United States: SEC Staff Issues Staff Legal Bulletin On Shareholder Proposals

On October 16, 2019, the staff of the Division of Corporation Finance of the Securities and Exchange Commission (SEC) published Staff Legal Bulletin (SLB) No. 14K providing guidance on Rule 14a-8 under the Securities Exchange Act of 1934. SLB No. 14K addresses, among other things, issues related to the "ordinary business" exception under Rule 14a-8.


Rule 14a-8 generally requires companies to include a shareholder proposal in its proxy materials unless 1) the shareholder has failed to comply with the requirements of Rule 14a-8 or 2) the proposal falls within one of the 13 exceptions under Rule 14a-8. As noted above, one of these exceptions is known as the "ordinary business" exception and provides that a company may exclude a shareholder proposal "[i]f the proposal deals with a matter relating to the company's ordinary business operations."

In 1998, the SEC adopted amendments to Rule 14a-8, which included, among other things, changes to the SEC's interpretation of the "ordinary business" exception. In its ensuing discussion of its position on the "ordinary business" exception, the SEC set forth the following two considerations that underlie this exception:

  • Significance Test. The first consideration relates to the subject matter of the shareholder proposal. The SEC noted that one of the bases for the "ordinary business" exception was that "[c]ertain tasks are so fundamental to management's ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight." However, if such a proposal is focused "on sufficiently significant social policy issues" then it would not generally be excludable because it "would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote."
  • Micromanagement Test. The second consideration relates to the manner in which the shareholder proposal seeks to address the issue. The SEC stated, in pertinent part, that this "relates to the degree to which the proposal seeks to micro-manage' the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment." The SEC further noted that this "may come into play in a number of circumstances, such as where the proposal involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies."

In addition, the staff periodically publishes Staff Legal Bulletins (SLBs) that provide guidance to companies and shareholders on various issues, including, in recent years, relating to the "ordinary business" exception to Rule 14a-8. In SLB No. 14I (published in 2017), the staff provided guidance on, among other things, the significance test of the "ordinary business" exception. Notably, the staff indicated that a determination as to whether a shareholder proposal is sufficiently significant raises "difficult judgment calls that the Division believes are in the first instance matters that the board of directors is generally in a better position to determine." Accordingly, the staff noted that future no-action requests should include a discussion of "the board's analysis of the particular policy issue raised and its significance" and that this "well-developed" discussion 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."

Following on this guidance, in SLB No. 14J (published in 2018), the staff provided further guidance on the significance test, and also provided guidance on the micromanagement test. The staff acknowledged that, following SLB No. 14I, it had received several no-action requests with discussions of board analyses, and that these analyses were most helpful when they included "the specific substantive factors the board considered in arriving at its conclusion." To assist companies in determining what substantive factors may be helpful, the staff included a non-exclusive and non-exhaustive list of substantive factors that the board may include in its analysis of the significance of the proposal to the company's business, and provided further guidance relating to one of these factors, "[w]hether the company's shareholders have previously voted on the matter and the board's view as to the related voting results." The staff also addressed the micromanagement exception, providing an example of where it concurred with a company's micromanagement argument. Of note, however, the staff said that its "concurrence with a company's micromanagement argument does not necessarily mean that the subject matter raised by the proposal is improper for shareholder consideration." Thus, if a proposal relating to a policy issue contains overly prescriptive implementation requirements, then the staff may concur with a company's request to exclude the proposal; however, if a proposal relating to the same policy issue provides for flexibility in the manner in which management and the board can implement the policy, then the staff may not concur with a company's request to exclude the proposal.

2019 Guidance

Following on its 2017 and 2018 guidance, the staff issued SLB No. 14K, providing further guidance on the significance test and the micromanagement test. This latest guidance included the following:

