Public companies navigating the 2025 proxy season just got some breathing room—at least when it comes to excluding certain shareholder proposals. Last week, the Staff of the SEC’s Division of Corporation Finance—in a significant shift—issued Staff Legal Bulletin 14M (“SLB 14M”), rolling back its prior guidance from Staff Legal Bulletin 14L (“SLB 14L”), which made it markedly easier for shareholders to put certain environmental and social proposals to a vote at annual meetings under Rule 14a-8. This latest move by the SEC reinstates its case-by-case process for evaluating shareholder proposals that companies wish to exclude. Companies will now have more flexibility in requesting “no-action” relief from the SEC, meaning the agency may not recommend enforcement action against the company for omitting a proposal from its proxy statement.
Quick Refresher: 14a-8 Proposals
Under Rule 14a-8 of the Securities Exchange Act of 1934, public company shareholders can submit proposals for inclusion in the company’s proxy statement, to be voted upon at the company’s annual shareholder meeting. These proposals—which in recent years have addressed environmental, social, and governance issues—often deviate from the preferences of companies’ boards of directors or other shareholders. Accordingly, companies may seek to exclude a 14a-8 proposal if the substance of the proposal relates to certain grounds for exclusion enumerated in Rule 14a-8(i), such as personal grievances, “ordinary business” matters, or matters that are not “economically relevant” to the company. The SEC’s no-action letter procedure provides companies guidance as to whether such an exclusion is permissible.
What’s Changing?
SLB 14M reverses course on two of the most commonly relied upon bases for excluding shareholder proposals:
The “Economic Relevance” Exclusion: Rule 14a-8(i)(5)
Under Rule 14a-8(i)(5), a company is permitted to exclude a shareholder proposal that (1) relates to operations which account for less than 5% of the company’s total assets at the end of its most recent fiscal year, and for less than 5% of its net earnings and gross sales for its most recent fiscal year and (2) is not otherwise significantly related to the company’s business.
In SLB 14L, the Staff stated proposals that raise issues of “broad social or ethical concern” related to the company’s business may not be excluded, even if the operations in question fall below the thresholds set forth in the rule. Because of this interpretation, no-action relief was often denied when shareholder proposals reflected social or ethical issues, rather than economic concerns, raised by the company’s business—no matter how small the operations were.
The Staff’s guidance in SLB 14M discards that approach in favor of a case-by-case standard that considers the specific circumstances of the company when evaluating exclusionary arguments based on “economic relevance.” The new guidance provides that proposals that raise issues of social or ethical significance may be excludable “notwithstanding their importance in the abstract.” Additionally, SLB 14M clarifies that when analyzing whether a proposal is “otherwise significantly related” to the company’s business under Rule 14a-8(i)(5), the Staff will not look to its analysis under the Rule 14a-8(i)(7)—the “ordinary business” exception—as it had occasionally done in the past.
The “Ordinary Business” Exclusion: Rule 14a-8(i)(7)
Under Rule 14a-8(i)(7), a company may exclude shareholder proposals that deal with the company’s “ordinary business operations”—the rationale being that management’s ability to run the company should not be impeded nor subject to direct shareholder oversight. Put simply, the “ordinary business” exclusion aims to prevent companies from being “micromanaged” by shareholders.
Traditionally, the Staff generally concurred that matters like workforce turnover, employee safety, or content of employee training materials relate to—and do not transcend—ordinary business so as to warrant a shareholder vote. When the Staff issued SLB 14L in 2021, however, it adopted an expansive view of “significant social policy,” noting that exclusion is inappropriate where proposals raise issues of broad social impact that transcend ordinary company business, such as climate change or emissions reporting. SLB 14L was widely seen as creating an “open season” for shareholder proposals; indeed, during the 2022 proxy season after SLB 14L’s issuance, proposals concerning environmental topics increased over 50%.
With SLB 14M, the SEC returns to its historical framework and will employ a company-specific approach in evaluating the significance of shareholder proposals. Instead of focusing solely on whether a proposal raises a policy issue that is universally “significant,” it will focus on whether the proposal deals with a matter relating to the particular company’s ordinary business operations. As a result, a policy issue that is significant to one company may not be significant to another. Further, the Staff reiterated its previous stance that proposals that involve “intricate detail, or seek to impose specific time-frames … for implementing complex policies” can be excluded on the basis of micromanagement.
What SLB 14M Means for Companies & Next Steps
- The SEC’s decision to refocus the “economic relevance” exclusion under Rule 14a-8(i)(5) on the original intent of the rule means companies will now be able to rely on this basis for exclusion on its own, rather than having it be tied to the availability (or unavailability) of the “ordinary business” exclusion under Rule 14a-8(i)(7).
- The narrowing of the application of the social policy exception to the “ordinary business” exclusion under Rule 14a-8(i)(7) means that proposals about issues of broad social impact may nevertheless be excludable if they are not significant to that particular company.
With proxy season underway, companies should review any pending no-action requests to determine whether a new or supplemental argument for excluding a shareholder proposal would be beneficial under Rules 14a-8(i)(5) and (i)(7).
