On February 12, the Staff (Staff) at the Securities and Exchange Commission (SEC) issued Staff Legal Bulletin No. 14M (SLB 14M). Among other matters, SLB 14M rescinds Staff Legal Bulletin No. 14L (SLB 14L) and reinstates earlier guidance on the exclusion of shareholder proposals under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (Exchange Act). SLB 14L was generally considered more shareholder-friendly.
For example, during the 2022 proxy season following the issuance of SLB 14L in November 2021, the number of shareholder proposals submitted to companies increased significantly, while the overall success rate for no-action requests decreased significantly from the prior two years. See our prior blog post on SLB 14L.
Summary of SLB 14M
A summary of some of the changes from SLB 14M is outlined below:
- Back to a company-specific standard. Reinstates a company-specific approach to determine: 1) whether the subject matter of a proposal is “not otherwise significantly related to the company” under the economic relevance standard under Rule 14a-8(i)(5); and 2) when determining the significance of a policy issue raised by a shareholder proposal for purposes of the ordinary business exclusion under Rule 14a-8(i)(7). Under now-rescinded SLB 14L, the determination of whether a shareholder proposal focused on a significant policy issue was based on whether the policy issue was associated with a broad societal impact regardless of whether there was a nexus between the policy issue and the company. SLB 14M reverts to the pre-SLB 14L analysis, which takes a company-specific approach to evaluating significance such that whether a policy issue transcends a company’s day-to-day business matters will be evaluated pursuant to the individual company’s circumstances.
- Bolsters the economic relevance exclusion. Opens the possibility to exclude proposals that may relate to a company’s operations but that are not economically or otherwise significant to the company.
- Reaffirms the micromanagement exclusion. SLB 14M reaffirms the Staff’s analysis under Rule 14a-8(i)(5) on the shareholder proposal’s significance to the company’s business. While proponents may continue to raise social or ethical issues in their arguments, they will now need to tie those issues to a significant effect on the company’s business.
- No board analysis required. Advises that company no-action requests under Rules 14a-8(i)(5) and 14a-8(i)(7) need not include a discussion reflecting the board of directors’ analysis of whether and how the particular policy issue raised in a shareholder proposal is not significant to the company, although a company may submit a board analysis if it believes the analysis will be helpful.
- Restating other prior guidance. Restates prior Staff guidance on the use of email for submission of proposals, delivery of deficiency notices, and responses (encouraging a bilateral use of email confirmation receipts by companies and shareholder proponents alike).
Next Steps
The Staff has stated that it will consider the guidance in place at the time it issues a response when making a no-action determination on the exclusion of a shareholder proposal. Therefore, for the current proxy season:
- Companies that have submitted no-action requests prior to the publication of SLB 14M are permitted to raise new legal arguments by submitting supplemental correspondence via the SEC’s online portal.
- A company may submit a new no-action request notwithstanding that its deadline for submitting a no-action request has passed if the legal arguments in the request relate to SLB 14M. In those circumstances, the Staff will consider the publication of SLB 14M to be “good cause” for making a late request.
- Companies should submit new requests as soon as possible, with consideration for the print deadline for their definitive proxy statements, as well as giving proponents the opportunity to provide supplemental correspondence in response to the new request.
