On February 12, 2025, the U.S. Securities and Exchange Commission (the Commission) Division of Corporation Finance staff (the staff) issued Staff Legal Bulletin No. 14M (SLB 14M) to provide informal guidance on shareholder proposal matters under Securities Exchange Act Rule 14a-8. New SLB 14M rescinds SLB 14L, which was issued in 2021 to rescind three prior staff legal bulletins1 and, as a practical matter, reduced the ability of companies to exclude proposals, including under the ordinary business exclusion. The SLB 14M guidance intends to clarify the staff’s views on the scope and application of Rule 14a-8(i)(7) and Rule 14a-8(i)(5), address other aspects of the rule and process, and provide responses to questions that may arise given the timing of the guidance. The updated guidance will likely result in companies having greater success than they have in recent years when seeking no-action relief to exclude proposals from their proxy materials.
SLB 14M is particularly notable because it is unusual for the staff to issue a staff legal bulletin deep into the shareholder proposal season. In this regard, the staff provides implementation guidance for companies that may wish to provide supplemental correspondence to previously submitted no-action requests or submit new requests. The new guidance is discussed below.
Rule 14a-8(i)(7)—The Ordinary Business Exclusion
Rule 14a-8(i)(7) permits exclusion of a shareholder proposal that “deals with a matter relating to the company’s ordinary business operations.” The Commission has stated that the policy underlying the exclusion rests on two central considerations: 1) the proposal’s subject matter; and 2) the degree to which the proposal micromanages the company.
SLB 14M highlights the Commission’s prior statements regarding the relevant considerations for whether a matter relates to a company’s ordinary business operations, namely that:
- proposals raising matters that are “so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight” relate to a company’s ordinary business operations; and
- proposals relating to such matters but focusing on a significant policy issue generally are not excludable as ordinary business because the proposals “would transcend the day-to-day business matters and raise policy issues so significant that [they] would be appropriate for a shareholder vote.”
SLB 14M clarifies that, consistent with Commission statements, determinations as to whether a proposal deals with a company’s ordinary business operations are to be “made on a case-by-case basis, taking into account factors such as the nature of the proposal and circumstances of the company to which it is directed.” SLB 14M notes that the staff “will take a company-specific approach in evaluating significance rather than focusing solely on whether a proposal raises a policy issue with broad societal impact or whether particular issues or categories of issues are universally ‘significant.’” The guidance may result in companies finding more success on no-action requests seeking to exclude shareholder proposals that deal with ordinary business matters than they have in the past few years.
SLB 14M also notes that it is reinstating the staff’s previous guidance on micromanagement. A proposal may be excludable if it “prob[es] too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”2 A proposal may probe too deeply into matters of a complex nature if it “involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.”3
Rule 14a-8(i)(5)—The Economic Relevance Exclusion
Rule 14a-8(i)(5) permits exclusion of a shareholder proposal that “relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.” SLB 14M states that the staff’s analysis under Rule 14a-8(i)(5) will now “focus on a proposal’s significance to the company’s business when it otherwise relates to operations that account for less than 5% of total assets, net earnings and gross sales.” Proposals raising issues of social or ethical significance may be excludable, “notwithstanding their importance in the abstract,” and the analysis depends upon the particular circumstances of the company receiving the proposal. According to SLB 14M, if a proposal’s significance to a company’s business is not apparent on its face, a proposal may be excludable “unless the proponent demonstrates that it is ‘otherwise significantly related to the company’s business.’”
The guidance regarding the ordinary business and the economic relevance exclusions highlights the importance of a fact-specific and case-by-case basis analysis and reminds practitioners that these exclusions and their analytical frameworks should be viewed, and will be applied, separately.
Board Analysis
SLB 14M notes that beginning with SLB 14I and prior to SLB 14L, the staff encouraged companies to include a board analysis of the policy issue raised by a proposal and its significance to the company when submitting no-action requests under Rule 14a-8(i)(5) and Rule 14a-8(i)(7). Based on the staff’s experience, in most instances such analyses did not include the information the staff needed or did not have a dispositive effect on a no-action request. A company may submit a board analysis in support of its request, but the staff no longer expects a company to do so.
Other Matters
SLB 14M addresses several other topics that frequently vex companies dealing with Rule 14a-8 proposals, including the use of images in shareholder proposals, proof of ownership letters, and use of email between the company and shareholder proponent. For proof of ownership letters, the guidance clarifies that Rule 14a-8 does not require a company to send a second deficiency notice to a shareholder proponent if the company previously sent an adequate notice prior to receiving the proponent’s proof of ownership. This guidance may impact a company’s process in responding to shareholder proposals and considering whether to submit a no-action request.
Implementation of SLB 14M and What to Do Now
The timing of SLB 14M creates unusual complexity for those companies currently seeking no-action relief to exclude a shareholder proposal. SLB 14M notes that the staff will consider the guidance in place at the time it issues its response to a no-action request. A company with a pending no-action request may consider the guidance and submit supplemental correspondence to further explain its basis for an exclusion or submit a new basis. A company that is not seeking to raise new legal arguments does not need to resubmit its no-action request.
A company that did not previously submit a no-action request on a proposal but now believes, based on SLB 14M, that it may have a basis to exclude a proposal may submit a no-action request. SLB 14M explains that the staff will consider the publication of SLB 14M as “good cause” under Rule 14a-8(j)(1) if it relates to legal arguments made by a company based on the SLB. Thus, a company may seek no-action relief even if the submission would be made later than 80 days before the company files its definitive proxy statement. However, it should act quickly to provide as much time as possible for the staff’s consideration of the request. The guidance notes the staff will endeavor to respond prior to print deadlines but may be unable to do so depending on timing and volume.
[1] See Staff Legal Bulletin No. 14L (Nov. 3, 2021), Staff Legal Bulletin No. 14K (Oct. 16, 2019), Staff Legal Bulletin No. 14J (Oct. 23, 2018), and Staff Legal Bulletin No. 14I (Nov. 1, 2017), available at https://www.sec.gov/rules-regulations/staff-guidance/staff-legal-bulletins (last accessed on Feb. 13, 2025).
[2] See SEC Exchange Act Release No. 24-40018 (May 21, 1998).
[3] See SEC Exchange Act Release No. 24-40018 (May 21, 1998).
