"Whereas Chemed Corp. is managed more like a private fiefdom than as a publicly-owned corporation, I suggest that the Board of Directors have a majority of outside members."
May a company exclude the above shareholder proposal from proxy materials under Rule 14a-8(i)(3) of the Securities Exchange Act of 1934? That rule permits exclusion of materials that are "contrary to any of the Commission's proxy rules, including Rule 14a-9 which prohibits materially false and misleading statements in proxy soliciting materials." Under Note (b) to Rule 14a-9, such statements include "material which directly or indirectly impugns character, integrity or personal reputation, or directly or indirectly makes charges concerning improper, illegal or immoral conduct or associations, without factual foundation."
According to the Staff of the SEC Division of Corporate Finance, substance, not form, governs. The Staff advised that the entire shareholder proposal could not be excluded from the proxy materials pursuant to Rule 14-a8(i)(3) of the Exchange Act. Rather, only the statement that the company was managed like a "private fiefdom" could be excluded as being "materially false or misleading" under Rule 14a-9, as it lacked factual foundation. The Staff thus stated that it would not recommend enforcement action to the Commission if only the "private fiefdom" language of the shareholder proposal were omitted, but that the remainder of the proposal should be included in the proxy materials.
Chemed Corp., 1998 WL 792510, S.E.C. No-Action Letter (available Nov. 16, 1998).