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.

B. Rule 14a-8(i)(5) [4]

1. Background

Rule 14a-8(i)(5), the “economic relevance” exclusion, is one of the substantive bases for exclusion of a shareholder proposal in Rule 14a-8. It permits a company to exclude a proposal that “relates to operations which account for less than 5 percent of the company’s total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company’s business.”

2. History

Prior to adoption of the current version of the exclusion in Rule 14a-8(i)(5), the rule permitted companies to omit any proposal that “deals with a matter that is not significantly related to the issuer’s business.” In proposing changes to that version of the rule in 1982, the Commission noted that the staff’s practice had been to agree with exclusion of proposals that bore no economic relationship to a company’s business, but that “where the proposal has reflected social or ethical issues, rather than economic concerns, raised by the issuer’s business, and the issuer conducts any such business, no matter how small, the staff has not issued a no-action letter with respect to the omission of the proposal.” [5] The Commission stated that this interpretation of the rule may have “unduly limit[ed] the exclusion,” and proposed adopting the economic tests that appear in the rule today. [6] In adopting the rule, the Commission characterized it as relating “to proposals concerning the functioning of the economic business of an issuer and not to such matters as shareholders’ rights, e.g., cumulative voting.” [7]

Shortly after the 1983 amendments, however, the District Court for the District of Columbia in Lovenheim v. Iroquois Brands, Ltd., 618 F. Supp. 554 (D.D.C. 1985) preliminarily enjoined a company from excluding a proposal regarding sales of a product line that represented only 0.05% of assets, $79,000 in sales and a net loss of ($3,121), compared to the company’s total assets of $78 million, annual revenues of $141 million and net earnings of $6 million. The court based its decision to grant the injunction “in light of the ethical and social significance” of the proposal and on “the fact that it implicates significant levels of sales.” The Division has, at times, looked to Lovenheim when interpreting Rule 14a-8(i)(5); as discussed below, the Division will instead focus on the Commission’s prior statements on the rule.

3. Application

The Division’s analysis will focus on a proposal’s significance to the company’s business when it otherwise relates to operations that account for less than 5% of total assets, net earnings and gross sales. Under this framework, proposals that raise issues of social or ethical significance may be excludable, notwithstanding their importance in the abstract, based on the application and analysis of each of the factors of Rule 14a-8(i)(5) in determining the proposal’s relevance to the company’s business. [8]

Because the rule allows exclusion only when the matter is not “otherwise significantly related to the company,” we view the analysis as dependent upon the particular circumstances of the company to which the proposal is submitted. That is, a matter significant to one company may not be significant to another. On the other hand, we would generally view substantive governance matters to be significantly related to almost all companies.

Where a proposal’s significance to a company’s business is not apparent on its face, the Commission has stated that a proposal may be excludable unless the proponent demonstrates that it is “otherwise significantly related to the company’s business.” [9] For example, as the Commission has stated, the proponent can provide information demonstrating that the proposal “may have a significant impact on other segments of the issuer’s business or subject the issuer to significant contingent liabilities.” [10] The proponent could continue to raise social or ethical issues in its arguments, but in accordance with these Commission statements it would need to tie those matters to a significant effect on the company’s business. The mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business.” In evaluating whether a proposal is “otherwise significantly related to the company’s business,” the staff will consider the proposal in light of the “total mix” of information about the issuer.

In addition, the Division’s analysis of whether a proposal is “otherwise significantly related” under Rule 14a-8(i)(5) has at times been informed by its analysis under the “ordinary business” exception, Rule 14a-8(i)(7). As a result, the availability or unavailability of Rule 14a-8(i)(7) has at times been largely determinative of the availability or unavailability of Rule 14a-8(i)(5). For clarity, the Division will not look to its analysis under Rule 14a-8(i)(7) when evaluating arguments under Rule 14a-8(i)(5). In our view, applying separate analytical frameworks will ensure that each basis for exclusion serves its intended purpose.

