One sleeper item that might be of interest to companies and shareholder activists in the Securities and Exchange Commission's proposing release for its proxy disclosure and solicitation enhancements: An amendment that observers say could potentially facilitate activists' solicitation activities.

The proposed amendment, which is part of a broad package of reforms proposed at the SEC's July 1 open meeting and detailed in a 137-page proposing release out for comment until Sept. 15, allow dissidents to send unmarked copies of management's proxy without triggering the proxy rules.

The proposal would clarify that an unmarked copy of management's proxy card that's requested to be returned directly to management isn't a "form of revocation" under Exchange Act Rule 14a-2(b)(1), so a person furnishing the duplicate proxy card isn't disqualified from relying on the rule's exemption.

"This proposed change is significant because it broadens the scope of an exemption that had been effectively limited in 2004 after a decision in the U.S. Court of Appeals for the Second Circuit," notes Howard Dicker, a partner in the law firm Weil Gotshal & Manges in a July 9 alert.

In MONY Group, Inc. v. Highfields Capital Management, the Second Circuit reversed a district court decision consistent with the staff's views that the unmarked copy of management's proxy card wasn't a "form of revocation" within the meaning of Exchange Act Rule 14a-2(b)(1).

"We propose to clarify the rule to align with our view by amending it to provide expressly that a ‘form of revocation' does not include an unmarked copy of management's proxy card that the soliciting shareholder requests be returned directly to management," the proposing release states, noting that the clarification "is consistent with advice the staff informally has provided in response to related inquiries since the rule was adopted."

The amendment would "aid efforts by persons not seeking proxy authority to facilitate voting by shareholders sharing their views on matters submitted for shareholder approval—such as in a ‘just vote no' campaign—without having to incur the costs and efforts of conducting a fully regulated proxy solicitation and provide shareholders a convenient opportunity to indicate their votes after hearing those views without having to request another proxy card from management," the release states.

Dicker notes that the proposal is expected to "generate some controversy" since shareholders may not have significant information about the soliciting person that might be material to their voting decision.

Likewise, Ronald Mueller, a partner in the law firm Gibson Dunn & Crutcher, says if adopted, the amendment could "become a big issue, because companies could potentially find themselves caught by surprise by a stealth vote no or vote against campaign."

"It's something companies may want to focus on in their comments," he says.

Pages 50-51 of the proposing release seeks comment on several questions related to the proposal, including the appropriateness of the proposed amendment, whether a soliciting person that provides an unmarked copy of management's proxy card should be required to file a Notice of Exempt Solicitation even if they don't meet the thresholds under Exchange Act Rule 14a-6(g), and whether such a soliciting person should be required to file and provide to solicited persons other information about itself.

Compliance Week will provide readers with more coverage of the details of the proposing release in an upcoming edition.

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