No-Action Letter Relief Issued: Berry Plastics Group, Inc. Substantially Implemented Proxy Access Bylaw Proposal
In Berry Plastics Grp., Inc., 2016 WL 6649050 (Dec. 14, 2016), Berry Plastics Group, Inc. (“Berry Plastics” or the “Company”) asked the staff of the Securities and Exchange Commission (the “SEC staff”) to permit the omission of a proposal submitted by Myra K. Young (“Shareholder”) requesting that Berry Plastics’s Board of Directors adopt an amendment to the Company’s bylaws to provide shareholders proxy access. The SEC staff issued the no-action letter allowing for the exclusion of the proposal under Rule 14a-8(i)(10).
Shareholder submitted a proposal requesting the following:
RESOLVED: Shareholders of the Berry Plastics Group (the “Company”) ask the board of directors to amend its bylaws or other documents, as necessary, to provide proxy access with essential elements for substantial implementation as follows:
1) Nominating shareholders or shareholder groups (“Nominators”) must beneficially own 3% or more of the Company’s outstanding common stock (“Required Stock”) continuously for at least three years and pledge to hold such stock through the annual meeting.
2) Nominators may submit a statement not exceeding 500 words in support of each nominee to be included in the Company proxy.
3) The number of shareholder-nominated candidates eligible to appear in proxy materials shall be one quarter of the directors then serving or two, whichever is greater.
4) No limitation shall be placed on the number of shareholders that can aggregate their shares to achieve the 3% of Required Stock.
5) No limitation shall be placed on the re-nomination of shareholder nominees by Nominators based on the number or percentage of votes received in any election.
6) The Company shall not require that Nominators pledge to hold stock after the annual meeting if their nominees fail to win election.
7) Loaned securities shall be counted as belonging to a nominating shareholder if the shareholder represents it has the legal right to recall those securities for voting purposes and will hold those securities through the date of the annual meeting.
Berry Plastics sought exclusion of the proposal from its proxy materials under subsection (i)(10) of Rule 14a-8.
Rule 14a-8 permits shareholders to include proposals in the company’s proxy statement. 17 C.F.R. 240.14a-8. Shareholders, however, must meet certain procedural and ownership requirements. Additionally, the Rule contains thirteen substantive grounds for exclusion. For a more detailed discussion of the requirements of the Rule, see The Shareholder Proposal Rule and the SEC.
Under Rule 14a-8(i)(10), a shareholder proposal may be excluded if the proposal has been substantially implemented. For a proposal to be considered substantially implemented, a company’s actions must have satisfactorily addressed the proposal’s underlying concerns and essential objective. A proposal need not be “fully effected,” however, to be deemed substantially implemented, but rather the company’s policies, practices, and procedures must compare favorably with the proposal’s guidelines. In regard to proposals relating to proxy access, where a company has not yet adopted a proxy access bylaw, its commitment to doing so suffices, so long as the company supplements its request for no-action relief by notifying the Staff that such action has been taken. For additional explanation of this exclusion, see Aren Sharifi, Rule 14a-8(i)(10): How Substantial is “Substantially” Implemented in the Context of Social Policy Proposals?, 93 Denv. L. Rev. Online 301 (2016).
Berry Plastics argued the proposal was substantially implemented and should be excluded under Rule 14a-8(i)(10) because the Board of Directors expected to adopt bylaw amendments that would provide for “a meaningful form of proxy access.” The Company recognized that the bylaw amendments would differ in certain respects from the proposal, namely the number of stockholders who could comprise of a “group” to meet the ownership threshold would be limited to twenty. Additionally, the number of stockholder nominated director candidates would be limited to two or twenty percent of the total number of directors, and a repeat nominee would be disqualified for re-nomination after receiving less than twenty-five percent of the total votes cast in either of the two most recent annual meetings. Berry Plastics’ Board of Directors subsequently approved the proxy access bylaws and provided the Staff with notice of such action, including a side-by-side comparison of the adopted bylaws and the proposal.
Shareholder declared it would not pursue the proposal further, but disagreed that it had been substantially implemented.
The SEC staff permitted Berry Plastics to omit the proposal in reliance on Rule 14a-8(i)(10) because the Company demonstrated that the Board of Directors had substantially implemented the proposal by adopting a proxy access bylaw that addressed the proposal’s essential objective.
The primary materials for this post may be found on the SEC website.