C. Rule 14a-8(i)(7) [11]

1. Background

Rule 14a-8(i)(7), the “ordinary business” exclusion, permits a company to exclude a proposal that “deals with a matter relating to the company’s ordinary business operations.” The purpose of the exclusion is “to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting.” [12] The Commission has stated that the policy underlying the “ordinary business” exclusion rests on two central considerations. [13] The first relates to the proposal’s subject matter; the second relates to the degree to which the proposal “micromanages” the company.

2. Significance

Under the first consideration, proposals that raise matters that 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” relate to a company’s “ordinary” business operations. [14] The Commission has stated, however, that proposals relating to such matters but focusing on a significant policy issue generally are not excludable under the first consideration “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.” [15] The Commission has also stated 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.” [16] Therefore, whether the significant policy exception applies depends on the particular policy issue raised by the proposal and its significance in relation to the company. [17]

As such, the staff will take a company-specific approach in evaluating significance, rather than focusing solely on whether a proposal raises a policy issue with broad societal impact or whether particular issues or categories of issues are universally “significant.” Accordingly, a policy issue that is significant to one company may not be significant to another. The Division’s analysis will focus on whether the proposal deals with a matter relating to an individual company’s ordinary business operations or raises a policy issue that transcends the individual company’s ordinary business operations.

3. Micromanagement and Other Considerations

We are reinstating the following sections of guidance that was previously rescinded by Staff Legal Bulletin No. 14L:

Please see Annex A for a verbatim copy of these sections.

D. Board Analysis

Beginning with Staff Legal Bulletin No. 14I and prior to Staff Legal Bulletin No. 14L, the Division encouraged companies to include with their no-action requests under Rules 14a-8(i)(5) and 14a-8(i)(7) a discussion reflecting the board’s analysis of the particular policy issue raised and its significance to the company. Based on the staff’s experience with board analyses, we have found that in most instances the information needed for the staff’s analysis was not included in the board analysis and board analyses did not generally have a dispositive effect. Therefore, the staff will not expect a company’s no-action request to include a discussion that reflects the board’s analysis of the particular policy issue raised and its significance to the company. A company may submit a board analysis for the staff’s consideration if it believes it will help the staff analyze the no-action request.

E. Rule 14a-8(i)(10), Rule 14a-8(i)(11), and Rule 14a-8(i)(12)

On July 13, 2022, the Commission proposed amendments to Rule 14a-8(i)(10), Rule 14a-8(i)(11), and Rule 14a-8(i)(12). [18] The Commission has not adopted those proposed amendments. Accordingly, unless and until the Commission adopts these or other amendments to Rule 14a-8, the staff considers no-action requests and supplemental correspondence in accordance with operative Commission rules and applicable staff guidance.

F. Rule 14a-8(d) [19]

1. Background

Rule 14a-8(d) is one of the procedural bases for exclusion of a shareholder proposal in Rule 14a-8. It provides that a “proposal, including any accompanying supporting statement, may not exceed 500 words.”

2. The Use of Images in Shareholder Proposals

The staff has expressed the view that the use of “500 words” and absence of express reference to graphics or images in Rule 14a-8(d) do not prohibit the inclusion of graphs and/or images in proposals. [20] Just as companies include graphics that are not expressly permitted under the disclosure rules, the Division is of the view that Rule 14a-8(d) does not preclude shareholders from using graphics to convey information about their proposals. [21]

The Division recognizes the potential for abuse in this area. The Division believes, however, that these potential abuses can be addressed through other provisions of Rule 14a-8. For example, exclusion of graphs and/or images would be appropriate under Rule 14a-8(i)(3) where they:

• make the proposal materially false or misleading;
• render the proposal so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing it, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires;
• directly or indirectly impugn character, integrity or personal reputation, or directly or indirectly make charges concerning improper, illegal, or immoral conduct or association, without factual foundation; or
• are irrelevant to a consideration of the subject matter of the proposal, such that there is a strong likelihood that a reasonable shareholder would be uncertain as to the matter on which he or she is being asked to vote. [22]

Exclusion would also be appropriate under Rule 14a-8(d) if the total number of words in a proposal, including words in the graphics, exceeds 500.