  • Significance Test. The staff noted that "companies have often focused on the overall significance of the policy issue raised by the proposal, instead of whether the proposal raises a policy issue that transcends the particular company's ordinary business operations." The staff clarified that the focus and the analysis should be company-specific, i.e., the focus "should be on whether the proposal deals with a matter relating to that company's ordinary business operations or raises a policy issue that transcends that company's ordinary business operations." [Emphasis added.]
    • Board Analysis. Consistent with its prior guidance, the staff reiterated its belief that a "well-developed discussion of the board's analysis of whether the particular policy issue raised by the proposal is sufficiently significant in relation to the company can assist the staff in evaluating a company's no-action request[.]" In addition, the staff noted that board analyses in recent no-action requests were "more helpful in determining whether the proposal was significant to the company's business" and that this was "largely attributable to a greater proportion of requests discussing in detail the specific substantive factors," including those factors that the staff set forth in SLB No. 14J. The staff also noted that in cases where a no-action request lacked a "robust" discussion of the board's analysis of the significance of the policy issue raised by the proposal, the staff's ability to analyze and state a view on the exclusion "may be impacted."
      • Delta Analysis. In SLB No. 14J, the staff noted that one of the substantive factors that a board could consider in analyzing the significance of the policy issue to the company was "[w]hether 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." In this latest guidance, the SEC distinguished this factor from the exclusion under Rule 14a-8(i)(10), i.e., a proposal may be excluded where a company has already substantially implemented the proposal, noting that "[a] delta analysis could be useful for companies that have already addressed the policy issue in some manner but may not have substantially implemented the proposal's specific request[.]" In addition, the SEC noted that such an analysis "is most helpful where it 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." The foregoing was contrasted with mere "conclusory statements about the differences that fail to explain why the board believes that the issue is no longer significant," which the SEC notes are "less helpful."
      • Prior Voting Results. One of the other substantive factors set forth in SLB No. 14J was "[w]hether the company's shareholders have previously voted on the matter and the board's view as to the related voting results." In the most recent guidance, the staff provided the following examples arguments it found to be unpersuasive: 1) the prior voting results were insignificant because a majority of the shareholders voted against it; 2) the impact of proxy advisory firms' recommendations mitigated the significance of the prior voting results; and 3) the prior voting results were insignificant if looked at on the basis of shares outstanding rather than on the basis of the votes cast. Rather, the staff noted that "the board's analysis may be more helpful if it includes, for example, 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."
  • Micromanagement. The staff clarified its prior guidance that two proposals relating to the same subject matter "may warrant different outcomes based solely on the level of prescriptiveness with which the proposals approach that subject matter." To illustrate its point, the staff provided an example of two proposals relating to the Paris Climate Agreement. In the first example, the staff "agreed that a proposal seeking annual reporting on short-, medium- and long-term greenhouse gas targets aligned with the greenhouse gas reduction goals established by the Paris Climate Agreement to keep the increase in global average temperature to well below 2 degrees Celsius...' was excludable on the basis of micromanagement." The staff believed that this proposal effectively required the company to adopt "time-bound targets (short, medium and long) that the company would measure itself against and changes in operations to meet those goals[.]" Conversely, in the second example, the staff "did not concur with the excludability of a proposal seeking a report describing if, and how, [a company] plans to reduce its total contribution to climate change and align its operations and investments with the Paris [Climate] Agreement's goal of maintaining global temperatures well below 2 degrees Celsius.'" The staff believed that 1) this proposal represented a significant policy issue that transcended the ordinary business operations of the company and 2) that it "did not seek to micro-manage the company to such a degree that exclusion would be appropriate" because "it deferred to management's discretion to consider if and how the company plans to reduce its carbon footprint[.]" If a company seeks to exclude a proposal under the micromanagement test, then the staff indicated that it "would expect it to include in its analysis how the proposal may unduly limit the ability of management and the board to manage complex matters with a level of flexibility necessary to fulfill their fiduciary duties to shareholders." Other notable points raised by the staff included the following: 1) that the mandatory or precatory nature of the proposal "does not bear on the degree to which a proposal micromanages" and 2) that even if the "resolved clause" of the shareholder proposal is not overly prescriptive or problematic, "if a supporting statement modifies or re-focuses the intent of the resolved clause, or effectively requires some action in order to achieve the proposal's central purpose" then the staff will "take that into account in determining whether the proposal seeks to micromanage the company."

What To Do Now?

If submitting a no-action request, always check the SLBs for staff guidance, as well as prior SEC responses to no-action requests even though non-binding. Don't forget, in September 2019, the staff announced that starting with this year's proxy season, it may respond orally rather than in writing to some no-action requests, and it may decline to state a view. In the latter case, the staff indicated that this should not be interpreted to mean that a proposal must be included.

In addition, if you seek to exclude a shareholder proposal:

  • based on the significance test of the "ordinary business exception," then consider the following actions:
    • engage the board of directors in a "well-developed" discussion of the significance of the particular policy issue to the ordinary business operations of the company (i.e., be company-specific), including, among other things and to the extent applicable, each of the substantive factors set forth in SLB No. 14J;
    • following this discussion, include a robust discussion of the board's analysis, including each of the substantive factors discussed, in the company's no-action request; and
    • in circumstances where a delta analysis or a prior voting results analysis is applicable, a more meaningful and tailored analysis of those factors in-line with the guidance provided in SLB No. 14K would be most helpful both for the staff in evaluating the no-action request, and also for the company in supporting its argument for exclusion;
  • based on the micromanagement test of the "ordinary business exception," then review and focus on the prescriptive nature of any implementation requirements included in the shareholder proposal. Importantly, the staff looks at whether the shareholder proposal "imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board."
  • Also of note, in SLB No. 14K the staff cautioned companies against applying "an overly technical reading of proof of ownership letters as a means to exclude a proposal," noting that "companies should not to seek to exclude a shareholder proposal based on drafting variances in the proof of ownership letter if the language used is clear and sufficiently evidences the requisite minimum ownership requirements." The staff indicated that these types of technical arguments have not been persuasive, including in circumstances where the proof of ownership letters deviate from the format provided in its 2011 guidance, which was merely a suggested format, not a required format.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions