Implications of the November 2021 SEC Staff Legal Bulletin

Yesterday the SEC’s Division of Corporation Finance issued an important Staff Legal Bulletin which is a positive development for our collective work.  The bulletin essentially rescinds staff legal bulletins and guidance issued under the prior SEC leadership which had significantly expanded the bases on which companies could successfully exclude shareholder proposals from the corporate proxy.
While this guidance doesn’t address the issues raised in our current litigation pertaining to ownership and resubmission thresholds, this staff bulletin is a welcomed restoration to earlier interpretations of Rule 14a-8  that will likely ease the path for more ICCR member proposals to appear on future company proxies.
There are three points we want to highlight:
The SEC will “no longer focus on determining the nexus between a social policy issue and the [individual] company” but will instead “consider whether the proposal raises issues with a broad societal impact, such as they transcend the ordinary business of the company. For example, proposals squarely raising human capital management issues with a broad societal impact would not be subject to exclusion solely because the proponent did not demonstrate that the human capital management issue was significant to the company.”
The new guidance attempts to clarify the conundrum investors face when seeking to craft proposals with enough specificity that they will not be excluded under “substantial implementation” while being general enough to avoid exclusion for “micromanagement”. As in prior guidance, as long as investors aren’t prescribing a method for achieving the goals of the proposal and those goals can be viewed as material to investors, proposals will not be excludable due to the specificity of the request, e.g. the setting of GHG reduction targets.
The new guidance rescinds the “economic relevance exception” which permitted a company to exclude a proposal if it “relates to operations which account for less than 5% of the company’s total assets”. Broad social and ethical concerns may no longer be excluded even if they fall beneath the 5% economic threshold. Further, SEC staff will no longer expect a board analysis for its consideration of a no-action request.
We are grateful in particular for Sanford Lewis’ leadership via the Shareholder Rights Group in articulating shareholders’ case before the SEC and direct you to their statement from yesterday for further details on this.

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