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April 16, 2002
SEC Faltering on Meeting Shareowner Resolution Needs
    by William Baue

Proposed budget for 2003 may help the SEC provide public information on its no-action letters as well as advise shareowners on resolution changes.

When a company appeals to the Securities and Exchange Commission (SEC) for permission to omit a shareowner resolution from its proxy, the SEC issues a decision through a letter, often called a "no-action" letter. An attorney advisor on the staff of the SEC's Division of Corporate Finance may validate a company's line of refutation, and allow the company to take "no action" by omitting the shareowner resolution from its proxy. Or the attorney can decide against the company's argument, upholding the shareowner request that the company include the resolution in its proxy.

Currently, the SEC does not post its no-action letters on its website, despite its mandate to disseminate information to the public.

"The Commission's objective is to make public information and records available to investors and other interested parties in a fair and equitable manner," states the SEC's website. "The Commission's Internet world wide website and its Public Reference Room ('PRR') in Washington, D. C., where documents may be inspected and printed or copied for a fee, are components in meeting this objective."

Washington, D.C.-based Investor Responsibility Research Center (IRRC) has used the latter resource for years, sending staff to the PRR to conduct research. The staff say that accessing information through the PRR is becoming burdensome.

"IRRC regularly goes to the SEC Public Reference Room, but understaffing at the SEC has caused the system to fall apart this year," said IRRC Director of Social Issues Service Meg Voorhes. "SEC responses to company challenges are coming later and later. We've often only found out from the company or the proponents that the SEC has allowed a proposal to be omitted, but weeks later there may still be no copy of the letter in the Public Reference Room."

IRRC's Carolyn Mathiasen pointed out that there is no free source of SEC decisions on resolutions. There are several online and print sources for no-action letter information, such as Lexis/Nexis, WestLaw, and Global Securities Information (GSI), but these premium services are prohibitively expensive for individual investors and small companies.

SEC is currently considering posting no-action letter information on its website, but the commission has made no decision yet, according to SEC spokesperson John Heine.

Meanwhile, the SEC has been busy this proxy season with company requests to omit shareowner resolutions. A number of companies this year have invoked a component of SEC Rule 14a that prohibits resolutions from containing "materially false or misleading statements."

In many instances, however, SEC attorney advisors have refused a corporate no-action request by offering the resolution filers specific text changes that bring the resolution into compliance with SEC rules.

"Instead of having a shareholder proposal eliminated in its entirety, the staff points out how it can be modified in minor ways and not be excludable," said Mr. Heine. "The staff started doing this editing back in the 1970s--it's not a new trend."

This proxy season, for example, the SEC used this method extensively in denying McDonald's (ticker: MCD) request to omit a shareowner resolution. The SEC suggested five specific text changes to Trillium Asset Management and People for the Ethical Treatment of Animals (PETA), co-filers of a resolution that calls on McDonald's to implement farm animals welfare standards globally. Trillium and PETA accepted the changes.

The SEC's ability to effectively meet the needs of shareowners regarding resolutions is being pressed by growing demands and a static budget. Congress may act to change this, however. According the April 12 edition of The Washington Post, the House Financial Services Committee approved a fiscal 2003 budget of $776 million for the SEC, a 77 percent increase.


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