Staff Legal Bulletin No. 14J

Rule 14a-8 provides several options for a company to exclude proposals from its authorization documents. If a company isn`t entirely sure it can safely exclude a proposal to vote on at annual meetings, it sends a no-action letter to SEC employees. The Company wants to know if employees agree with the Company and that it will not recommend enforcement action in the event of a violation of securities laws. And SLB No. 14L deals with Rule 14a-8(i)(7), the exception for ordinary businessmen, and Rule 14a-8(i)(5), the exception for economic relevance. As the content of each proposal and deficiency request varies, this bulletin focuses on procedural issues common to corporations and shareholders. However, we also cover some topics that are of interest to companies and shareholders. With new interpretations, staff stated that some proposals that were previously excluded are no longer allowed to do so under the rules. Related information: The statements contained in this legal bulletin reflect the views of the Corporate Finance Division. This bulletin is not a rule, regulation or statement of the Securities and Exchange Commission. Moreover, the Commission neither approved nor rejected its content. The suitability test in Rule 14a-8(i)(5) allowed a corporation to exclude a shareholder proposal if the proposal concerned matters that were not relevant to the corporation`s business. In quantitative terms, this meant that a company could exclude a proposal related to transactions representing less than five percent of the company`s balance sheet, turnover and net profit.

In these cases, staff would then determine whether the purpose of the proposal is relevant to the entity because of its importance to the activities of the individual entity rather than its overall social or economic significance. [18] See Battle Mountain Gold Company (February 13, 1992); see also Press Release No. 34-30851 (23 June 1992) (The Commission noted that “earlier this year, the Commission services began requiring companies to include in their proxy circulars proposals submitted by shareholders pursuant to rule 14a-8 on executive compensation. While these resolutions are advisory in nature, they allow shareholders to contribute directly to the Board`s compensation decisions. In recent years, the number of shareholder proposals on environmental and social policy issues has increased. SLB 14L removes the need to demonstrate a link between the “significant social policy” reflected in the shareholder proposal and the company concerned, increasing the challenge for companies wishing to exclude such proposals under Rule 14a-8(i)(7). The effect of SLB 14L is to give employees greater flexibility to view the “broader societal impact” of a political issue as a priority, especially if the particular political issue is an important part of public discourse. This has been the case in recent years on climate and diversity issues, which have been championed by many large institutional investors and other investor groups, as well as non-governmental organizations, independent non-profit organizations, trade unions, and in some cases even stock exchanges and state governments. All three tests required employees to perform a time-consuming, factual analysis of the company`s activities and the purpose of the proposal. Staff Legal Bulletin No. 14L states that the nature of these reviews depended in part on whether the company had provided a full factual discussion and could lead to conflicting results. In SLB No.

14I, the Division dealt with the scope and application of Rule 14a-8(i)(5), the “economic relevance” exception, and Rule 14a-8(i)(7), the “ordinary business” exception. In particular, the Bulletin noted that the assessment of whether a proposal raises an issue that, in the case of Rule 14a-8(i)(5), “is otherwise significantly related to the activities of an entity” or, in the case of Rule 14a-8(i)(7), goes beyond ordinary commercial matters, often raises difficult judgements which, in the view of the Division, are issues that the Executive Board is generally well placed to analyse. To assist staff in reviewing these types of non-action requests, the Bulletin encouraged entities to include in their non-action requests a discussion that reflects the Commission`s analysis of the specific policy issue raised by the proposal and its relevance to the entity. For example, the new bulletin indicated that previous bulletins extended the concept of micromanagement beyond the Commission`s guidelines. 3. In November 2021, employees of the U.S. Securities and Exchange Commission, Division of Corporation Finance (the “Division Employees”) issued Personnel Legal Bulletin No. 14L (CF) (“SLB 14L”) repealing Staff Legal Bulletin Nos. 14I, 14J and 14K (the “Repealed CLLs”) and noting that the Division`s staff, when assessing no-action requests to exclude shareholder proposals under Rule 14A-8: which address important social policy issues, would take a more shareholder friendly approach. In SLB 14L, IMF staff note that the guidance contained in SLB 14K has had the effect of placing undue emphasis on assessing the importance of a policy issue to a particular entity, to the detriment of whether the proposal focuses on meaningful social policy. ». In support of its position, IMF staff asserts that these entity-specific analyses “have not produced consistent and predictable results.” The tabling of a board analysis is voluntary, and the inclusion or absence of an analysis will not be determinative in staff`s assessment of an entity`s application.

Staff will also consider the proponent`s analysis on this issue. The decision as to whether we agree that a proposal can be excluded “will be made on a case-by-case basis, taking into account factors such as the nature of the proposal and the situation of the company to which it is addressed.” [3] Therefore, a proposal with which staff agree cannot be excluded for an entity; Conversely, a proposal which cannot be excluded by one undertaking would not be decisive as to whether it could be excluded by another.