The SEC rescinded Staff Legal Bulletin No. 14L and issued updated guidance on the exclusion of shareholder proposals under Rule 14a-8 and certain other aspects of Rule 14a-8.  

Economic Relevance Exclusion: The SEC staff will now focus on a proposal’s significance to a company’s specific business when it relates to operations accounting for less than 5% of total assets, net earnings, and gross sales, rather than the abstract social or ethical significance of an issue. Where significance is not apparent on its face, the proponent has the burden of demonstrating the proposal’s significance to the company’s business.  

The staff states that substantive governance matters are generally significant to “almost all companies.”  

• Key Takeaway: This change will help companies exclude environmental and social proposals, but not governance proposals. 

Ordinary Business Exclusion: Previously, proposals related to ordinary business matters but focusing on a significant policy issue were generally not excludable. The staff will now take a company-specific approach in evaluating significance rather than focusing solely on whether a proposal raises a policy with broad societal impact.  

The staff also reinstated the following guidance regarding micromanagement: Staff Legal Bulletin No. 14J Section C.2. Micromanagement; Staff Legal Bulletin No. 14J Section C.3. The Division’s application of Rule 14a-8(i)(7) to proposals that address senior executive and/or director compensation; and Staff Legal Bulletin No. 14K Section B.4. Micromanagement. 

• Key Takeaway: The staff’s new approach will likely make it easier to exclude proposals raising broad social or environmental issues. 

Timing/Effectiveness of Updated Guidance: The staff will consider the guidance in place at the time it issues a response.  

Previously submitted requests do not need to be resubmitted unless the company wishes to raise new arguments considering the updated guidance.  

In light of the new bulletin, the SEC will accept a no-action request this proxy season even if the prescribed deadline has already passed.  

Other Notable Updates

Use of Email/Proof of Delivery: When using email to submit proposals and make other communications, proponents and companies should request a reply email confirming receipt of the email. Screenshots or photos of emails are not sufficient proof of delivery. Generally, the burden to prove timely delivery is on the sender of the email.  

Proponents risk exclusion of their proposals if they do not receive a confirmation of receipt from the company.  

Proponents may start using standard mail, which provides proof of delivery, rather than email to submit proposals. Companies should make sure that a current physical address is listed for these submissions and regularly check their mail.  

Use of Graphics in Proposals: Shareholders may use graphics in their proposals, but any words in the graphics will count towards the 500-word limit. Graphics are subject to Rule 14a-8(i)(3).  

Board Analysis: The staff will no longer expect a no-action request to include a board analysis of the policy issue.  

Proposed Amendments to Rule 14a-8: The staff will not take into account the proposed amendments to Rule 14a-8 under the prior administration unless and until these amendments are formally adopted. 

This article is part of a Fenwick "Securities Law Update" authored by David A. Bell, Ran Ben-Tzur, Amanda Rose, Wendy Grasso, and Merritt Steele.