Shareholder Proposals: Staff Legal Bulletin No. 14M (CF)

A. The Purpose of This Bulletin

This bulletin is part of a continuing effort by the Division to provide guidance on important issues arising under Exchange Act Rule 14a-8. Based on a review of Staff Legal Bulletin No. 14L and the staff’s experience applying the guidance contained in it, and after re-examining the Commission’s statements on the matters addressed in that bulletin, the Division is rescinding Staff Legal Bulletin No. 14L. [1] This bulletin is intended to clarify the Division’s views on the scope and application of Rule 14a-8(i)(5) and Rule 14a-8(i)(7). In addition, this bulletin addresses certain other aspects of Rule 14a-8 and provides responses to questions that may arise in light of the timing and content of this bulletin.

When explaining the ordinary business exclusion in Rule 14a-8(i)(7), the Commission has said 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, proposals relating to such matters but focusing on sufficiently significant social policy issues . . . generally would not be considered to be excludable, because the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote.” [2] In addition, the Commission has said that the determination as to whether a proposal deals with a matter relating to a company’s ordinary business operations is “made on a case-by-case basis, taking into account factors such as the nature of the proposal and the circumstances of the company to which it is directed.” [3] In light of these statements, it is the staff’s view that a “case-by-case” consideration of a particular company’s facts and circumstances is a key factor in the analysis of shareholder proposals that raise significant policy issues. In addition, the text of Rule 14a-8(i)(5) references the relationship of the proposal to the individual company, requiring analysis of whether the proposal is “significantly related to the company’s business.” Accordingly, where relevant to the arguments raised to the staff by companies and proponents, the staff will consider whether a proposal is otherwise significantly related to a particular company’s business, in the case of Rule 14a-8(i)(5), or focuses on a significant policy issue that has a sufficient nexus to a particular company, in the case of Rule 14a-8(i)(7). Our views on the application of both rules are described below.

(more…)