G. Proof of Ownership Letters [23]

In relevant part, Rule 14a-8(b) provides that a proponent must prove eligibility to submit a proposal by offering proof that it “continuously held” the required amount of securities for the required amount of time. [24]

In Section C of Staff Legal Bulletin No. 14F, we identified two common errors shareholders make when submitting proof of ownership for purposes of satisfying Rule 14a-8(b)(2). [25] In an effort to reduce such errors, we provided a suggested format for shareholders and their brokers or banks to follow when supplying the required verification of ownership. We then updated the suggested format in Staff Legal Bulletin No. 14L to reflect changes to the ownership thresholds made by the Commission’s 2020 amendments to Rule 14a-8. [26] We note that brokers and banks are not required to follow this format. The suggested format is as follows:

“As of [date the proposal is submitted], [name of shareholder] held, and has held continuously for at least [one year] [two years] [three years], [number of securities] shares of [company name] [class of securities].

Some companies apply an overly technical reading of proof of ownership letters as a means to exclude a proposal. We generally do not find arguments along these lines to be persuasive. For example, we have not concurred with the excludability of proposals based on Rule 14a-8(b) where the proof of ownership letters deviated from the format set forth in Staff Legal Bulletin No. 14F. [27] In those cases, we concluded that the proponent nonetheless had supplied documentary support sufficiently evidencing the requisite minimum ownership requirements, as required by Rule 14a-8(b). We took a plain meaning approach to interpreting the text of the proof of ownership letter, and we expect companies to apply a similar approach in their review of such letters.

While we encourage shareholders and their brokers or banks to use the sample language provided above to avoid errors, such formulation is neither mandatory nor the exclusive means of demonstrating the ownership requirements of Rule 14a-8(b). [28] We recognize that the requirements of Rule 14a-8(b) can be quite technical. Accordingly, companies should not seek to exclude a shareholder proposal based on drafting variances in the proof of ownership letter if the language used in such letter is clear and sufficiently evidences the requisite minimum ownership requirements.

We also do not interpret the 2020 amendments to Rule 14a-8(b) [29] to contemplate a change in how brokers or banks fulfill their role. In our view, they may continue to provide confirmation as to how many shares the proponent held continuously and need not separately calculate the share valuation, which may instead be done by the proponent and presented to the receiving issuer consistent with the 2020 Release. [30] Finally, the staff does not view Rule 14a-8 as requiring a company to send a second deficiency notice to a proponent if the company previously sent an adequate deficiency notice prior to receiving the proponent’s proof of ownership and the company believes that the proponent’s proof of ownership letter contains a defect.

H. Use of Email [31]

Over the past few years, both proponents and companies have increasingly relied on the use of emails to submit proposals and make other communications. Some companies and proponents have expressed a preference for emails, particularly in cases where offices are closed. Unlike the use of third-party mail delivery that provides the sender with a proof of delivery, parties should keep in mind that methods for the confirmation of email delivery may differ. Email delivery confirmations and company server logs may not be sufficient to prove receipt of emails as they only serve to prove that emails were sent. In addition, spam filters or incorrect email addresses can prevent an email from being delivered to the appropriate recipient. The staff therefore suggests that to prove delivery of an email for purposes of Rule 14a-8, the sender should seek a reply email from the recipient in which the recipient acknowledges receipt of the email. The staff also encourages both companies and shareholder proponents to acknowledge receipt of emails when requested. Email read receipts, if received by the sender, may also help to establish that emails were received. Finally, we encourage companies and proponents to reach out using another method of communication or emailing another contact, if available, if the requested confirmation of receipt is not provided. The staff does not consider screenshots or photos of emails on the sender’s device to be proof of delivery to the recipient.

