retaining records 
required by these regulations constitute reporting and cost burdens 
imposed by each collection of information. An agency may not conduct or 
sponsor, and a person is not required to respond to, a collection of 
information unless it displays a currently valid OMB control number.

B. Summary of Proposals

    The proposed amendments would establish a new procedure by which

[[Page 43481]]

shareholders could use Rule 14a-8 to propose bylaw amendments 
establishing procedures that would permit eligible shareholders to 
nominate candidates for the board of directors in the company's proxy 
materials.\76\ As proposed, Rule 14a-8 would be amended to require 
inclusion of such proposals, provided that the proposals comply with 
the procedural requirements of Rule 14a-8 and the additional proposed 
disclosure requirements. To be included, the bylaw amendments would be 
required to be submitted by a shareholder proponent that is eligible 
to, and has, filed a Schedule 13G including all required disclosures 
and has continuously held more than 5% of the company's securities 
entitled to be voted on the proposal for at least one year. We also 
propose to amend Schedule 13G and add Item 24 and Item 25 of Schedule 
14A to require disclosure regarding the shareholder proponent's 
background and relationships with the company. This disclosure would be 
provided by the shareholder proponent and the company, respectively.
---------------------------------------------------------------------------

    \76\ Proposed Rule 14a-18 would establish special provisions in 
the proxy rules applicable to electronic shareholder forums in order 
to encourage shareholders and companies to take advantage of these 
forums. These rules are intended to allow issuers and shareholders 
broad latitude with regard to the forums and do not impose any new 
paperwork burdens.
---------------------------------------------------------------------------

    In addition to the proposed amendments concerning shareholder 
proposals to amend company bylaws, we propose several amendments to 
require disclosure about shareholder nominees for director and 
nominating shareholders when shareholder nominees are included in the 
company's proxy material. Proposed Rule 14a-17 would require nominating 
shareholders to provide the company with certain Schedule 14A 
information regarding each director nominee for inclusion in the proxy 
statement or on a Web site to which the proxy statement refers. In 
addition, proposed Rule 14a-17 would require a nominating shareholder 
to provide information regarding the background of the nominating 
shareholder and its relationships with the company that would be 
required by proposed Items 8A, 8B and 8C of Schedule 13G to the 
company.
    The proposed information collection requirements would be mandatory 
and responses would not be confidential. The hours and costs associated 
with preparing and filing forms and retaining records constitute 
reporting and cost burdens imposed by the collection of information 
requirements. An agency may not conduct or sponsor, and a person is not 
required to respond to, a collection of information requirement unless 
it displays a currently valid OMB control number.

C. Paperwork Reduction Act Burden Estimates

    The proposed amendments would, if adopted, require additional 
disclosure on Schedule 14A and Schedule 13G, as well as in a company's 
registration statements.
1. Proposed Amendments to Rule 14a-8 Concerning Bylaw Proposals for 
Shareholder Nominations of Directors
    Schedule 14A prescribes the information that a company must include 
in its proxy statements to provide security holders with material 
information relating to voting decisions. For purposes of the PRA, we 
currently estimate that compliance with Regulation 14A, including 
preparation of Schedule 14A, requires 475,781 hours of company 
personnel time (approximately 66 hours per company) and costs 
$63,437,000 for the services of outside professionals (approximately 
$8,750 per company).\77\ The proposed amendment to Rule 14a-8 would 
require the company to include shareholder proposed bylaw amendments 
that provide procedures for shareholder nominations of directors unless 
the shareholder has failed to comply with the procedural requirements 
of Rule 14a-8.
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    \77\ These figures assume 7,250 respondents that file Schedule 
14A under Regulation 14A with the Commission. We estimate that 75% 
of the burden of preparation is carried by the company internally 
and that 25% of the burden of preparation is carried by outside 
professionals retained by the issuer at an average cost of $400 per 
hour. The hourly cost estimate is based on our consultations with 
several registrants and law firms and other persons who regularly 
assist registrants in preparing and filing with the Commission.
---------------------------------------------------------------------------

    Historically shareholders have made relatively few binding 
proposals. In the 2006-2007 proxy season, companies received 1,250 
shareholder proposals, of which only 100 were binding proposals.\78\ Of 
those 100, only three related to bylaw amendments providing for 
shareholder nominees to appear in the company's proxy materials.\79\ 
These three proposals were not subject to the additional disclosure 
requirements that would apply to shareholders under the proposed rules. 
In light of this historical data and given the proposed eligibility 
requirements to submit such proposals, we estimate that there would be 
a limited number of shareholder proposals to amend the bylaws to 
provide for shareholder nominees to be included in the company's proxy 
materials. We note, however, that by establishing procedures for 
submission of theses types of proposals, we are likely to encourage 
more bylaw amendment proposals than we currently receive. We therefore 
assume some increase in such proposals and estimate that the number 
would be 30 per year.\80\
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    \78\ Rachel McTague, 39 Securities Regulation & Law Report 911 
(June 11, 2007) (stating that, according to data complied by the 
Institutional Shareholder Services, nearly 1,250 shareholder 
proposals were submitted to companies during the 2006 proxy season).
    \79\ Tomoeh Murakami Tse, The Washington Post, March 15, 2007, 
at D2 (stating that three proxy access proposals were submitted by 
shareholders during the 2006 proxy season).
    \80\ We estimate that the number of proposals for bylaw 
amendments to allow shareholder nominations of directors received 
last proxy season (3) would increase tenfold (30).
---------------------------------------------------------------------------

