Mixed Outcomes Under New SEC Guidance
The U.S. Securities and Exchange Commission (SEC) has introduced new guidance on Shareholder Proposal, but it does not ensure companies will be able to exclude proposals based on claims that they relate to ‘ordinary business operations.’ A preliminary analysis by Governance Intelligence, reviewing approximately 60 decisions under Rule 14a-8, indicates that corporate no-action requests are not being granted as definitively as some had anticipated.
The revised approach, outlined in Staff Legal Bulletin (SLB) No. 14M, issued on February 12, replaces SLB No. 14L, which had made it more challenging for companies to exclude environmental, social, and governance (ESG)-focused proposals. The guidance primarily addresses Rule 14a-8(i)(7), which permits the omission of SEC Shareholder Proposal related to a company’s routine business matters, and Rule 14a-8(i)(5), which concerns economic relevance. Despite expectations that the new rules would favor businesses in seeking proposal exclusions, early rulings suggest that SEC staff members still exercise case-by-case discretion in evaluating requests.
Recent SEC Decisions Highlight Uncertainty
Since the release of SLB No. 14M, the SEC’s Division of Corporation Finance has issued decisions rejecting corporate requests to exclude Shareholder Proposal under the ‘ordinary business’ argument. These decisions highlight that despite the new guidance, companies are not automatically granted exclusion rights.
For example, The Goodyear Tire & Rubber Company sought to omit a proposal from As You Sow, which called for setting goals to reduce tire wear shedding. The SEC denied Goodyear’s request, stating that the company had not demonstrated that the proposal pertained to ordinary business operations or constituted micromanagement. Similarly, Levi Strauss & Co. failed in its attempt to exclude a proposal from the National Center for Public Policy Research, which urged the company to consider abolishing its diversity, equity, and inclusion (DEI) program. The SEC ruled that Levi Strauss had not substantiated its claim that the SEC Shareholder Proposal related to routine business matters or was misleading.
Another case involved Wells Fargo & Company, which faced a SEC Shareholder Proposal from the Office of the Comptroller of the City of New York. The proposal requested annual disclosure of the company’s energy supply ratio, comparing its financing in low-carbon energy versus fossil fuel projects. Wells Fargo sought to exclude the proposal, but the SEC determined that it did not fall under ‘ordinary business operations’ and did not amount to micromanagement.
Companies Still Receiving Some Exclusions
Despite several denials, the SEC has granted some companies the ability to omit shareholder proposals under the ordinary business and micromanagement provisions. This suggests that while the new guidance does not provide blanket approval for exclusions, companies may still succeed under specific circumstances.
Legal experts suggest that the application of the SEC’s new framework remains nuanced. While corporate leaders may hope for more favorable outcomes in no-action requests, shareholders and advocacy groups continue to push for transparency and corporate accountability. An SEC spokesperson declined to comment on the developing interpretation of SLB No. 14M, leaving open the question of how future cases may be decided.