1. Submission of Proposals

Rule 14a-8(e)(1) provides that in order to avoid controversy, shareholders should submit their proposals by means, including electronic means, that permit them to prove the date of delivery. Therefore, where a dispute arises regarding a proposal’s timely delivery, shareholder proponents risk exclusion of their proposals if they do not receive a confirmation of receipt from the company in order to prove timely delivery with email submissions. Additionally, in those instances where the company does not disclose in its proxy statement an email address for submitting proposals, we encourage shareholder proponents to contact the company to obtain the correct email address for submitting proposals before doing so, and we encourage companies to provide such email addresses upon request.

2. Delivery of Notices of Defects

Similarly, if companies use email to deliver deficiency notices to proponents, we encourage them to seek a confirmation of receipt from the proponent or the representative in order to prove timely delivery. Rule 14a-8(f)(1) provides that the company must notify the shareholder of any defects within 14 calendar days of receipt of the proposal, and accordingly, the company has the burden to prove timely delivery of the notice.

3. Submitting Responses to Notices of Defects

Rule 14a-8(f)(1) also provides that a shareholder’s response to a deficiency notice must be postmarked, or transmitted electronically, no later than 14 days from the date of receipt of the company’s notification. If a shareholder uses email to respond to a company’s deficiency notice, the burden is on the shareholder or representative to use an appropriate email address (e.g., an email address provided by the company, or the email address of the counsel who sent the deficiency notice), and we encourage the shareholder or representative to seek confirmation of receipt.

I. Frequently Asked Questions

We expect that companies, proponents, and their representatives may have time-sensitive questions regarding the implementation of this bulletin. The staff will continue to consider each no-action request individually; however, the following questions and answers may address some general questions. In addition, please see the Division’s Informal Procedures Regarding Shareholder Proposals and other applicable Rule 14a-8 Staff Legal Bulletins.

Annex A

Excerpt from Staff Legal Bulletin No. 14J Section C.2. and C.3.

2. Micromanagement

The Commission has stated that the policy underlying the “ordinary business” exception rests on two central considerations. [32] The first relates to the proposal’s subject matter; the second, the degree to which the proposal “micromanages” the company “by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.” [33] The Commission has explained that the second consideration “may come into play in a number of circumstances, such as where the proposal involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.” [34]

Unlike the first consideration, which looks to a proposal’s subject matter, the second consideration looks only to the degree to which a proposal seeks to micromanage. Thus, a proposal that may not be excludable under the first consideration may be excludable under the second if it micromanages the company. Determinations as to excludability of proposals “will be 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.” [35]

As the Commission has explained, a proposal may probe too deeply into matters of a complex nature if it “involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.” [36] The Division applies this framework when evaluating whether a proposal micromanages a company and is therefore excludable. For example, the Division agreed that a proposal to generate a plan to reach net-zero greenhouse gas emissions by the year 2030, which sought to impose specific timeframes or methods for implementing complex policies, was excludable on the basis of micromanagement. [37]

This framework also applies to proposals that call for a study or report. For example, a proposal that seeks an intricately detailed study or report may be excluded on micromanagement grounds. [38] In addition, the staff would, consistent with Commission guidance, consider the underlying substance of the matters addressed by the study or report. [39] Thus, for example, a proposal calling for a report may be excludable if the substance of the report relates to the imposition or assumption of specific timeframes or methods for implementing complex policies. [40]

We believe that the above framework is consistent with the Commission’s guidance in this area and, accordingly, we will continue to apply it when evaluating whether a proposal micromanages. It is important to note, however, that the staff’s concurrence with a company’s micromanagement argument does not necessarily mean that the subject matter raised by the proposal is improper for shareholder consideration. Rather, in that case, it is the manner in which a proposal seeks to address an issue that results in exclusion on micromanagement grounds.