    For purposes of the PRA, we estimate that the proposed amendments 
to Rule 14a-8 would create an incremental burden of six hours of 
company personnel time and costs of $800 for the services of outside 
professionals. In sum, we estimate that the amendments to Regulation 
14A will increase the annual paperwork burden by approximately 180 
hours of company personnel time and a cost of approximately $24,000 for 
the services of outside professionals. These burdens and costs would 
include the additional disclosure in proposed Item 24 and Item 25 of 
Schedule 14A as well as the burdens and costs associated with including 
the proposal in the company's proxy materials.
2. Proposed Amendments to Schedule 13G Requiring Disclosure From 
Shareholder Proponents
    Exchange Act Schedule 13G is a short-form filing for persons to 
report ownership of more than 5% of a class of voting equity securities 
registered under Section 12 of the Exchange Act. Generally, the filer 
must certify that the securities have not been acquired and are not 
held for the purpose of, or with the effect of, changing or influencing 
the control of the issuer of the securities. For purposes of the PRA, 
we currently estimate that compliance with the Schedule 13G 
requirements under Regulation 13D requires 98,800 burden hours, broken 
down into 24,700 hours (or 2.6 hours per respondent) of respondent 
personnel time and costs of $22,230,000 (or $2,340 per respondent) for 
the services of outside professionals.\81\
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    \81\ These figures assume 9,500 respondents that file Schedule 
13G with the Commission. We estimate that 25% of the burden of 
preparation is carried by the company internally and that 75% of the 
burden of preparation is carried by outside professionals retained 
by the issuer. These figures assume an average cost of $300 per 
hour. The Commission has increased the cost estimate $100 since our 
last estimate provided to OMB based on our consultations with 
several registrants and law firms and other persons who regularly 
assist registrants in preparing and filing with the Commission. In 
our PRA submission, we will increase the cost of outside 
professionals to meet the new $400 per hour estimate.

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[[Page 43482]]

    The proposed amendment to Rule 14a-8 would require the company to 
include certain shareholder proposed bylaw amendments only if they are 
submitted by a shareholder proponent that is eligible to, and has, 
filed a Schedule 13G that complies with proposed Schedule 13G Items 8A, 
8B, and 8C. As explained above, we estimate that the number of 
shareholder proponents submitting such proposals under Rule 14a-8 would 
be 30. Rather than presume that any of the shareholder proponents 
previously filed a Schedule 13G on an individual or group basis, we 
assume for purposes of the PRA that each person or group will be a new 
Schedule 13G filer. This would increase the number of Schedule 13G 
filers. In addition, the proposed disclosure of each shareholder 
proponent's background and relationships with the company would be 
different and more detailed than the disclosure currently required by 
Schedule 13G, increasing the reporting burden associated with this 
schedule.
    For purposes of the PRA, we estimate that the proposed amendments 
to Schedule 13G would create an incremental burden of 4.1 hours per 
response, which we would add to the existing Schedule 13G burden 
resulting in a total burden of 14.5 hours.\82\ Each of the 30 
additional filers would incur a burden of approximately 3.6 hours of 
respondent personnel time (25% of the total burden) and costs of $4,350 
for the services of outside professionals (75% of the total burden). In 
sum, we estimate that the amendments to Schedule 13G will increase the 
annual paperwork burden by approximately 108 hours of respondent 
personnel time and a cost of approximately $130,000 for the services of 
outside professionals.
---------------------------------------------------------------------------

    \82\ We currently estimate the burden for preparing a Schedule 
13G filing to be 10.4 hours.
---------------------------------------------------------------------------

3. Proposed Rule 14a-17 To Require Disclosure From Nominating 
Shareholders and Shareholder Nominees
    Proposed Rule 14a-17 would require nominating shareholders and 
their nominees to provide disclosure relating to their backgrounds and 
relationships with the company for inclusion in a Schedule 14A. As 
explained above, we estimate that there will be 30 proposals for bylaw 
amendments to allow shareholder nominations of directors annually. Of 
these, for purposes of this analysis we estimate that 50% will be 
successful. If we assume that in every case where a bylaw amendment is 
successful a shareholder nominee is proposed, the additional disclosure 
would be required 15 times annually.
    For purposes of the PRA, we estimate that proposed Rule 14a-17 
would create an incremental burden of six hours of company personnel 
time and costs of $800 for the services of outside professionals for 
each shareholder nominee included in a Schedule 14A. In sum, we 
estimate that the amendments will increase the annual paperwork burden 
of Regulation 14A by approximately 90 hours of company personnel time 
and a cost of approximately $12,000 for the services of outside 
professionals.

D. Solicitation of Comments

    We request comment on the accuracy of our estimates. Pursuant to 44 
U.S.C. 3506(c)(2)(B), the Commission solicits comments to: (i) Evaluate 
whether the proposed collection of information is necessary for the 
proper performance of the functions of the agency, including whether 
the information will have practical utility; (ii) evaluate the accuracy 
of the Commission's estimate of burden of the proposed collection of 
information; (iii) determine whether there are ways to enhance the 
quality, utility, and clarity of the information to be collected; and 
(iv) evaluate whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.
    Persons submitting comments on the collection of information 
requirements should direct the comments to the Office of Management and 
Budget, Attention: Desk Officer for the Securities and Exchange 
Commission, Office of Information and Regulatory Affairs, Washington, 
DC 20503, and should send a copy to Nancy M. Morris, Secretary, 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-1090, with reference to File No. S7-16-07. Requests for materials 
submitted to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-16-07, and be 
submitted to the Securities and Exchange Commission, Office of the 
Secretary--Records Management Branch, 100 F Street, NE., Office of 
Filings and Information Services, Washington, DC 20549. OMB is required 
to make a decision concerning the collection of information between 30 
and 60 days after publication of this release. Consequently, a comment 
to OMB is assured of having its full effect if OMB receives it within 
30 days of publication.

V. Cost-Benefit Analysis

    We propose to revise and update the proxy rules to more effectively 
serve their essential purpose of facilitating the exercise of 
shareholders' rights under state law. We request any relevant data from 
commenters that would be helpful in quantifying these costs and 
benefits.

