Blogs

Further to yesterday's Riches post and the SEC Staff's November 2017-issued SLB No. 14I, this post summarizes the new shareholder proposal guidance issued yesterday in the form of this Staff Legal Bulletin No. 14J, which imparts Corp Fin's views on:

• Board analyses provided in no-action requests that seek to rely on Rules 14a-8(i)(5) (economic relevance exception) or 14a-8(i)(7) (ordinary business exception) as a basis to exclude shareholder proposals;
• Scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
• Scope and application of Rule 14a-8(i)(7) for proposals that touch upon senior executive and/or director compensation matters.

As to the board analyses, the SLB makes it clear that it is voluntary, and that its inclusion or absence won't be dispositive - but that it can be helpful - in Staff's no-action request evaluation. Based on the 2018 proxy season, the SLB states: "The discussions we found most helpful focused on the board’s analysis and the specific substantive factors the board considered in arriving at its conclusion. Less helpful were those that described the board’s conclusions or process without discussing the specific factors considered."

The SLB indicates that a well-developed discussion of the board's analysis may include the following factors, but that this list is not exclusive or exhaustive, nor does a board analysis need to address each of these factors - provided, however, that Staff will expect a board discussion to address the shareholder voting results for any matters that have previously been voted upon (as further discussed in the SLB):  

• The extent to which the proposal relates to the company’s core business activities.
• Quantitative data, including financial statement impact, related to the matter that illustrate whether or not a matter is significant to the company.
• Whether the company has already addressed the issue in some manner, including the differences – or the delta – between the proposal’s specific request and the actions the company has already taken, and an analysis of whether the delta presents a significant policy issue for the company.
• The extent of shareholder engagement on the issue and the level of shareholder interest expressed through that engagement.
• Whether anyone other than the proponent has requested the type of action or information sought by the proposal.
• Whether the company’s shareholders have previously voted on the matter and the board’s views as to the related voting results.

With respect to proposals that raise both ordinary business and senior executive and/or director compensation matters, the SLB makes clear that it looks to the substance rather than the form of the proposal to evaluate excludability under Rule 14a-8(i)(7). For proposals that address aspects of senior executive and/or director compensation that are also available or applicable to the company's general workforce (general workforce compensation/benefits matters typically constituting "ordinary business"), the SLB indicates that Staff will take the following approach:    

• Proposals where the focus is on aspects of compensation that are available or apply only to senior executive officers and/or directors. Companies may generally not rely on Rule 14a-8(i)(7) to omit these proposals from their proxy materials.

• Proposals where the focus is on aspects of compensation that are available or apply to senior executive officers, directors, and the general workforce. Companies may generally rely on Rule 14a-8(i)(7) to omit the proposal from their proxy materials.

Staff will also apply its same approach to the micromanagement prong of the ordinary business exception noted above to executive/director compensation proposals, i.e., executive and/or director compensation proposals seeking intricate detail or seeking to impose specific timeframes or methods for implementing complex policies may be excludable under rule 14a-8(i)(7).