3. The Division’s application of Rule 14a-8(i)(7) to proposals that address senior executive and/or director compensation

Under Rule 14a-8(i)(7), proposals that raise matters that 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” may be excluded, unless such a proposal focuses on policy issues that are sufficiently significant because they transcend ordinary business and would be appropriate for a shareholder vote. [41] Whether this exception applies depends, in part, on the connection between the issue raised and the company’s business operations. [42]

The Commission has said that proposals involving “the management of the workforce, such as the hiring, promotion, and termination of employees,” generally relate to ordinary business matters. [43] Consistent with this guidance, proposals that relate to general employee compensation and benefits are excludable under Rule 14a-8(i)(7). [44] On the other hand, proposals that focus on significant aspects of senior executive and/or director compensation generally are not excludable under Rule 14a-8(i)(7). [45] In determining whether the focus of a proposal is senior executive and/or director compensation or, instead, an ordinary business matter, we consider both the resolved clause and supporting statement as a whole. [46]

We are providing the additional guidance below to clarify the Division’s views with respect to proposals that implicate senior executive and/or director compensation.

a. Proposals that address senior executive and/or director compensation and ordinary business matters

At issue in some Rule 14a-8(i)(7) requests is whether the focus of a proposal is senior executive and/or director compensation, or whether its underlying concern relates primarily to ordinary business matters that are not sufficiently related to senior executive and/or director compensation. We have concurred in the exclusion of proposals that, while styled as senior executive and/or director compensation proposals, have had as their underlying concern ordinary business matters. For example, the staff agreed with the exclusion of a proposal requesting that the board prohibit payment of incentive compensation to executive officers unless the company first adopted a process to fund the retirement accounts of certain retired employees. [47] In that instance, the staff agreed that the company could exclude the proposal under Rule14a-8(i)(7) on the grounds that the focus of the proposal was on the ordinary business matter of employee benefits, rather than senior executive compensation matters.

In evaluating proposals that raise both ordinary business and senior executive and/or director compensation matters, the 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 be on the ordinary business matter, the proposal may be excludable under Rule 14a-8(i)(7). This framework ensures that form is not elevated over substance and that a proposal is not included simply because it addresses an excludable matter in a manner that is connected to or touches upon senior executive or director compensation matters. Including an aspect of senior executive or director compensation in a proposal that otherwise focuses on an ordinary business matter will not insulate a proposal from exclusion under Rule 14a-8(i)(7).

b. Proposals that address aspects of senior executive and/or director compensation that are also available or applicable to the general workforce

The Division believes that 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. For example, a proposal that seeks to limit when senior executive officers will receive golden parachutes may be excludable under Rule14a-8(i)(7) if the company’s golden parachute provision broadly applies to a significant portion of its general workforce. This is because the availability of certain forms of compensation to senior executives and/or directors that are also broadly available or applicable to the general workforce does not generally raise significant compensation issues that transcend ordinary business matters. In this regard, it is difficult to conclude that a proposal does not relate to a company’s ordinary business when it addresses aspects of compensation that are broadly available or applicable to a company’s general workforce, even when the proposal is framed in terms of the senior executives and/or directors.

In SLB No. 14A, we took the position that where the focus of a proposal is on aspects of compensation that are available or apply only to the general workforce, companies may generally rely on Rule14a-8(i)(7) to omit the proposal from their proxy materials. Similar to the approach in SLB No. 14A with respect to Rule14a-8(i)(7) submissions concerning proposals that relate to shareholder approval of equity compensation plans, we will take the following approach with respect to proposals that address aspects of senior executive and/or director compensation that are also available or applicable to a company’s general workforce:

• Proposals where the focus is on aspects of compensation that are available or apply only to senior executive officers and/or directors. Companies may generally not rely on Rule 14a-8(i)(7) to omit these proposals from their proxy materials.
• Proposals where the focus is on aspects of compensation that are available or apply to senior executive officers, directors, and the general workforce. Companies may generally rely on Rule 14a-8(i)(7) to omit the proposal from their proxy materials.

c. Proposals that micromanage senior executive and/or director compensation practices

As discussed above, one of the central considerations underlying the “ordinary business” exception “relates to the degree to which the proposal seeks to ‘micro-manage’ the company.” [48] Historically, the Division has not agreed with the exclusion of proposals addressing senior executive and/or director compensation on the basis of micromanagement. We have further considered the Commission’s statements on micromanagement discussed above, however, and we do not believe there is a basis for treating executive compensation proposals differently than other types of proposals. Consistent with the Division’s treatment of shareholder proposals on other topics, therefore, the Division may agree that proposals addressing senior executive and/or director compensation that seek intricate detail, or seek to impose specific timeframes or methods for implementing complex policies can be excluded under Rule14a-8(i)(7) on the basis of micromanagement. For example, a proposal detailing the eligible expenses covered under a company’s relocation expense policy such as the type and duration of temporary living assistance, as well as the scope of eligible participants and amounts covered, could well be excludable on the basis of micromanagement.

