The SEC Division of Corporation Finance (the "Division") provided guidance concerning when a company may exclude certain shareholder proposals in its proxy statement pursuant to Exchange Act Rule 14a-8 ("Shareholder Proposals").
In a staff legal bulletin, the Division outlined the framework it follows in determining whether a shareholder proposal is excludable under the "ordinary business" exception in Exchange Act Rule 14a-8(i)(7). The exception is a practical measure that allows a company's management and board of directors to resolve "ordinary business problems." The Staff legal bulletin said that, in accordance with previous guidance, a shareholder proposal can "micromanage" a company and is, therefore, excludable if the proposal involves intricate details or seeks to impose specific timeframes or methods for implementing policies.
The Division clarified when a senior executive and/or director compensation proposal falls under the "ordinary business" exception. According to the Division, the proposal may be excluded if (i) the underlying concern focuses on ordinary business matters, (ii) the target compensation is broadly available or applicable to the company's general workforce or (iii) it seeks intricate details that fall under "micromanagement."
The Division reiterated previous guidance encouraging companies that are seeking no-action relief to include a board of directors' analysis of the particular policy issue in their request. Although the absence of a board analysis is not dispositive of the staff's determination, the Division noted, it does help to provide SEC staff with sufficient details to make a determination. According to the Division, some details that a company may consider include:
- how the proposal relates to the company's core business activities;
- quantitative data to demonstrate whether or not a matter is significant to the company;
- if the company has already addressed the issue in some manner;
- the extent of shareholder engagement and interest expressed on the issue; and
- if anyone other than the proponent has requested the type of action or information sought by the proposal.
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