New SEC Staff Guidance on Shareholder Proposals

Continues to Encourage Board of Director Involvement in the “Ordinary Business” and “Economic Relevance” Exclusions and Provides Examples of Useful Factors from 2018 Proxy Season

Opens Door for “Ordinary Business” and “Micromanagement” Exclusions for Proposals Addressing Executive Compensation
Sullivan & Cromwell LLP - October 25, 2018
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On Tuesday, the staff of the Division of Corporation Finance of the Securities and Exchange Commission issued new guidance on the shareholder proposal process:

  • For the Rule 14a-8(i)(5) and Rule 14a-8(i)(7) “economic relevance” and “ordinary business” exclusions, the guidance continues to encourage companies to include a description of the board’s analysis of the basis for the exclusion in no-action requests and summarizes the substantive factors the SEC staff found most helpful in the most recent proxy season.
  • For the “ordinary business” exclusion, the guidance reiterates that a proposal may be excluded because it seeks to “micromanage” the company and explains that a proposal dealing with proper subject matter may be independently excluded on micromanagement grounds.
  • The guidance clarifies that proposals that touch upon executive and/or director compensation but are focused on ordinary business matters may be excluded under the “ordinary business” exclusion, as may proposals where the primary aspect of the targeted compensation is not specific to executives or directors but rather broadly available to employees.
  • In a change from prior practice, the guidance also states that proposals addressing executive and/or director compensation may be excluded on the basis of micromanagement, just like other types of proposals.