As reported in yesterday's Society Alert, the SEC’s Division of Corporation Finance released new guidance – SLB 14L – on shareholder proposals that rescinds SLBs 14I, 14J, and 14K (which we previously reported on here, here, and here, respectively), as well as any provisions of other prior Corp Fin guidance that may be viewed as inconsistent with the new guidance.
In making exclusion determinations under Rule 14a-8(i)(7), the ordinary business exception, the staff will no longer address the significant social policy exception in a company-specific context but rather will consider the social policy significance raised by the proposal generally based on “whether the proposal raises issues with a broad societal impact, such that they transcend the ordinary business of the company,” thus eliminating the need for companies to include (or consider including) a board analysis in their no-action requests.
The application of the micromanagement prong of the ordinary business exception will (among other things) be focused on the “level of granularity sought in the proposal and whether and to what extent it inappropriately limits discretion of the board or management,” rather than what the guidance suggests was an overbroad (in favor of management) interpretation of micromanagement in past no-action determinations. Further, staff may consider factors such as “the sophistication of investors generally on the matter, the availability of data, and the robustness of public discussion and analysis on the topic,” as well as other resources available to shareholders (e.g., national or international frameworks), in evaluating whether the proposal delves into matters that are too complex for shareholders to weigh in.
In making determinations under Rule 14a-8(i)(5), the economic relevance exception, exclusion of proposals that “raise issues of broad social or ethical concern related to the company’s business” won’t be excludable notwithstanding the 5% of operations/net earnings/gross sales thresholds. As such, companies need no longer include or consider including a board analysis in these no-action requests.
The new guidance also encourages certain practices when using email for proposal submissions and subsequent company and shareholder deficiency responses, and effectively reiterates guidance in SLB Nos. 14I and 14K relating to the use of graphics and images and proof of ownership letters.
In response, SEC Commissioners Hester Peirce and Elad Roisman expressed dismay and bewilderment about the bases for the new guidance and asserted that it will only serve to make the analyses under Rule 14a-8 more challenging.
See SEC Chair Gary Gensler’s statement. We are posting law firm memos and other resources about this new guidance real-time on our Shareholder Proposals page.