Back in 2019, I posted about a panel at Tulane’s Corporate Law Institute discussing Rule 14a-6(g).  That rule allows shareholders who are not seeking proxy authority to communicate with other shareholders without filing a proxy statement, but under some circumstances, any holder of more than $5 million of stock must file their written solicitation materials with the SEC.

In 2019, the new thing was for shareholders who own less than $5 million to file materials anyway, because they’d figured out that EDGAR was actually a cheap and efficient mechanism to allow them to communicate with other shareholders.  So, for example, proponents of 14-8 proposals, or vote-no campaigns, had begun filing statements with the SEC under 14a-6.

At that CLI, SEC counsel Ted Yu explained new Commission guidance that such voluntary filings were permissible, so long as there was disclosure that the filing was voluntary.

After that, Dipesh Bhattarai, Brian Blank, Tingting Liu, Kathryn Schumann-Foster, and Tracie Woidtke conducted a study of these 14a-6(g) filings.  I posted about their paper in 2022:

They find that a variety of institutional investors make these filings, including public pension funds (38%), union funds (26%), and other institutions, including hedge funds (22%).  The filings may be used to support shareholder proposals that are already on the ballot – and thus to exceed the 500-word limit for such proposals – and to oppose management proposals, such as director nominations and say-on-pay.  And these filings are taken seriously: 74% of them are accessed by a major investment bank, and they appear to have an effect on voting outcomes and forced CEO turnover.

So this is fascinating.  The rule, adopted in 1992, at least as I always understood it, was intended to ensure that all shareholders receive the same information, and to allow that information to be publicly vetted, so that large shareholders can’t lobby others in secret (and away from management prying eyes).  But with modern computerized filings, the rule has been, functionally, hacked, to serve as a low-cost mechanism by which shareholders can communicate with other shareholders – and shareholders find it useful.  That’s a good thing…

Apparently, too much of one, because proxy exempt solicitations have proliferated, sometimes filed not by the shareholder-proponent of a proposal, but instead by organizations that support or oppose it.

So, in one of the first acts of the SEC under the new administration, the SEC has issued new guidance that will, as far as I can tell, severely curtail or eliminate the use of exempt solicitations.  According to the new guidance,

Question: Can a person submit written soliciting material under the cover of a Notice of Exempt Solicitation on EDGAR if the written soliciting material has not been sent or given to security holders?

Answer: No. The submission of a Notice of Exempt Solicitation on EDGAR is not intended to be the means through which a person disseminates written soliciting material to security holders. Rather, its purpose is to notify the public of the written soliciting material that the person has sent or given to security holders through other means.

Meaning, as far as I can tell, EDGAR can no long be used for low-cost distribution; shareholders have to go to the expense of actually distributing the material separately before it can be filed with EDGAR for a 14a-6(g) distribution (though it is not clear how many others must be separately solicited).  There are some other tweaks (discussed in various firm client memos, including this one from Gibson Dunn (h/t thecorporatecounsel)), but that seems to be the bombshell.

I can believe that the process has become too crowded – especially to the extent it’s been used by nonshareholders and to offer statements that do not constitute “solicitations” – but it seems we’ve just lost a valuable method by which dispersed shareholders can communicate with each other.

And another thing.  New Shareholder Primacy podcast is up!  This week, Mike Levin talks to Adriana Robertson of U Chicago and Slava Fos of Boston College about ways companies control and sometimes manipulate annual shareholder meetings.  Available here at Spotify, here at Apple, and here at YouTube.