On October 16 the SEC's Division of Corporation Finance issued Staff Legal Bulletin No. 14K (CF) (SLB 14K) to provide updated guidance on the application of the "ordinary business" exception to a company's obligation under Exchange Act Rule 14a-8 to include shareholder proposals in its annual proxy materials. The guidance will govern SEC staff action during the 2020 proxy season on company requests for no-action letters allowing exclusion of shareholder proposals based on the exception.
SLB 14K supplements earlier staff legal bulletins in which the Division solicited greater board-level involvement in a company's exclusion determination under the ordinary business exception and encouraged companies to discuss the board's analysis in their no-action requests. The new guidance clarifies and expands the prior guidance by suggesting ways companies might more effectively address certain substantive factors considered by the board, and also explains how the staff evaluates claims that a proposal should be excluded because it seeks to "micromanage" the company.
In other guidance presented in SLB 14K, the Division cautions companies not to apply an "overly technical reading" of the proof of ownership letter submitted by a proponent under Rule 14a-8(b)(2) in determining whether the letter adequately establishes the proponent’s eligibility to submit a proposal.
SLB 14K can be found here.
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