As previously reported in the Corporate and Financial Weekly Digest edition of October 30, 2015, the Securities and Exchange Commission’s Division of Corporation Finance (“Division”) issued Staff Legal Bulletin No. 14H (SLB 14H) on October 22, 2015. SLB 14H established a new standard for determining when a shareholder proposal conflicts with a company proposal (providing that a direct conflict would exist if a reasonable shareholder could not logically vote for both proposals) and therefore may be excluded from the company’s proxy statement under Rule 14a-8(i)(9).

On March 18, the Division issued its first no-action letter under the new standard detailed in SLB 14H, granting no-action relief to Illumina, Inc. Specifically, the Division stated that it would not recommend any enforcement action if Illumina excluded a shareholder proposal (proposed by corporate governance activist John Chevedden) requesting that the board take steps to ensure each voting requirement in the company’s charter and bylaws that requires greater than a simple majority vote be eliminated and replaced by a requirement for a majority of the votes cast for and against the applicable proposal, or a simple majority in compliance with applicable laws.

In granting no-action relief, the SEC noted that the shareholder proposal directly conflicted with management’s proposal seeking shareholder support for the retention of certain provisions in Illumina’s charter and bylaws that require a vote of 66 ^2/3 percent of the company’s outstanding common stock, because a reasonable shareholder could not logically vote in favor of both proposals. Accordingly, the SEC determined there appeared to be a basis for Illumina to exclude the proposal under Rule 14a-8(i)(9). In granting no-action relief to Illumina, the SEC may have encouraged a strategy whereby a company puts forth its own proposal that intentionally directly conflicts with a shareholder proposal in order to prevent the shareholder proposal from being considered.

The complete text of no-action letter is available here.