SEC staff issues new guidance on shareholder proposals involving social policy issues

SEC Update

On November 3 the SEC’s Division of Corporation Finance issued Staff Legal Bulletin 14L (SLB 14L) to provide new guidance on the application of the “ordinary business” and “economic relevance” exceptions to a public company’s obligation under Exchange Act Rule 14a-8 to include shareholder proposals in its proxy materials. The SEC staff will apply the guidance during the 2022 proxy season in evaluating company no-action requests seeking exclusion of shareholder proposals on the basis of these exceptions.

In SLB 14L the Division has rescinded its three most recent staff legal bulletins under Rule 14a-8 and changed the standards it will apply to determine whether shareholder proposals may not be excluded under the ordinary business and economic relevance exceptions because they involve significant social policy issues, such as those relating to climate change or human capital management.

The Division’s significance analysis in evaluating no-action requests generally will focus on whether proposals raise issues “with a broad societal impact” (in the case of the ordinary business exception) or “issues of broad social or ethical concern” (in the case of the economic relevance exception), rather than, as in the recent past, on whether they are of significance to the particular company. Under the revised standards, companies no longer may exclude a proposal under the ordinary business exception by establishing that the issues raised by the proposal are not significant for the company, or under the economic relevance exception by establishing that the proposal does not relate to operations that meet company-specific economic thresholds.

In other guidance presented in SLB 14L, the Division updates the application of certain procedural requirements under Rule 14a-8 that it previously addressed in the rescinded legal bulletins.

SLB 14L can be found here.

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Authored by Alan Dye (co-editor), Richard Parrino (co-editor), John Beckman, Alex Bahn, Kevin Greenslade, and Tiffany Posil

Contacts
Alan Dye
Partner
Washington, D.C.
Richard Parrino
Partner
Washington, D.C.
John Beckman
Partner
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Alex Bahn
Partner
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Kevin Greenslade
Partner
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Tiffany Posil
Partner
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Steve Abrams
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Richard Aftanas
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Jessica Bisignano
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David Bonser
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Paul Hilton
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Eve Howard
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Michael McTiernan
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Brian O'Fahey
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Richard Schaberg
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Abigail Smith
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Andrew Zahn
Partner
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Tifarah Allen
Partner
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Stephen Nicolai
Counsel
Philadelphia

 

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