The U.S. Securities and Exchange Commission (SEC) released its Shareholder Proposals: Staff Legal Bulletin 14J on Rule 14a-8 earlier this week (available here), following its November 2017 Staff Legal Bulletin 14I (available here and discussed here).
This most recent Staff Legal Bulletin provides additional guidance on the types of board analysis that a company may provide to support a conclusion that a shareholder proposal can be excluded from the company’s proxy statement pursuant to the “ordinary business” exclusion under Rule 14a-8(i)(7), particularly on the basis that a shareholder proposal seeks to “micromanage” a company, or may be excluded on the basis that the proposal is not significantly related to the company’s business under Rule 14a-8(i)(5).
The bulletin highlights the following factors for evaluating whether a proposal is significant to a company’s business for this purpose. These factors are non-exclusive and not all are necessary to support a decision to exclude a shareholder proposal:
- the extent to which the proposal relates to the company’s core business activities
- quantitative data, including financial statement impact, related to the matter that illustrate whether or not a matter is significant to the company
- whether the company has already addressed the issue in some manner, including the differences – or the delta – between the proposal’s specific request and the actions the company has already taken, and an analysis of whether the delta presents a significant policy issue for the company
- the extent of shareholder engagement on the issue and the level of shareholder interest expressed through that engagement.
- whether anyone other than the proponent has requested the type of action or information sought by the proposal
- whether the company’s shareholders have previously voted on the matter and the board’s views as to the related voting results.
The latest bulletin also expands on prior guidance by discussing considerations specific to excluding executive or director compensation shareholder proposals under the Rule 14a-8(i)(7) ordinary business exclusion, including discussion of “golden parachute” compensation arrangements that may arise in merger transactions. Notably, this bulletin indicates that the SEC Staff will be more receptive to excluding the director and executive compensation shareholder proposals on the basis that they seek to “micromanage” the company.