In remarks earlier this month to the Council of Institutional Investors, Corp Fin director Renee Jones discussed Corp Fin’s reevaluation of the no-action process for shareholder proposals under Rule 14a-8. In particular, she provided some insight into the staff’s issuance, in November 2021, of new Staff Legal Bulletin No. 14L, which outlined Corp Fin’s most recent interpretations of Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception, and rescinded three earlier SLBs—SLBs 14I, 14J and 14K—following a “review of staff experience applying the guidance in them.” Generally, new SLB 14L presented its approach as a return to the perspective that historically prevailed prior to the issuance of the three rescinded SLBs. (See this PubCo post.) The effect of SLB 14L was to make exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies, smoothing the glide path for inclusion of proposals submitted by climate and other activists. Jones explains why Corp Fin believed that SLB 14L was advisable. She also shares some statistics about the current proxy season.
Just in time for proxy season, the Corp Fin staff has issued a new Staff Legal Bulletin 14K on—what else—shareholder proposals and the “ordinary business” exclusion. The SLB attempts, once again, to provide some insight—following SLB 14I (see this PubCo post) and SLB 14J (see this PubCo post) which also address the “ordinary business” exclusion— regarding the staff’s interpretation of Rule 14a-8(i)(7), including:
company-specific significance of policy issues;
board analyses submitted in no-action requests to demonstrate that a policy issue raised by the proposal is not significant to the company; and
the application of “micromanagement” as a basis to exclude a proposal under Rule 14a-8(i)(7). Notably here, the staff attempts to explain the thinking behind its treatment of various climate change proposals submitted last proxy season.
In addition the SLB addresses “proof-of-ownership” letters.
Micromanagement? Significant policy issue? Staff no-action letters address Rule 14a-8(i)(7) exclusion
What seems to be the Rule 14a-8 exclusion du jour? My vote goes to Rule 14a-8(i)(7), the “ordinary business” exclusion—sort of a perpetual home renovation project for the staff. As you may recall, in Staff Legal Bulletins 14H, 14I and 14J issued over the last few years, the staff has addressed the scope and application of the exclusion—specifically the “significant policy exception,” the need for a board analysis, “micromanagement” as a basis for exclusion and the availability of the exclusion in the context of executive comp. (See this PubCo post, this PubCo post and this PubCo post. Some recent no-action letters related to use of the exclusion in connection with executive comp are discussed in this PubCo post.) Some of the staff’s most recent guidance has been viewed to expand the potential for companies to rely on the exclusion, and a slew of letters addressing requests for no-action relief under Rule14a-8(i)(7) has recently been posted. Not surprisingly, many of the proposals address current topics in the news: climate change, sexual harassment and mandatory employee arbitration, allocation of corporate tax savings, and even immigrant detention. As BlackRock CEO Laurence Fink has previously observed, in the face of political dysfunction “and the failure of government to provide lasting solutions, society is increasingly looking to companies, both public and private, to address pressing social and economic issues.” (See this PubCo post.) To provide a flavor of current trends, this post discusses several of these letters below.
In October last year, Corp Fin issued a new staff legal bulletin on shareholder proposals, 14J, that examined the exception under Rule 14a-8(i)(7), the “ordinary business” exception, addressing, among other topics, the application of the rule to proposals related to executive or director comp. Post-shutdown, Corp Fin has now posted several no-action responses that consider the exception in that context. Do they provide any color or insight?
NYC Comptroller goes straight to court to compel inclusion of shareholder proposal—is this the Comptroller’s new normal?
Post-shutdown, the SEC is starting to catch up on no-action requests to exclude shareholder proposals, posting several new entries at the end of last week. While most of the responses reflected withdrawals of requests in light of withdrawal of the subject proposal, one of the more interesting withdrawal letters relates to a decision to include a shareholder proposal. The proposal, submitted by the New York City Employees’ Retirement System and other pension funds overseen by NYC Comptroller Scott Stringer, sought to have TransDigm Group Incorporated, a manufacturer of aerospace components, adopt a policy related to climate change. After the company sought no-action relief from the SEC staff—and notably well before the government shutdown and before the SEC had even responded to the company’s request—the proponent pension funds filed suit in the SDNY seeking to enjoin the company from soliciting proxies without including the shareholder proposal and declaratory relief that the exclusion of the proposal violated Section l4(a) and Rule l4a-8. Will the Comptroller use the same tactic of circumventing the traditional SEC process and commencing litigation for any proposal the pension funds submit in the future? Will going straight to court be the new normal?
On the heels of the release of SLB 14J, Corp Fin has posted a couple of new no-action letters that shed some more light on the “ordinary business” exclusion of Rule 14a-8(i)(7). As you may recall, in SLB 14J, the staff addressed the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal under Rule 14a-8(i)(7), as well as “micromanagement” as a basis for exclusion under that same Rule. Most impressive is that, in the response letters, the staff actually includes a sentence or two that provides some insight into the staff’s reasoning. If you recall, a request for more clarity from the staff was one of the comments raised at the SEC’s proxy roundtable, and the staff appears to have heard. (See this PubCo post.) Both of the letters were submitted in connection with proposals to Walgreens Boots Alliance.
New SLB 14J on shareholder proposals revisits the economic relevance and ordinary business exclusions
Corp Fin has just released a new staff legal bulletin on shareholder proposals—we’re up to 14J—that once again examines the exclusions under Rules 14a-8(i)(5), the “economic relevance” exception, and 14a-8(i)(7), the “ordinary business” exception. Notably, these rules were also the subject of SLB 14I. More specifically, the new SLB provides guidance with regard to the following:
the nature of the board analysis the staff would find most “helpful” in evaluating a no-action request to exclude a shareholder proposal,
“micromanagement” as a basis for exclusion under Rule 14a-8(i)(7) and
the application of Rule 14a-8(i)(7) to exclude proposals related to senior executive and/or director compensation matters.
On a webcast today, “Shareholder Proposals: Corp Fin Speaks,” presented by TheCorporateCounsel.net, Matt McNair, Senior Special Counsel in Corp Fin’s Office of Chief Counsel, provided some “soft” guidance regarding the implications of the recent SLB 14I on shareholder proposals, particularly the exclusions for “ordinary business” and “economic relevance.” (See this PubCo post.)
Just in time for the beginning of proxy and shareholder proposal season, Corp Fin has posted Staff Legal Bulletin No. 14I, Shareholder Proposals. The SLB addresses four issues:
the scope and application of Rule 14a-8(i)(7) (the “ordinary business” exclusion);
the scope and application of Rule 14a-8(i)(5) (the “economic relevance” exclusion);
proposals submitted on behalf of shareholders (shareholder proposals by proxy); and
the use of graphics and images consistent with Rule 14a-8(d) (the 500-word limitation).