SEC Releases Staff Legal Bulletin of Shareholder Proposal



On November 3, 2021, the Division of Corporation Finance (“Corp Fin”) of the United States Securities Exchange Commission (“SEC”) released the Shareholder Proposals: Staff Legal Bulletin No. 14L (CF) (the “SLB”) to provide information to companies and shareholders on Corp Fin’s updated views regarding certain sections of Rule 14a-8 under the Securities Exchange Act of 1934. SLB Cancels Legal Bulletins Staff 14I, 14J and 14K (the “Prior SLBs”) who provided advice on excluding ESG-related shareholder proposals from proxy statements using the “economic relevance” exception under Rule 14a -8 (i) (5) and the ordinary business exception under Rule 14a-8 (i) (7). Past SLBs have focused on assessing whether a specific proposal raises a sufficiently important policy issue for the business of the company. Instead, the SLB says SEC staff will focus on “the social policy importance of the issue” rather than examining the impact or lack of the policy issue on the company. specific.

Under the new SLB guidelines, the SEC appears to be less receptive to excluding proposals that could arguably have a broad societal impact, such as those related to ESG. We expect that the effect of SLB will result in an increase in the number of ESG-related proposals.

Rule 14a-8 (i) (5)

Rule 14a-8 (i) (5) allows a company to exclude a shareholder proposal if it “relates to transactions which represent less than 5% of the total assets of the company at the end of its term. most recent fiscal year, and for less than 5 percent of its net income and gross sales for its most recent fiscal year, and is not otherwise significantly related to the business of the business. As part of the SLB, Corp Fin will revert to its pre-November 2017 approach, in which “proposals that raise general social or ethical issues related to the business of the company cannot be ruled out, even if the The activity concerned falls below the economic thresholds of Rule 14a-8 (i) (5). A company will no longer be expected to provide the SEC with a board analysis in connection with related no-action requests.

Rule 14a-8 (i) (7)

Rule 14a-8 (i) (7) allows a company to exclude a shareholder proposal from the company’s proxy statement that “deals with a matter relating to the ordinary business operations of the company”.

Important social policy exception

A business cannot exclude a proposal under the Ordinary Business Exception if it relates to an important social policy issue. For there to be a significant social policy problem, previous Corp Fin guidelines required that there be a link between a company’s operations and social policy, but Corp Fin found that this approach resulted in determinations. company-specific evidence that were time consuming and that “didn’t produce consistent and predictable results.” Under SLB, Corp Fin “will instead focus on the social policy importance of the issue that is the subject of the shareholder proposal” and “whether the proposal raises issues with broad societal impact, as they transcend the ordinary activities of the business. “As a result, a business will no longer be able to exclude proposals under the Ordinary Business Exception that do not have a direct link with the business but raise issues that have a broad societal impact. No-action requests will no longer require companies to provide the SEC with a related board analysis.


To determine whether the ordinary business exception applies, the SEC also examines whether the proposal micromanages the discretion of the company or the board of directors on complex matters. Corp Fin determined that its previous guidelines were too inclusive by finding limits on the discretion of the company or the board of directors as micromanaging. Under the SLB, Corp Fin “will focus on the level of granularity sought in the proposal and whether and to what extent this inappropriately limits the discretion of the board of directors or management.” Corp Fin will no longer agree with the exclusion of proposals that “allow investors to assess an issuer’s impacts, progress toward goals, risks or other strategic issues appropriate for shareholder input.” whether it allows for discretion in how the company achieves these goals.

Letter of proof of ownership

Rule 14a-8 (b) requires that a promoter of a shareholder proposal prove that it has “continuously held” a required amount of securities in the company for a required period of time. Corp Fin clarified in the SLB that a company should not exclude a shareholder proposal for technical reasons if it has received “documentary support sufficiently demonstrating the minimum required ownership requirements”.

Using e-mail

With the increased use of email to submit shareholder proposals, Corp Fin suggested in the SLB that:

  • If a company does not provide an email address where proposals can be sent in its proxy statement, proposers should contact companies to request the appropriate email address for submitting proposals, and companies should comply to these requests; and

  • promoters request, and companies provide, an email acknowledgment response when a shareholder proposal is emailed.

Copyright © 2021 Womble Bond Dickinson (US) LLP All rights reserved.National Law Review, Volume XI, Number 310


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