A. Benefits

    The proposed amendments to Rule 14a-8 concerning binding bylaw 
proposals relating to shareholder nominations of directors on the 
company's proxy would help shareholders to exercise rights under state 
law to nominate and elect directors of their choosing. A bylaw 
amendment that allowed shareholder nominees to be included in the 
company's proxy materials would reduce the cost for a shareholder to 
nominate candidates for election on the board since the nominating 
shareholder would not need to incur the cost of preparing separate 
proxy materials and mailing those materials to other shareholders. 
Allowing shareholders to propose bylaw amendments that would enable 
them to include shareholder nominees on the company's proxy may provide 
shareholders a more effective voice than simply being able to recommend 
candidates to the nominating committee or being able to nominate 
candidates in person at a shareholder meeting.
    The proposed amendment would require additional disclosure on 
Schedule 13G and Schedule 14A by shareholder proponents, nominating 
shareholders and shareholder nominees about their background and 
relationships with the company. This additional information provided by 
such disclosures would help provide transparency to shareholders in 
voting on bylaw amendments and shareholder nominees.
    Finally, the proposed amendments to Regulation 14A regarding the 
electronic shareholder forum seek to remove unnecessary barriers to the 
use of technology to increase constructive communication between 
shareholders and between shareholders and the company. The exemption 
for communications more than 60 days prior to the announced meeting 
date would allow for more open and unfettered communication between 
parties. The enhanced communication may result in better coordination 
among the views of shareholders, more

[[Page 43483]]

effective exercise of state law rights, and a better alignment between 
the interests of shareholders and the company.

B. Costs

    The proposed amendments would impose some direct costs on companies 
and shareholders who are subject to the new rules. For purposes of the 
PRA, we estimate that the annual additional burden to companies of 
preparing the required proxy disclosure would be approximately 270 
hours of company personnel time and a cost of approximately $36,000 for 
the services of outside professionals. In addition, for purposes of the 
PRA, we estimate that the annual incremental burden to prepare the 
required disclosure for shareholder proponents, nominating shareholders 
and nominees would be approximately 108 hours of personnel time and a 
cost of approximately $130,000 for the services of outside 
professionals.
    The bulk of the additional disclosure required by the amendments to 
Regulation 14A would be provided to the company by shareholder 
proponents and nominating shareholders. The proposed amendments would 
add costs to the preparation and dissemination of this information in 
the company's proxy statement where shareholders have chosen to make 
proposals or put forth nominees.
    If shareholders have adopted a shareholder nomination bylaw 
amendment and chose to allocate company resources to facilitate 
shareholder nominations, the cost of preparing the company's proxy 
materials would be increased by the need to prepare and include 
information relating to the shareholder nominees. In addition, the 
company could incur increased costs relating to the solicitation of 
proxies in support of the board's candidates and against the 
shareholder nominees.
    The proposed amendments to Regulation 14A and Schedule 13G would 
impose costs on shareholder proponents. Shareholder proponents would be 
required to provide extensive background information and information on 
their relationships with the issuer on Schedule 13G. Under the proposed 
amendments, a company would also incur preparation and filing costs 
associated with disclosing the nature and extent of its relationships 
with a shareholder proponent. In addition, companies may incur costs 
for procedures to monitor its relationships with shareholder 
proponents.
    If a shareholder nomination bylaw amendment were adopted, 
shareholder nominees and nominating shareholders would also incur costs 
associated with the Rule 14a-17 disclosure requirements. Nominating 
shareholders and their nominees might also bear solicitation costs in 
seeking support for the nominee's election. However, these disclosure 
and solicitation costs are not expected to exceed the costs that would 
be incurred from a separate proxy contest.
    Under the proposed rules, companies may choose to incur additional 
costs to establish more responsive policies and procedures in an 
attempt to avoid having shareholders seek bylaw amendments or propose 
shareholder nominees. The company and the board may spend more time on 
shareholder relations instead of the business of the company. In 
addition, it is possible that electing a shareholder nominee to the 
board could have a disruptive effect on boardroom dynamics.
Request for Comment
    We are sensitive to the costs and benefits imposed by our rules, 
and have identified certain costs and benefits related to these 
proposals. We request comment on all aspects of this cost-benefit 
analysis, including identification of any additional costs and 
benefits. We encourage commenters to identify and supply relevant data 
concerning the costs and benefits of the proposed amendments.
     What are the costs and benefits of a 5% threshold as 
opposed to alternative thresholds? How would the private costs of 
assembling a 5% coalition vary across different types or sizes of 
companies?
     What are the potential costs and benefits of facilitating 
an increase in the variation of nomination rules across companies?
     What are the costs and benefits of potentially moving away 
from a dual-slate structure in which voting shareholders choose between 
the management card and the dissident card toward a unitary slate 
voting system in which voters choose among items on a single proxy 
card?

VI. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition and Capital Formation

    Section 23(a)(2) of the Exchange Act \83\ requires us, when 
adopting rules under the Exchange Act, to consider the impact that any 
new rule would have on competition. In addition, Section 23(a)(2) 
prohibits us from adopting any rule that would impose a burden on 
competition not necessary or appropriate in furtherance of the purposes 
of the Exchange Act. Section 3(f) of the Exchange Act \84\ and Section 
2(c) of the Investment Company Act \85\ require us, when engaging in 
rulemaking that requires us to consider or determine whether an action 
is necessary or appropriate in the public interest, to consider, in 
addition to the protection of investors, whether the action will 
promote efficiency, competition and capital formation.
---------------------------------------------------------------------------

