On October 23, 2018, the SEC issued Staff Legal Bulletin No. 14J (CF) [SLB 14J] regarding Rule 14a-8. Specifically, SLB 14J takes a look at the economic relevance and ordinary business exclusions for shareholder proposals. The SEC Staff last addressed these concepts in SLB 14I.
SLB 14J offers additional guidance on proposals that address senior executive and/or director compensation and ordinary business matters. The SLB states that in evaluating proposals that raise both ordinary business and senior executive and/or director compensation matters, the SEC staff examines whether the focus of the proposal is an ordinary business matter or aspects of senior executive and/or director compensation. Where the focus appears to the SEC staff to be on an ordinary business matter, the proposal might be excludable under Rule 14a-8(i)(7).
Furthermore, the SEC Staff indicated that it believes a proposal that addresses senior executive and/or director compensation may be excludable under Rule 14a-8(i)(7) if a primary aspect of the targeted compensation is broadly available or applicable to a company’s general workforce and the company demonstrates that the executives’ or directors’ eligibility to receive the compensation does not implicate significant compensation matters.
The SEC also announced a bit of a change in how it will approach the exclusion of proposals addressing senior executive and/or director compensation on the basis of micromanagement. Historically, the SEC has not agreed with such exclusions. However, the SEC rethought its position and may support such exclusions in cases where the proposal seeks intricate details or seeks to impose specific timeframes or methods for implementing complex policies.
SLB 14J also details the form of analysis that would be most helpful to the SEC Staff as it considers the no-action request to exclude a shareholder proposal. The SLB lays out the factors that the SEC Staff believes the board may need to address depending on the facts and circumstances in determining whether the shareholder proposal involves a policy issue that is otherwise significantly related to the company’s business or is sufficiently significant in relation to the company’s business. The SLB indicates that a well-developed discussion will describe in sufficient detail the specific substantive factors the board considered in arriving at its conclusion that an issue is not otherwise significantly related to its business or is not sufficiently significant in relation to the company.