As anticipated based on SEC staff remarks surrounding Corp Fin's recently announced Rule 14a-8 no-action process changes (reported on here), Corp Fin issued new shareholder proposal guidance yesterday in the form of SLB No. 14K, which further elaborates on the Rule 14a-8(i)(7) "ordinary business" exception themes addressed in SLBs Nos.14I (see here and here) and 14J (reported on here), and addresses no-action requests concerning Rule 14a-8(b)'s proof of ownership requirements.
A. Ordinary Business
I. Significant policy exception. The guidance delves into the applicability of the significant policy exception to "ordinary business" - explaining that staff takes a company-specific approach to its evaluation of whether an issue is significant in lieu of categorizing particular issues as universally significant. As such, when a proposal raises a policy issue that appears to be significant, a company’s no-action request should focus on the significance of the particular issue to the company's business operations.
A well-developed board analysis can assist staff's evaluation and support the company's position to exclude the proposal, particularly where the significance of the issue to the company is not apparent. The guidance focuses on two of the five non-exhaustive factors enumerated in SLB No. 14J as potentially relevant for inclusion in a board analysis:
- Delta analysis - SLB No. 14J suggested inclusion of a "delta analysis" for companies that have already addressed a proposal's policy issue in some manner. The new guidance explains that the most helpful delta analysis "clearly identifies the differences between the manner in which the company has addressed an issue and the manner in which a proposal seeks to address the issue and explains in detail why those differences do not represent a significant policy issue to the company." In contrast, "conclusory statements about the differences that fail to explain why the board believes that the issue is no longer significant are less helpful."
- Prior voting results - The guidance also identifies a number of unpersuasive arguments companies used this past season to seek to exclude proposals based on prior voting results, and explains that - where relevant - a more helpful analysis will include "a robust discussion that explains how the company’s subsequent actions, intervening events or other objective indicia of shareholder engagement on the issue bear on the significance of the underlying issue to the company." For example, a board analysis that explains how the company's post-vote shareholder engagement impacted the board's view about the issue's significance (to the company) and any actions taken in response to the proposal to address proponent concerns, may be helpful.
2. Micromanagement. In assessing micromanagement, staff evaluates whether the proposal as a whole (i.e., not just the "Resolved" clause) "seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board." The fact that a proposal is precatory doesn't impact staff's evaluation; rather, it is the level of the proposal's prescriptiveness, i.e., whether it effectively usurps board and management judgment and discretion. The guidance includes instructive examples from the most recent proxy season to illustrate this point.
B. Proof of ownership. Companies should not seek to exclude a proposal based on proof of ownership issues if the proponent provides sufficient support for the requisite ownership requirements in Rule 14a-8(b) even if the proof is not consistent with the format suggested (but not mandated) in SLB No. 14F.
See also these memos/posts from Wachtell Lipton and Cooley, and our prior report: "Rule 14a-8 No-Action Process Clarity." We will be posting additional information & resources real-time on our Shareholder Proposals page.