    \83\ 15 U.S.C. 78w(a)(2).
    \84\ 15 U.S.C. 78c(f).
    \85\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The proposed rules are intended to promote the exercise of 
shareholder rights under state law and provide shareholders with 
information about shareholder proponents of, and shareholder nominees 
under, shareholder nomination bylaw amendments. The proposed rules, if 
adopted, would establish a fair and transparent mechanism for 
shareholders to propose and adopt bylaw amendments to establish 
procedures relating to shareholder director nominations inclusion in 
the company proxy materials.
    The disclosure requirements in the proposed rules would require 
detailed information regarding the background and relationships of 
shareholder proponents of the bylaw amendments to be disclosed by the 
shareholder proponents and the company. This disclosure would provide 
shareholders a better informed basis for deciding whether to approve 
the bylaw amendments. Changes to the company's bylaws should therefore 
better reflect shareholders' preferences regarding director nomination 
procedures. Investors may value the information about whether companies 
have subjected these preferences to a vote and provided a specified 
alternative procedure for inclusion of shareholder nominees in the 
company's proxy materials. This may promote the efficiency of the 
exercise of shareholder rights under state law.
    If the shareholders adopt a bylaw amendment and the company is 
required to include shareholder nominees in its proxy materials, there 
may be increased competition for board positions, which might encourage 
or discourage qualified candidates from running. The proposed rules 
focus on improving and streamlining information flow between investors 
and with the company, which we believe would give more direct effect to 
shareholder preferences regarding shareholder director nominees. We 
believe these changes are likely to have a limited effect on 
efficiency, competition and

[[Page 43484]]

capital formation. The effects of the proposed rules could be positive 
or negative depending on what shareholders deem is best for them given 
the additional information. We request comment on whether the 
proposals, if adopted, would promote efficiency, competition and 
capital formation or have an impact or burden on competition. 
Commenters are requested to provide empirical data and other factual 
support for their view, if possible.

VII. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Analysis has been prepared in 
accordance with 5 U.S.C. 603. It relates to proposed revisions to the 
rules and forms under the Exchange Act that would permit shareholders 
to propose bylaw amendments to establish procedures relating to 
shareholder director nominations for inclusion in the company's proxy 
materials. The proposed revisions would also facilitate the use of an 
electronic shareholder forum by companies and shareholders.

A. Reasons for, and Objectives of, Proposed Action

    The proposed rules are intended to open up communication between 
the company and its shareholders, promote the exercise of shareholder 
rights under state law, and provide shareholders with better 
information to make an informed voting decision by requiring disclosure 
about shareholder proponents and shareholder nominees under any 
shareholder nomination bylaw amendments.
    The proposals, if adopted, would facilitate the exercise of 
shareholders' rights under state law. As proposed, shareholders who 
have held more than 5% of the company's securities entitled to be voted 
at the meeting for at least one year by the date of their submission 
may submit binding proposals to amend the company bylaws to establish 
procedures for shareholder nominations of directors. Enabling 
shareholders to establish the company's procedures for inclusion of 
shareholder nominees on the company's proxy would provide shareholders 
with greater control over the use of the company's proxy process.
    In addition, encouraging the use of electronic shareholder forums 
and the Internet may have the effect of improving shareholder 
communication. Any electronic shareholder forum may enhance 
shareholders' ability to communicate not only with management, but also 
with each other. Such direct access may improve shareholder relations 
to the extent shareholders have improved access to management.

B. Legal Basis

    We are proposing amendments to the forms and rules under the 
authority set forth in Sections 13, 14, and 23(a) of the Exchange Act, 
as amended and Section 20(a) and 38 of the Investment Company Act, as 
amended.

C. Small Entities Subject to the Proposed Rules

    The Regulatory Flexibility Act defines ``small entity'' to mean 
``small business,'' ``small organization,'' or ``small governmental 
jurisdiction.'' \86\ The Commission's rules define ``small business'' 
and ``small organization'' for purposes of the Regulatory Flexibility 
Act for each of the types of entities regulated by the Commission.\87\ 
A ``small business'' and ``small organization,'' when used with 
reference to an issuer other than an investment company, generally 
means an issuer with total assets of $5 million or less on the last day 
of its most recent fiscal year. We estimate that there are 
approximately 1,100 issuers, other than investment companies, that may 
be considered reporting small entities.\88\ For purposes of the 
Regulatory Flexibility Act, an investment company is a small entity if 
it, together with other investment companies in the same group of 
related investment companies, has net assets of $50 million or less as 
of the end of its most recent fiscal year.\89\ Approximately 215 
investment companies meet this definition.\90\ The proposed rules may 
affect each of the approximately 1,315 issuers that may be considered 
reporting small entities, to the extent companies and shareholders take 
advantage of the proposed procedures.\91\ We request comment on the 
number of small entities that would be impacted by our proposals, 
including any available empirical data.
---------------------------------------------------------------------------

    \86\ 5 U.S.C. 601(6).
    \87\ Securities Act Rule 157 (17 CFR 230.157) and Exchange Act 
Rule 0-10 (17 CFR 240.0-10) contain the applicable definitions.
    \88\ The estimated number of reporting small entities is based 
on 2007 data, including the Commission's EDGAR database and Thomson 
Financial's Worldscope database.
    \89\ Rule 0-10 under the Investment Company Act [17 CFR 270.0-
10] contains the applicable definition.
    \90\ The estimated number of reporting investment companies that 
may be considered small entities is based on December 2006 data from 
the Commission's EDGAR database and a third-party data provider.
    \91\ The proposed amendments to Rule 14a-8 would not impact 
open-end investment companies that may be small entities because 
shareholders of those entities are not eligible to file Schedule 
13G, which must be filed in order to rely upon the proposed rule. Of 
the 215 investment companies that may be considered small entities, 
131 are open-end investment companies.
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    The proposals would require all companies, including small 
entities, to permit certain shareholders to submit the specified 
binding proposals to amend the company bylaws. Shareholder proponents, 
including proponents that are small entities, would be required to 
provide the proposed Schedule 13G disclosure regarding background and 
relationships with the company and companies would be required to 
include similar disclosure provided by the shareholder proponent with 
the company's proxy.
    If a bylaw amendment with an alternate shareholder nomination 
procedure is adopted, issuers would be required to meet the new 
procedural requirements and provide disclosure relating to the 
shareholder nominee in the proxy and the nominating shareholders and 
shareholder nominees would be required to provide additional 
information regarding their background and relationships with the 
company.

E. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no rules that conflict with or duplicate 
the proposed rules.

