No-action request

Definition

A no-action request is a formal communication sent to the Securities and Exchange Commission (SEC) by a company or its legal counsel, asking for confirmation that the SEC will not take enforcement action against the company for failing to include a specific shareholder proposal in its proxy materials. This process is an essential part of corporate governance, particularly in how companies engage with their shareholders and address proposals that may be contentious or require careful consideration.

5 Must Know Facts For Your Next Test

1. No-action requests are typically used when a company believes that a shareholder proposal is not legally permissible or does not meet the criteria set forth by SEC Regulation 14a-8.
2. The SEC reviews no-action requests to determine if it agrees with the company's assessment, which can significantly impact whether a proposal is presented to shareholders for a vote.
3. Companies often submit no-action requests to avoid potential legal disputes or unwanted attention from activist shareholders regarding controversial proposals.
4. The outcome of a no-action request can shape corporate governance practices by either allowing or denying shareholder influence over key issues within the company.
5. No-action requests are part of a broader strategy that companies employ to manage relationships with shareholders and respond to their interests while balancing regulatory requirements.

Review Questions

• What is the purpose of a no-action request in relation to shareholder proposals?
  • The purpose of a no-action request is to seek assurance from the SEC that it will not take enforcement action against a company for excluding a specific shareholder proposal from its proxy materials. Companies use this request when they believe the proposal does not comply with legal standards or SEC regulations. This process helps protect companies from potential legal challenges while ensuring compliance with regulatory requirements regarding shareholder engagement.
• How does SEC Regulation 14a-8 impact the submission of no-action requests by companies?
  • SEC Regulation 14a-8 outlines the criteria and procedures for including shareholder proposals in proxy statements, directly influencing how companies approach no-action requests. If a proposal fails to meet these requirements, such as being deemed irrelevant or improper, companies may file a no-action request to confirm they can omit it from their proxy materials without facing SEC enforcement action. This regulation serves as a guideline for both companies and shareholders in understanding the boundaries of proposal submissions.
• Evaluate the implications of no-action requests on corporate governance practices and shareholder engagement.
  • No-action requests have significant implications for corporate governance practices and shareholder engagement by determining which proposals reach shareholders for consideration. When companies successfully exclude proposals through these requests, it can limit shareholder influence over important issues, leading to frustrations among investors who seek greater accountability. Conversely, when proposals are upheld, it can enhance transparency and encourage companies to address shareholder concerns. Ultimately, no-action requests reflect the ongoing tension between management's desire for control and shareholders' push for participatory governance.

Related terms

Proxy Statement: A document that a company sends to its shareholders containing important information about matters that will be discussed at an upcoming shareholder meeting, including voting procedures and details about proposals.

Shareholder Proposal: A recommendation or request submitted by shareholders for inclusion in a company's proxy materials, often addressing issues like corporate governance, social responsibility, or executive compensation.

SEC Regulation 14a-8: A regulation under the Securities Exchange Act of 1934 that governs the inclusion of shareholder proposals in proxy statements, outlining the procedures and requirements for both companies and shareholders.