As discussed above, micromanagement addresses the manner in which a proposal raises an issue, and not whether a proposal’s subject matter itself is proper for a shareholder proposal under Rule 14a-8. Proposals that focus on significant executive and/or director compensation matters and do not micromanage will continue not to be excludable under Rule 14a-8(i)(7).

Excerpt from Staff Legal Bulletin No. 14K Section B.4.

4. Micromanagement

Under the Commission’s second consideration, a proposal may be excludable under the “ordinary business” exception if it “micromanages” the company. This prong of the Rule 14a-8(i)(7) analysis rests on an evaluation of the manner in which a proposal seeks to address the subject matter raised, rather than the subject matter itself. As illustrated below, two proposals focusing on the same subject matter may warrant different outcomes based solely on the level of prescriptiveness with which the proposals approach that subject matter.

In considering arguments for exclusion based on micromanagement, and consistent with the Commission’s views, [49] we look to whether the proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board. Thus, a proposal framed as a request that the company consider, discuss the feasibility of, or evaluate the potential for a particular issue generally would not be viewed as micromanaging matters of a complex nature. However, a proposal, regardless of its precatory nature, that prescribes specific timeframes or methods for implementing complex policies, consistent with the Commission’s guidance, [50] may run afoul of micromanagement. In our view, the precatory nature of a proposal does not bear on the degree to which a proposal micromanages. [51] Following a successful vote on a shareholder proposal, management and the board generally consider whether and how to implement the proposal. Notwithstanding the precatory nature of a proposal, if the method or strategy for implementing the action requested by the proposal is overly prescriptive, thereby potentially limiting the judgment and discretion of the board and management, the proposal may be viewed as micromanaging the company.

For example, this past season we agreed that a proposal seeking annual reporting on “short-, medium- and long-term greenhouse gas targets aligned with the greenhouse gas reduction goals established by the Paris Climate Agreement to keep the increase in global average temperature to well below 2 degrees Celsius and to pursue efforts to limit the increase to 1.5 degrees Celsius” was excludable on the basis of micromanagement. [52] In our view, the proposal micromanaged the company by prescribing the method for addressing reduction of greenhouse gas emissions. We viewed the proposal as effectively requiring the adoption of time-bound targets (short, medium and long) that the company would measure itself against and changes in operations to meet those goals, thereby imposing a specific method for implementing a complex policy.

In contrast, we did not concur with the excludability of a proposal seeking a report “describing if, and how, [a company] plans to reduce its total contribution to climate change and align its operations and investments with the Paris [Climate] Agreement’s goal of maintaining global temperatures well below 2 degrees Celsius.” The proposal was not excludable because the proposal transcended ordinary business matters and did not seek to micromanage the company to such a degree that exclusion would be appropriate. [53] In our view, the proposal did not seek to micromanage the company because it deferred to management’s discretion to consider if and how the company plans to reduce its carbon footprint and asked the company to consider the relative benefits and drawbacks of several actions.

When analyzing a proposal to determine the underlying concern or central purpose of any proposal, we look not only to the resolved clause but to the proposal in its entirety. Thus, if a supporting statement modifies or re-focuses the intent of the resolved clause, or effectively requires some action in order to achieve the proposal’s central purpose as set forth in the resolved clause, we take that into account in determining whether the proposal seeks to micromanage the company.