F. Significant Alternatives

    The Regulatory Flexibility Act directs us to consider significant 
alternatives that would accomplish the stated objective of our 
proposals, while minimizing any significant adverse impact on small 
entities. In connection with the proposed amendments and rules, we 
considered the following alternatives:
     The establishment of different compliance or reporting 
requirements or timetables that take into account the resources 
available to small entities;
     The clarification, consolidation, or simplification of the 
rule's compliance and reporting requirements for small entities;
     The use of performance rather than design standards; and
     An exemption from coverage of the proposed rules, or any 
part thereof, for small entities.
    The Commission has considered a variety of reforms to achieve its 
regulatory objectives. The proposed amendments, if adopted, would 
require companies to include binding bylaw amendments relating to 
procedures for shareholder nominations of directors. The proposals are 
being made in order to more effectively serve the essential

[[Page 43485]]

purpose of the proxy rules to facilitate the exercise of shareholders' 
rights under state law. The proposed amendments also would require 
additional disclosure by the shareholder proponent (or any subsequent 
nominating shareholder or shareholder nominee) and the company of the 
background of the proponent and its relationships with the issuer.\92\ 
We believe this additional disclosure will assist investors in making 
an informed voting decision. It is not clear how applying separate 
compliance or reporting standards to small entities would further 
encourage facilitation of the exercise of these rights. However, we are 
considering what level of disclosure would be appropriate for 
shareholder proponents, nominating shareholders and shareholder 
nominees regarding their background and relationships with the company. 
If we require less disclosure from smaller issuers we are concerned 
that shareholders may not receive sufficient information with which to 
make an informed decision.
---------------------------------------------------------------------------

    \92\ The proposed ability for shareholder proponents to propose 
bylaw amendments to be included in the company's proxy material is 
linked to their filing on Schedule 13G. A lower ownership threshold 
for small entities would not be appropriate due to the loss of the 
additional disclosure and safeguards provided by Schedule 13G.
---------------------------------------------------------------------------

    We considered the use of performance standards rather than design 
standards in the proposed rules. The proposal contains both performance 
standards and design standards. We are proposing design standards to 
the extent that we believe that compliance with particular requirements 
are necessary. However, to the extent possible, we are proposing rules 
that impose performance standards. By allowing companies to establish 
their own procedures relating to shareholder nominations, we seek to 
provide companies, shareholder proponents and nominating shareholders 
with the flexibility to devise the means through which they can comply 
with the standards.
    We request comment on whether separate requirements for small 
entities would be appropriate. The purpose of the amendments is to 
provide certain shareholders with the ability to amend the bylaws to 
establish their own procedures for shareholder nominations of directors 
and to improve shareholder communications. Exempting small entities 
would not appear to be consistent with these goals. The establishment 
of any differing compliance or reporting requirements or timetables or 
any exemptions for small business issuers may not be in keeping with 
the objective of the proposed rules.

G. Solicitation of Comment

    We encourage comments with respect to any aspect of this initial 
regulatory flexibility analysis. In particular, we request comments 
regarding:
     The number of small entities that may be affected by the 
proposals;
     The existence or nature of the potential impact of the 
proposals on small entities discussed in the analysis; and
     How to quantify the impact of the proposed rules.
    Commenters are asked to describe the nature of any impact and 
provide empirical data supporting the extent of the impact. Such 
comments will be considered in the preparation of the final regulatory 
flexibility analysis, if the proposals are adopted, and will be placed 
in the same public file as comments on the proposed amendments 
themselves.

VIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\93\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \93\ Pub. L. No. 104-121, Title II, 110 Stat. 857 
(1996)(codified in various sections of 50 U.S.C., 15 U.S.C. and as a 
note to 5 U.S.C. Sec.  601).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment or 
innovation.
    We request comment on whether our proposals would be a ``major 
rule'' for purposes of SBREFA. We solicit comment and empirical data 
on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment or 
innovation.

IX. Statutory Basis and Text of Proposed Amendments

    We are proposing amendments to rules pursuant to Sections 13, 14, 
and 23(a) of the Exchange Act, as amended, and Sections 20(a) and 38 of 
the Investment Company Act, as amended.

List of Subjects in 17 CFR Part 240

    Reporting and recordkeeping requirements, Securities.

    In accordance with the foregoing, the Securities and Exchange 
Commission proposes to amend Title 17, chapter II of the Code of 
Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATION, SECURITIES EXCHANGE ACT OF 
1934

    1. The authority citation for part 240 continues to read, in part, 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    2. Section 240.13d-102 is amended by:
    a. Removing the authority citation following the section; and
    b. Adding Items 8A, 8B and 8C.
    The additions are to read as follows:


Sec.  240.13d-102  Schedule 13G--Information to be included in 
statements filed pursuant to Sec.  240.13d-1(b), (c), and (d) and 
amendments thereto filed pursuant to Sec.  240.13d-2.

* * * * *

Item 8A. Shareholder Proponents

    (a) Definition of shareholder proponent: In this item, the term 
``shareholder proponent'' means:
    (1) A person or group that has formed any plans or proposals 
regarding an amendment to a company's bylaws, in accordance with Sec.  
240.14a-8(i)(8);
    (2) A nominating shareholder as defined in Sec.  240.14a-17(a);
    (3) Any affiliate, executive officer or agent acting on behalf of 
the person (or group) described above in Item 8A(a)(1)-(2) with respect 
to the plans or proposals; and
    (4) Anyone acting in concert with, or who has agreed to act in 
concert with, the person (or group) described above in Item 8A(a)(1)-
(2) with respect to the plans or proposals.
    (b) A shareholder proponent, as defined in section (a), shall 
provide the additional disclosure required by Items 8B and 8C.

