SEC staff issues important guidance on shareholder proposals for the 2019 proxy season

On October 23, the SEC’s Division of Corporation Finance issued Staff Legal Bulletin No. 14J (CF) (SLB 14J) to provide new guidance on the application of the “ordinary business” and “economic relevance” exceptions to a public company’s obligation under Exchange Act Rule 14a-8 to include shareholder proposals in its proxy materials. The guidance will govern SEC staff action during the 2019 proxy season on company no-action requests seeking exclusion of shareholder proposals on the basis of these exceptions.

The Division’s new statement in part supplements guidance it issued in November 2017 in Staff Legal Bulletin No. 14I (CF) (SLB 14I), in which it solicited greater board-level involvement in a company’s exclusion determination under the ordinary business and economic relevance exceptions and encouraged companies in appropriate circumstances to discuss the board’s analysis in their no-action requests. The Division also provides insight in the new bulletin into how it approaches particular issues raised in exclusion determinations under the ordinary business exception. In its new guidance, the staff:

  • outlines circumstances in which it believes a discussion of the board’s analysis in an exclusion determination could support the company’s no-action request under the ordinary business and economic relevance exceptions;
  • identifies some of the specific substantive factors a board might consider in its analysis and that the company should describe in a “well-developed discussion” of the analysis in its no-action request;
  • describes the framework used by the staff to determine whether a proposal is excludable under the ordinary business exception because it seeks to “micromanage” the company; and
  • clarifies the scope and application of the ordinary business exception for proposals that “touch upon” senior executive or director compensation matters.
SLB 14J is the most recent in a line of staff legal bulletins in which the Division has provided guidance on the requirements of Rule 14a-8. This latest bulletin highlights the need for companies and proponents to be mindful of the staff’s evolving views of these requirements. SLB 14J can be found here.

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