Next Step in the Shareholder Proposal Process
By George Wilson
The CorpFin staff has provided two incremental sources of information and guidance dealing with shareholder proposals in the proxy process. On September 6, 2019, CorpFin published an “Announcement Regarding Rule 14a-8 No Action Requests” In this Announcement, CorpFin staff says:
The staff will continue to actively monitor correspondence and provide informal guidance to companies and proponents as appropriate. In cases where a company seeks to exclude a proposal, the staff will inform the proponent and the company of its position, which may be that the staff concurs, disagrees or declines to state a view, with respect to the company’s asserted basis for exclusion. Starting with the 2019-2020 shareholder proposal season, however, the staff may respond orally instead of in writing to some no-action requests.
The second development is Staff Legal Bulletin 14K issued on October 16, 2019. In the SLB CorpFin states:
The Purpose of this bulletin
This bulletin is part of a continuing effort by the Division to provide guidance on important issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding:
- the analytical framework of Rule 14a-8(i)(7);
- board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
- the scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
- proof of ownership letters.
Rule 14a-8 addresses shareholder proposals and paragraph (7) provides one of the ways that a shareholder’s proposal can be excluded by the company from its proxy statement:
(7) Management functions: If the proposal deals with a matter relating to the company's ordinary business operations
How to interpret this language and how much guidance the SEC staff will provide in this process has been evolving over time, and the announcement and SLB are the latest step in this process. It will likely continue to be a difficult process!
As always, your thoughts and comments are welcome!