SEC Largely Suspends No-Action Relief For The Exclusion Of Shareholder Proposals

The SEC's Division of Corporation Finance has determined that, until at least September 30, 2026, it will not respond to requests by issuers for no-action relief for their decisions to exclude shareholder proposals from proxy statements under Exchange Act Rule 14a-8, with one exception. The Division cited the recent government shutdown and the ensuing backlog of work as a driving factor in its decision. The new practice also extends to pending requests.

Rule 14a-8 generally requires issuers to include in their proxy statements for shareholder meetings certain proposals submitted by shareholders. The rule provides numerous exemptions that allow issuers to exclude certain types of proposals, such as proposals that relate to ordinary business matters or that have already been substantially implemented. Determining whether an exclusion applies is not always straightforward. For decades, it has been a routine practice for issuers seeking to exclude a shareholder proposal to ask the staff of the SEC to issue a no-action letter, which is a letter confirming that the staff will not recommend that the SEC take enforcement action against the issuer for excluding the proposal. Although no-action letters are not binding, they give issuers more comfort that the exclusion is permissible. Every proxy season, the staff typically processes hundreds of requests for no-action letters relating to shareholder proposals, which consume a significant amount of staff resources. 

As a result of the Division's new hands-off approach, issuers will have less confidence that the SEC will not challenge the exclusion of a shareholder proposal. Without staff guidance, some issuers may decide to include proposals that they otherwise would have excluded. On the other hand, issuers who do not receive negative feedback from the staff (a common occurrence) may exclude proposals that should be presented for a vote. The net effect of the staff's new position remains to be seen. Since the SEC will no longer serve as a regular check on improper exclusions, we suspect that the number of exclusions will increase and that more shareholders will challenge those exclusions in court.

The Division did indicate, however, that it will continue to process requests for no-action letters under Rule 14a-1(i)(1), which permits the exclusion of proposals that are “not a proper subject for action by shareholders” under applicable state law. The Division stated that, in contrast to the other bases for exclusion, existing guidance on Rule 14a-1(i)(1) is insufficient for companies and shareholders to reliably determine whether exclusions on this basis are proper. If a body of guidance develops, the Division may cease issuing no-action letters under Rule 14a-8(i)(1) as well.

Despite this hiatus, the Division reminded issuers that, if they intend to exclude a shareholder proposal, they must still notify the SEC at least 80 calendar days before filing a definitive proxy statement. In order to receive a response to this notice, an issuer must include an unqualified representation that it has a reasonable basis for the exclusion under the terms of Rule 14a-8, prior published guidance and/or judicial decisions. The Division indicated that, if an issuer makes this representation, the Division will respond to indicate that, solely on the basis of the issuer's representation, the Division will not object to the exclusion of the proposal. The Division cautions issuers that such a response does not imply that the Division has evaluated the adequacy of the representation or that the Division is expressing a view on the issuer's reasons for exclusion.

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