There are many aspects of the SEC's shareholder proposal rule (i.e., Exchange Act Rule 14a-8) that make no sense to me. Here's yet another in the continuing series, which comes to us from the good folks at The Race to the Bottom blog:
In HomeTrust Bancshares, Inc., 2015 BL 289659 (Aug. 31, 2015), shareholder, William R. Dossenbach (“Dossenbach”) proposed HomeTrust Bancshares (“HomeTrust”) issue an annual dividend equal to 50% of after tax profits. The Securities and Exchange Commission (the “Commission”) ultimately concluded it would not recommend enforcement action if HomeTrust omitted the proposal from its annual proxy statement.
The fact that the proposal was omitted it not the surprising thing, of course. Rule 14a-8(i)(13) expressly states that a proposal may be excluded "If the proposal relates to specific amounts of cash or stock dividends."
But why exclude proposals about dividends? You would think that it might have something to do with director primacy (i.e., that dividend decisions are reserved to the discretion of the board), but apparently you would be wrong. When adopted in 1976, the SEC specifically rejected that justification for the exception:
... the Commission has noted the view of some commentators that dividend matters are not appropriate for discussion by security holders. These persons have indicated that decisions on dividends traditionally have been within the exclusive province of the board of directors under most state laws and that it would not be proper for shareholders to submit proposals on such matters. The Commission, however, is not persuaded that these reasons provide a valid basis for excluding all dividend proposals. In this regard, it is noted that mandatory dividend pro- posals would continue to be excludable under subparagraph (c) (1) of the revised rule, to tile extent that they would intrude on the board's exclusive discretionary authority under the applicable state law to make decisions on dividends. But to the extent that such proposals are advisory in nature, and therefore non- binding on the board even if adopted, the Commission is unable to agree that pro- ponents should be denied the opportunity to present them, within the limits of this provision, to their fellow security holders for consideration.
So why did the SEC adopt the dividend exception? The 1976 release claims that:
The purpose of the provision was to prevent security holders from being burdened with a multitude of conflicting proposals on such matters. Specifically, the Commission was concerned over the possibility that several proponents might independently submit to an issuer proposals asking that differing amounts of dividends be paid.
But this is utterly spurious, of course. The concern over conflicting proposals is addressed by Rule 14a-8(i)(9), which provides that a proposal may be excluded if it "directly conflicts with one of the company's own proposals to be submitted to shareholders at the same meeting," and Rule 14a-8(i)(11), which provides that a proposal may be excluded if it "substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company's proxy materials for the same meeting." The SEC could simply have held that a proposal relating to a specific amount of dividends (say, $1 per share) is substantially duplicated by a competing proposal even if the competing proposal suggests a different amount (say 2% of profits).
Just another in the inconstancies and idiocies that pervade this rule.
