This market trends article discusses Staff Legal Bulletin No. 14I and Staff Legal Bulletin No. 14J of the Division of Corporation Finance of the Securities and Exchange Commission, both of which provide guidance with respect to shareholder proposals submitted for inclusion in company proxy statements pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, and how such guidance was applied during the 2018 and 2019 proxy seasons.

Staff Legal Bulletin No. 14I

On November 1, 2017, the staff (Staff) of the Division of Corporation Finance of the Securities and Exchange Commission issued Staff Legal Bulletin No. 14I (SLB 14I) to provide guidance on shareholder proposals submitted pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 (Rule 14a-8). SLB 14I, which is available at https://www., addressed four topics in the shareholder proposal area:

  • The scope and application of the ordinary business grounds for exclusion under Rule 14a-8(i)(7)
  • The scope and application of economic relevance grounds for exclusion under Rule 14a-8(i)(5) for proposals relating to less than 5% of a company's total assets, net earnings, and gross sales
  • Proposals submitted on behalf of a shareholder by a representative, sometimes referred to as proposal by proxy
  • The impact of graphs and images on the 500-word limit in Rule 14a-8(d)

Ordinary business. Shareholder proposals addressing ordinary business may be excluded from a company's proxy statement under Rule 14a-8(i)(7) if they 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," unless the proposal focuses on policy issues that are sufficiently significant because they transcend ordinary business. Many Rule 14a-8(i)(7) no-action requests focus on this analysis and require the Staff to make difficult judgment calls. SLB 14I articulated the Staff's view that a company's board of directors, in the first instance, generally is in a better position to make this determination.

In SLB 14I, the Staff indicated that it was looking for an analysis by a company's board of directors to assist the Staff in its review of no-action requests under Rule 14a-8(i)(7). Specifically, the Staff stated that it expected companies to include in such no-action requests "a discussion that reflects the board's analysis of the particular policy issue raised and its significance." The Staff specified that it wanted to see an explanation of "the specific processes employed by the board to ensure that its conclusions are well-informed and wellreasoned."

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