This past season, where we concurred with a company’s micromanagement argument, it was not because we viewed the proposal as presenting issues that are too complex for shareholders to understand. Rather, it was based on our assessment of the level of prescriptiveness of the proposal. When a proposal prescribes specific actions that the company’s management or the board must undertake without affording them sufficient flexibility or discretion in addressing the complex matter presented by the proposal, the proposal may micromanage the company to such a degree that exclusion of the proposal would be warranted. For example, a proposal urging the board to adopt a policy prohibiting adjusting financial performance metrics to exclude compliance costs when determining executive compensation would be excludable on micromanagement grounds because such proposal prohibits any such adjustments without regard to specific circumstances or the possibility of reasonable exceptions. [54] When a company asserts the micromanagement prong as a reason to exclude a proposal, we would expect it to include in its analysis how the proposal may unduly limit the ability of management and the board to manage complex matters with a level of flexibility necessary to fulfill their fiduciary duties to shareholders.

 

Supplementary Information: The statements in this bulletin represent the views of the Division of Corporation Finance. This bulletin is not a rule, regulation or statement of the Securities and Exchange Commission. Further, the Commission has neither approved nor disapproved its content. This bulletin, like all staff guidance, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

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1See Release No. 34-12599 (Jul. 7, 1976) (“the staff’s views on certain issues may change from time-to-time, in light of re-examination, new considerations, or changing conditions which indicate that its earlier views are no longer in keeping with the objectives of Rule 14a-8”).(go back)

2Release No. 34-40018 (May 21, 1998) (the “1998 Release”) (emphasis added).(go back)

3Id. (emphasis added).(go back)

4This section previously appeared in Staff Legal Bulletin No. 14I (Nov. 1, 2017). It has been updated to reflect the Division’s current views.(go back)

5Release No. 34-19135 (Oct. 14, 1982) (the “1982 Release”).(go back)

6Id.(go back)

7Release No. 34-20091 (Aug. 16, 1983).(go back)

81982 Release.(go back)

9See Release No. 34-39093 (Sep. 18, 1997) (“The proponent carries the burden of demonstrating that the proposal is ‘otherwise significantly related.’”), citing 1982 Release (“Where the significant relationship is not immediately apparent on the face of the proponent’s submission, the proponent . . . could demonstrate the significant relationship supplementally.”).(go back)

101982 Release.(go back)

11This section previously appeared in Staff Legal Bulletin No. 14K (Oct. 16, 2019). It has been updated to reflect the Division’s current views.(go back)

121998 Release.(go back)

13Id.(go back)

14Id.(go back)

15Id.(go back)

16Id.(go back)

17Id. See also Staff Legal Bulletin No. 14H (Oct. 22, 2015); Staff Legal Bulletin No. 14E (Oct. 27, 2009).[ /ref]

[ref no=18]Release No. 34-95267 (Jul. 13, 2022).(go back)

19This section previously appeared in Staff Legal Bulletin No. 14L (Nov. 3, 2021) and Staff Legal Bulletin No. 14I (Nov. 1, 2017) and is republished here with minor, conforming changes.(go back)

20See General Electric Co. (Feb. 3, 2017, Feb. 23, 2017); General Electric Co. (Feb. 23, 2016). These letters were consistent with a longstanding Division position. See Ferrofluidics Corp. (Sept. 18, 1992).(go back)

21Companies should not minimize or otherwise diminish the appearance of a shareholder’s graphic. For example, if the company includes its own graphics in its proxy statement, it should give similar prominence to a shareholder’s graphics. If a company’s proxy statement appears in black and white, however, the shareholder proposal and accompanying graphics may also appear in black and white.(go back)

22See General Electric Co. (Feb. 23, 2017).(go back)

23This section previously appeared in Staff Legal Bulletin No. 14K (Oct. 16, 2019) and was republished with additional discussion in the last paragraph in Staff Legal Bulletin No. 14L (Nov. 3, 2021). It has been revised further here to remove a footnote discussing the suggested format of the proof of ownership letters prior to the amendments to Rule 14a-8 in 2020 and to replace the final sentence.(go back)