    Note to Item 8A. For purposes of this Item 8A and for the 
disclosures required by Item 8B and Item 8C, the term ``plans or 
proposals'' shall include, but not be limited to, the submission of 
a proposal to amend a company's bylaws, and instances where a 
shareholder proponent has indicated an intent to management to 
submit such a proposal or has indicated an intent to management to 
refrain from submitting such a proposal conditioned on the taking or 
not taking of a corporate action. The term also shall include a 
shareholder nomination for director pursuant to a bylaw procedure

[[Page 43486]]

established pursuant to Rule 14a-8(i)(8), and instances where a 
shareholder proponent has indicated an intent to management to 
submit such a nomination or has indicated an intent to management to 
refrain from submitting such a nomination conditioned on the taking 
or not taking of a corporate action.

Item 8B. Relationships With the Company of Shareholder Proponents

    (a) A shareholder proponent, as defined in Item 8A, must describe 
the following:
    (1) Any direct or indirect interest in any contract between the 
shareholder proponent and the company or any affiliate of the company 
(including any employment agreement, collective bargaining agreement, 
or consulting agreement);
    (2) Any pending or threatened litigation in which the shareholder 
proponent is a party or a material participant, involving the company, 
any of its officers or directors, or any affiliate of the company; and
    (3) Any other material relationship between the shareholder 
proponent and the company or any affiliate of the company not otherwise 
disclosed.

    Note to Item 8B(a)(3). Any other material relationship of the 
shareholder proponent with the company or any affiliate of the 
company may include, but is not limited to, whether the shareholder 
proponent currently has, or has had in the past, an employment 
relationship with the company or any affiliate of the company 
(including consulting arrangements).

    (b) A shareholder proponent must describe the following items where 
they occurred during the 12 months prior to the formation of any plans 
or proposals, or during the pendency of any proposal or nomination:
    (1) Any material transaction of the shareholder proponent with the 
company or any affiliate of the company; and
    (2) Any discussion regarding the proposal or nomination between the 
shareholder proponent and a proxy advisory firm.
    (c) If the shareholder proponent holds more than 5% of any 
enterprise with the same Standard Industrial Classification code as the 
company, the shareholder proponent must describe the number and 
percentage of securities held in the competitor, as of the date the 
shareholder proponent first formed any plans or proposals.
    (d) Describe any material relationship of the shareholder proponent 
with any enterprise with the same Standard Industrial Classification 
code as the company other than as a shareholder, as of the date the 
shareholder proponent first formed any plans or proposals.
    (e) Disclose any meetings or contacts, including direct or indirect 
communication by the shareholder proponent, with the management or 
directors of the company that occurred during the 12 months prior to 
the formation of any plans or proposals or during the pendency of any 
proposal or nomination, including:
    (1) Reasonable detail of the content of such direct or indirect 
communication;
    (2) A description of the action or actions sought to be taken or 
not taken;
    (3) The date of the communication;
    (4) The person or persons to whom the communication was made;
    (5) Whether that communication included any reference to the 
possibility of such a proposal or nomination; and
    (6) Any response by the company or its representatives to that 
communication prior to the date of filing the required disclosure.

    Note to Item 8B(e). To the extent that a shareholder proponent 
conducts regularly scheduled meetings or contacts with management or 
directors of a company, the shareholder proponent may describe the 
frequency of the meetings and the subjects covered at the meetings 
rather than providing information separately for each meeting. 
However, if an event or discussion occurred at a specific meeting 
that is material to the shareholder proponent's decision to submit a 
proposal or nomination, that meeting should be discussed in detail 
separately.

Item 8C. Background Information Regarding Shareholder Proponents

    (a) If the shareholder proponent is not a natural person, provide:
    (1) The identity of the natural person or persons associated with 
the entity responsible for the formation of any plans or proposals;
    (2) The manner in which such person or persons were selected, 
including a discussion of whether or not the equity holders or other 
beneficiaries of the shareholder proponent entity played any role in 
the selection of such person or persons or otherwise played any role in 
connection with any plans or proposals;
    (3) Whether the person or persons associated with the entity 
responsible for the formation of any plans or proposals have, in 
forming such plans or proposals, a fiduciary duty to the equity holders 
or other beneficiaries of the entity;
    (4) The qualifications and background of such person or persons 
relevant to the plans or proposals; and
    (5) Any interests or relationships of such person or persons, and 
of that entity, that are not shared generally by the other shareholders 
of the company and that could have influenced the decision by such 
person or persons and the entity to submit a proposal or nomination.
    (b) If the shareholder proponent is a natural person, disclose:
    (1) The qualifications and background of such person or persons 
relevant to the plans or proposals; and
    (2) Any interests or relationships of such person or persons that 
are not shared generally by the other shareholders of the company and 
that could have influenced the decision by such person or persons to 
submit a proposal or nomination.

    Note to Item 8C(a)(5) and Item 8C(b)(2). Examples of interests 
or relationships of the shareholder proponent not shared by other 
shareholders of the company include, but are not limited to, 
contractual arrangements, current or previous employment with the 
company, employment agreements, consulting agreements, and supplier 
or customer relationships.

* * * * *
    3. Section 240.14a-2 is amended by adding paragraph (b)(6) to read 
as follows:


Sec.  240.14a-2  Solicitations to which Sec.  240.14a-3 to Sec.  
240.14a-15 apply.

* * * * *
    (b) * * *
    (6) Any solicitation in an electronic shareholder forum established 
pursuant to the provisions of Rule 14a-18 by or on behalf of any person 
who does not seek directly or indirectly, either on its own or 
another's behalf, the power to act as proxy for a security holder and 
does not furnish or otherwise request, or act on behalf of a person who 
furnishes or requests, a form of revocation, abstention, consent or 
authorization provided that the solicitation is made more than 60 days 
prior to the date announced by a registrant for its next annual or 
special meeting of shareholders or if the registrant announces the date 
of its next annual or special meeting of shareholders less than 60 days 
before the meeting date, then the solicitation may not be made more 
than two days following the date of the registrant's announcement of 
the meeting date.
    4. Section 240.14a-6 is amended by removing the period at the end 
of the undesignated paragraph following paragraph (a)(6), prior to Note 
1, and adding a comma in its place; and by adding ``or where the proxy 
materials include a shareholder nominee submitted pursuant to a bylaw 
adopted in accordance with Sec.  240.14a-8(i)(8).'' after that new 
comma.
    5. Section 240.14a-8 is amended by:
    a. Revising paragraph (b)(1); and
    b. Revising paragraph (i)(8);

[[Page 43487]]

    The revisions read as follows:


Sec.  240.14a-8  Shareholder proposals.

* * * * *
    (b) * * *
    (1) In order to be eligible to submit a proposal, you must have 
continuously held at least $2,000 in market value, or 1%, of the 
company's securities entitled to be voted on the proposal at the 
meeting for at least one year by the date you submit the proposal; 
except where additional eligibility requirements are specified in this 
rule. You must continue to hold those securities through the date of 
the meeting.
* * * * *
    (i) * * *
    (8) Relates to election: If the proposal relates to a nomination or 
an election for membership on the company's board of directors or 
analogous governing body or a procedure for such nomination or 
election, except for a proposal to establish a procedure by which 
shareholder nominees for election of director would be included in the 
company's proxy materials, where that proposal:
    (i) Relates to a change in the company's bylaws that would be 
binding on the company if approved by the shareholders; and
    (ii) Is submitted by a shareholder (or group of shareholders) that:
    (A) Has continuously held more than 5% of the company's securities 
entitled to be voted on the proposal at the meeting for at least one 
year by the date the shareholder submits the proposal;
    (B) Is eligible to file a Schedule 13G (Sec.  240.13d-102) as an 
institutional investor or a passive investor, including pursuant to 
Rule 13d-1(l) (Sec.  240.13d-1(l)); and
    (C) Has filed a statement of beneficial ownership on Schedule 13G 
(Sec.  240.13d-102), or an amendment thereto, that contains all 
required information;
* * * * *
    6. Add Sec.  240.14a-17 and Sec.  240.14a-18 to read as follows:


Sec.  240.14a-17  Shareholder nominations for election as director.

    (a) A nominating shareholder is any shareholder (or group of 
shareholders) that forms any plans or proposals regarding the 
submission of a nominee or nominees for director to the company for 
inclusion in the company proxy materials, in accordance with a company 
bylaw that has been adopted by shareholders, as provided in Sec.  
240.14a-8(i)(8).

    Note to Rule 14a-17(a). The formation of any plans or proposals 
includes instances where the shareholder has indicated an intent to 
management to submit a nomination or has indicated an intent to 
management to refrain from submitting a nomination conditioned on 
the taking or not taking of a corporate action.

    (b) A nominating shareholder shall provide the information required 
by Item 8A, Item 8B, and Item 8C of Schedule 13G (Sec.  240.13d-102) to 
the company at the time the shareholder forms any plans or proposals 
with regard to submission of a nominee or nominees for director. 
Immediately after receiving the information from the nominating 
shareholder, the company shall provide the information on its Web site, 
or provide a link to a Web site address where the information would 
appear. The company also shall include the information provided by the 
nominating shareholder pursuant to this section in its proxy statement 
or on a Web site to which the proxy statement refers.
    (c) At the time that a nominating shareholder submits to the 
company for inclusion in the company proxy materials a nominee or 
nominees, in accordance with a company bylaw that has been adopted by 
shareholders, as provided in Sec.  240.14a-8(i)(8), the nominating 
shareholder must provide to the company, for inclusion in the company 
proxy statement or on a Web site to which the proxy statement refers, 
the following:
    (1) Information meeting the disclosure requirements of Item 4(b) of 
Schedule 14A, as applicable;
    (2) Information meeting the disclosure requirements of Item 5(b) of 
Schedule 14A, as applicable;
    (3) Information meeting the disclosure requirements of Item 7 of 
Schedule 14A, as applicable;
    (4) Information meeting the disclosure requirements of Item 22(b) 
of Schedule 14A, as applicable; and
    (5) The consent of the nominee or nominees to be named in the 
company's proxy statement and to serve if elected.
    (d) Where a nominating shareholder fails to provide any of the 
information required under paragraphs (b) and (c) of this rule, the 
shareholder's nominee will not be required to be included in the 
company's proxy materials.
    (e) The company will not be responsible for the information 
provided to the company by the nominating shareholder and included in 
the company's proxy statement or on a Web site to which the proxy 
statement refers, in satisfaction of the company's disclosure 
obligations under Regulation 14A.
    (f) Information about a shareholder nominee or nominees that has 
been provided to the company by a nominating shareholder, and which is 
disclosed in the company's proxy statement or on a Web site to which 
the proxy statement refers, in satisfaction of the company's disclosure 
obligations under Regulation 14A, will not be deemed incorporated by 
reference into any filing under the Securities Act of 1933 or the Act, 
except to the extent that the registrant specifically incorporates that 
information by reference.


Sec.  240.14a-18  Electronic Shareholder Forums.

    (a) A company or shareholder may establish, maintain, or operate an 
electronic shareholder forum to facilitate interaction among 
shareholders and between the company and its shareholders as the 
company or shareholder deems appropriate. Subject to (b) and (c) of 
this Rule, the forum must comply with the federal securities laws, 
including Section 14(a) of the Act and its associated regulations, 
other applicable federal laws, applicable state law, and the company's 
charter and bylaw provisions.
    (b) No company or shareholder because of establishing, maintaining, 
or operating an electronic shareholder forum is liable under the 
federal securities laws for any statement or information provided by 
another person to the electronic shareholder forum. Nothing in this 
Rule 14a-18 prevents or alters the application of other provisions of 
the federal securities laws, including the provisions for liability for 
fraud, deception, or manipulation, or other applicable federal and 
state laws to a person or persons providing a statement or information 
to an electronic shareholder forum.
    (c) Reliance on the exemption in Rule 14a-2(b)(6) to construct, 
maintain, support, or participate in an electronic shareholder forum 
does not eliminate a person's eligibility to solicit proxies after the 
date that the exemption in Rule 14a-2(b)(6) is available, provided that 
any such solicitation is conducted in accordance with this regulation.
    7. Section 240.14a-101 is amended by adding Item 24 and Item 25 to 
read as follows:


Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *

Item 24. Relationships with Shareholder Proponents

    Disclose the nature and extent of relationships between the 
shareholder proponent, any affiliate, executive officer or agent of 
such shareholder proponent, or anyone acting in concert with, or who 
has agreed to act in concert with, such shareholder proponent with

[[Page 43488]]

respect to the proposed bylaw amendment submitted in accordance with 
Sec.  240.14a-8(i)(8), on the one hand, and the company, on the other, 
including:
    (a) Any direct or indirect interest of the shareholder proponent in 
any contract with the company or any affiliate of the company 
(including any employment agreement, collective bargaining agreement, 
or consulting agreement);
    (b) Any pending or threatened litigation in which the shareholder 
proponent is a party or a material participant, involving the company, 
any of its officers or directors, or any affiliate of the company; and
    (c) Any other material relationship between the shareholder 
proponent, the company, or any affiliate of the company not otherwise 
disclosed.

    Note to Paragraph (c): Any other material relationship between 
the shareholder proponent and the company or any affiliate of the 
company may include, but is not limited to, whether the shareholder 
proponent currently has, or has had in the past, an employment 
relationship with the company (including consulting arrangements).

    (d) With respect to the 12 months prior to a shareholder proponent 
forming any plans or proposals, or during the pendency of any proposal, 
regarding an amendment to a company's bylaws in accordance with Sec.  
240.14a-8(i)(8):
    (1) Any material transaction of the shareholder proponent with the 
company or any affiliate of the company; and
    (2) Any meeting or contact, including direct or indirect 
communication by the shareholder proponent, with the management or 
directors of the company, including:
    (i) Reasonable detail of the content of such direct or indirect 
communication;
    (ii) A description of the action or actions sought to be taken or 
not taken;
    (iii) The date of the communication;
    (iv) The person or persons to whom the communication was made;
    (v) Whether that communication included any reference to the 
possibility of such a proposal; and
    (vi) Any response by the company or its representatives to that 
communication prior to the date of filing the required disclosure.

    Note to Paragraph (d)(2): To the extent that a shareholder 
proponent conducts regularly scheduled meetings or contacts with 
management or directors of a company, the company may describe the 
frequency of the meetings and the subjects covered at the meetings 
rather than providing information separately for each meeting. 
However, if to the company's knowledge, an event or discussion 
occurred at a specific meeting that is material to the shareholder 
proponent's decision to submit a proposal, that meeting should be 
discussed in detail separately.


    Note to Item 24. For purposes of the disclosures required by 
this item, the company will be entitled to rely upon the Schedule 
13G disclosures of the shareholder proponent concerning the date 
upon which the shareholder proponent formed any plans or proposals 
with regard to the submission of a proposal to amend a company's 
bylaws.

Item 25. Relationships With Nominating Shareholders

    (a) Provide the information submitted to the company by any 
nominating shareholder as required by Sec.  240.14a-17(b) and (c).
    (b) Disclose the nature and extent of relationships between the 
nominating shareholder, any affiliate, executive officer or agent of 
such nominating shareholder, or anyone acting in concert with, or who 
has agreed to act in concert with, such nominating shareholder with 
respect to a nomination pursuant to a bylaw adopted in accordance with 
Rule 14a-8(i)(8), on the one hand, and the company, on the other, 
including:
    (1) Any direct or indirect interest of the nominating shareholder 
in any contract with the company or any affiliate of the company 
(including any employment agreement, collective bargaining agreement, 
or consulting agreement);
    (2) Any pending or threatened litigation in which the nominating 
shareholder is a party or a material participant, involving the 
company, any of its officers or directors, or any affiliate of the 
company; and
    (3) Any other material relationship between the nominating 
shareholder, the company, or any affiliate of the company not otherwise 
disclosed.

    Note to Paragraph (b)(3): Any other material relationship 
between the nominating shareholder and the company or any affiliate 
of the company may include, but is not limited to, whether the 
nominating shareholder currently has, or has had in the past, an 
employment relationship with the company (including consulting 
arrangements).

    (c) With respect to the 12 months prior to a nominating shareholder 
forming any plans or proposals to submit a nomination for director for 
inclusion in the company's proxy statement, or during the pendency of 
any nomination:
    (1) Any material transaction of the nominating shareholder with the 
company or any affiliate of the company; and
    (2) Any meeting or contact, including direct or indirect 
communication by the nominating shareholder, with the management or 
directors of the company, including:
    (i) Reasonable detail of the content of such direct or indirect 
communication;
    (ii) A description of the action or actions sought to be taken or 
not taken;
    (iii) The date of the communication;
    (iv) The person or persons to whom the communication was made;
    (v) Whether that communication included any reference to the 
possibility of such a nomination; and
    (vi) Any response by the company or its representatives to that 
communication prior to the date of submitting the nomination.

    Note to Paragraph (c)(2): To the extent that a nominating 
shareholder conducts regularly scheduled meetings or contacts with 
management or directors of a company, the company may describe the 
frequency of the meetings and the subjects covered at the meetings 
rather than providing information separately for each meeting. 
However, if to the company's knowledge, an event or discussion 
occurred at a specific meeting that is material to the nominating 
shareholder's decision to submit a nomination, that meeting should 
be discussed in detail separately.


    Note to Item 25. For purposes of the disclosures required by 
this item, the company will be entitled to rely upon the disclosures 
of the nominating shareholder submitted to the company as required 
by Rule 14a-17(c) concerning the date upon which the nominating 
shareholder formed any plans or proposals with regard to the 
submission of a nominee or nominees to be included in the company's 
proxy materials.

* * * * *

    By the Commission.

     Dated: July 27, 2007.
Nancy M. Morris,
Secretary.
[FR Doc. E7-14954 Filed 8-2-07; 8:45 am]

BILLING CODE 8010-01-P
