(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Staff Reverses Position on Proxy Access Shareholder Proposal

The Division of Corporation Finance, upon the request of Walt Disney Co., has reconsidered its response in which it advised that the company could not omit a shareholder proposal asking the company to adopt a proxy access proposal that mirrors a pending SEC rule proposal. Alan Beller, the director of the division, said that upon reconsideration, it appears that there is a basis for the company's view that the shareholder proposal may be excluded under Rule 14a-8(i)(8), which allows the exclusion of proposals that relate to elections to the board of directors.

Martin Lipton, a partner in the New York office of Wachtell, Lipton, Rosen & Katz, wrote the request for reconsideration on behalf of the company. The shareholder proposal was submitted by the American Federation of State, County and Municipal Employees' pension plan, along with the California, New York and Illinois retirement and investment plans.

Mr. Lipton maintained that the staff's initial decision represented an "end run" around the SEC's rulemaking process. The staff position would allow a shareholder group to propose that a company become subject to a shareholder access procedure even though it is not currently known what the provisions of the SEC's proposed Rule 14a-11 will be if it is adopted, according to Mr. Lipton. As a policy matter, he wrote, the SEC should not permit the established public rulemaking process and published releases to be evaded, nor should it permit the staff to provide an opinion to one company on such a vital corporate governance matter when it is still under deliberation by the Commission.

Mr. Lipton added that the staff decision is an unwarranted departure from recent precedent, given that the staff twice this year has permitted the exclusion of shareholder access proposals that differed from the SEC's proposed Rule 14a-11. AFSCME's proposal also differs from the SEC's proposal, he explained, and to allow its inclusion in the proxy would impermissibly create a shareholder nomination process that is different from the procedures outlined in proposed Rule 14a-11.

AFSCME argued that the staff had reasonably considered how to treat precatory proxy access proposals for 2005 annual meetings as part of the current rulemaking proposal. The company had argued that the proposal is not a direct access proposal because the proponents do not own more than one percent of the company's outstanding shares as required under the proposed rule. AFSCME countered that shareholder proposals would be binding if submitted by holders of more than one percent or nonbinding if submitted by shareholders who do not meet that test. The sponsors' proposal merely asks shareholders to express their views about the desirability of establishing the access right outlined in Rule 14a-11, according to AFSCME.

AFSCME also noted that, given the long delay since the SEC's rule was proposed, it made sense to allow shareholders to urge individual companies to adopt "shareholder-friendly innovations" in the proxy process based on the proposed rule. Even if their proposal receives a majority vote, AFSCME noted that it would remain the prerogative of the board to implement it.