24Rule 14a-8(b) requires proponents to have continuously held at least $2,000, $15,000, or $25,000 in market value of the company’s securities entitled to vote on the proposal for at least three years, two years, or one year, respectively.(go back)

25Staff Legal Bulletin No. 14F (Oct. 18, 2011).(go back)

26See Release No. 34-89964 (Sept. 23, 2020) (the “2020 Release”).(go back)

27See Amazon.com, Inc. (Apr. 3, 2019); Gilead Sciences, Inc. (Mar. 7, 2019).(go back)

28See Staff Legal Bulletin No. 14F, n.11.(go back)

29See 2020 Release.(go back)

302020 Release at n.55 (“Due to market fluctuations, the value of a shareholder’s investment in a company may vary throughout the applicable holding period before the shareholder submits the proposal. In order to determine whether the shareholder satisfies the relevant ownership threshold, the shareholder should look at whether, on any date within the 60 calendar days before the date the shareholder submits the proposal, the shareholder’s investment is valued at the relevant threshold or greater. For these purposes, companies and shareholders should determine the market value by multiplying the number of securities the shareholder continuously held for the relevant period by the highest selling price during the 60 calendar days before the shareholder submitted the proposal. For purposes of this calculation, it is important to note that a security’s highest selling price is not necessarily the same as its highest closing price.”) (citations omitted).(go back)

31This section previously appeared in Staff Legal Bulletin No. 14L and is republished here with minor, conforming changes, and two additional sentences at the end of the first paragraph.(go back)

32Release No. 34-40018 (May 21, 1998).(go back)

33Id.(go back)

34Id.(go back)

35Id.(go back)

36Id.(go back)

37Apple Inc. (Dec. 5, 2016).(go back)

38See, e.g., Ford Motor Company (Mar. 2, 2004).(go back)

39See Release No. 34-20091 (Aug. 16, 1983) (“In the past, the staff has taken the position that proposals requesting issuers to prepare reports on specific aspects of their business or to form special committees to study a segment of their business would not be excludable under Rule 14a-8(c)(7). Because this interpretation raises form over substance and renders the provisions of paragraph (c)(7) largely a nullity . . . , the staff will consider whether the subject matter of the special report or the committee involves a matter of ordinary business; where it does, the proposal will be excludable under Rule 14a-8(c)(7).”).(go back)

40See, e.g., PayPal Holdings, Inc. (Mar. 6, 2018).(go back)

41Release No. 34-40018.(go back)

42See Staff Legal Bulletin No. 14I (Nov. 1, 2017) (citing Staff Legal Bulletin No. 14H (Oct. 22, 2015), which cites Staff Legal Bulletin No. 14E (Oct. 27, 2009) (citing Release No. 34-40018)).(go back)

43See Release No. 34-40018.(go back)

44See Staff Legal Bulletin No. 14A (Jul. 12, 2002).(go back)

45See Battle Mountain Gold Company (Feb. 13, 1992); see also Release No. 34-30851 (Jun. 23, 1992) (The Commission observed that “[e]ffective earlier this year, the Commission staff began to require companies to include shareholder proposals on executive compensation submitted pursuant to Rule14a-8 in their proxy statements. While these resolutions are advisory in nature, they allow shareholders to provide direct input to the board on its compensation decisions.”).(go back)

46Cf. Staff Legal Bulletin No. 14C (Jun. 28, 2005).(go back)

47See Delta Air Lines, Inc. (Mar. 27, 2012).(go back)

48Release No. 34-40018.(go back)

49Release No. 34-40018. The Commission explained that micromanagement “may come into play in a number of circumstances, such as where the proposal involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.”(go back)

50Id.(go back)

51Our Rule 14a-8(i)(7) analysis would be the same if the proposal were mandatory or precatory.(go back)

52Devon Energy Corp. (Mar. 4, 2019).(go back)

53Anadarko Petroleum Corp. (Mar. 4, 2019).(go back)

54See, e.g., Johnson & Johnson (Feb. 14, 2019).(go back)