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Further to this week's and last week's Riches posts, the most prominent aspect of Staff's welcome, albeit potentially challenging to implement, new shareholder proposal guidance is the expected extent of board involvement in the Rule 14a-8(i)(7) ("ordinary business") and 14a-8(i)(5) ("relevance") proposal vetting process and, relatedly: (i) how companies should demonstrate in their no-action requests the board's analysis of the particular issues raised by the proposals - inclusive of detail on specific board processes, and (ii) the associated board time commitment and regulatory timing compliance logistics challenges - particularly for those companies targeted with numerous proposals.

As a reminder, the guidance calls for the company to include in its no-action requests for those particular Rule 14a-8 exceptions a discussion that reflects the board’s analysis "of the particular policy issue raised and its significance" (as to 14a-8(i)(7) requests) or "of the proposal’s significance to the company" (as to 14a-8(i)(5) requests). The guidance additionally notes that the explanation "would be most helpful if it detailed the specific processes employed by the board to ensure that its conclusions are well-informed and well-reasoned." The guidance doesn't further articulate Staff's expectations about the board's process, or the scope or level of detail about the process to be disclosed in the company's no-action requests.

To the rescue! Shearman & Sterling's "SEC Staff Gives Company Boards Central Role in 14a-8 ‘Ordinary Business’ and ‘Economic Relevance’ Exclusions" addresses these first impression issues head-on with these sound suggestions:

What Do Boards Need to Do?

This new dynamic will certainly draw boards more directly into the shareholder proposal process. What the Staff expects to see from boards in terms of the process employed will become clear over time. The following are steps that a board should consider in demonstrating that a company has engaged in “specific processes” to evaluate the subject matter of a proposal:

Review past board work. Has the board considered the subject matter of the proposal before? If the board, in another context, has considered the policy issue or whether the issue in question is significantly related to the company’s business, the board should be able to rely on the analysis it has done in the past. We would recommend, however, that the board, where appropriate, refresh the analysis with some of the steps identified below and, at the very least, address the topic as a board or a committee of the board in the context of the shareholder proposal.

Consider prior shareholder and stakeholder engagement. Have shareholders raised the subject matter of the proposal directly to the company? Are these issues on which institutional shareholders have expressed views on broadly? Have the issues in the shareholder proposal been raised by customers, employees or by the communities in which the company operates? If so, the board should consider and assess the importance of these perspectives as part of its analysis.

Consider legislative, regulatory developments. Has the subject matter of the proposal been part of any legislative or regulatory activity? The board should consider the implication of those actions.

Consider peer companies and industry activity. The board should understand if and/or how its peers have considered the issue. In particular, the board should consider how peer companies addressed the same shareholder proposal. The board should also have an understanding if there are developing trends or best practices both among leading companies and industry peers.

As to the scope and level of detail about the board's processes to include in the company's no-action letter request, the firm suggests:

How much should you say about "specific processes" employed by the board? We will learn over time what the Staff is expecting with respect to a discussion of the specific processes it has employed in assessing the issues presented in the shareholder proposal, but, for now, we would expect that any no-action request should include a discussion of the process the board employed to evaluate the issue, the factors it considered in making its determination and the determination itself. We do not believe that “specific processes” entails a description of the inner workings of a board itself, including the dates on which it met and the topics and decisions covered. A more general description of the board processes that demonstrates thorough consideration, along with conclusions drawn may, however, be required so that the Staff can comfortably defer to the board’s assessment. Companies should consider the level of detail included in a no-action request as these disclosures will quickly become public disclosures of how the board operates.

The memo also reiterates key considerations raised by others, including delegating the proposal vetting process to a properly constituted board committee in lieu of the full board to help manage board time commitment and regulatory timing compliance concerns (see, e.g., Sullivan & Cromwell, Ropes & Gray), and the yet-to-be-determined role of past Staff interpretations and company peer practices and degree of deference Staff will grant to the board's judgment in its evaluation of future no-action requests (see, e.g., Davis Polk, Bryan Cave).