SEC Staff Issue Guidance Regarding Shareholder Proposals – Environment


On November 3, 2021, the United States Securities and Exchange Commission (SEC) issued a Staff legal bulletin (SLB 14L) limiting the ability of public companies to exclude from proxy statements shareholder proposals that relate to material social issues and providing clarification regarding certain procedural requirements applicable to shareholder proposals. SLB 14L cancels previous SLB 14I, 14J and 14K and should facilitate the passage of shareholder proposals, including those related to environmental, social and governance (ESG) issues, to be included in the proxy circular.

SEC Chairman Gary Gensler released a declaration in support of the adoption of SLB 14L. Commissioners Peirce and Roisman issued a joint statement criticize the staff approach and question the rationale for staff actions.


Rule 14a-8 of the Securities Exchange Act (Rule 14a-8) provides a process by which a shareholder can propose a question to be voted on at the meeting of shareholders of the company. Under rule 14a-8, a public company must include a shareholder proposal in its proxy statement if the proposal meets the procedural requirements of the rule and the company does not have a substantial basis for excluding the proposal.

Ordinary commercial exception

One of the substantial bases for excluding shareholder proposals is rule 14a-8 (i) (7), known as the ordinary business exception. Rule 14a-8 (i) (7) allows a company to exclude a proposal that “deals with a matter relating to the ordinary business operations of the company”.

Important social policy – In SLB 14L, staff announced that they would no longer assess the applicability of the ordinary business exception by focusing on the effect of the proposal on the particular business, but would instead consider whether the proposal raises any concerns. issues with “broad societal impact” (staff noted that this approach was realigning itself to its standard originally formulated in 1976 and affirmed in its last rule 14a-8 in 1998). In line with their recent focus on ESG issues, staff have referred to proposals that address human capital management and climate change as the types of proposals least likely to be excluded, as they advance policy objectives at the grassroots level. – beyond the ordinary activities of the company. As a result of this change in approach, staff have indicated that they will no longer expect board analysis of companies seeking to exclude shareholder proposals under ordinary business exclusion.

Micromanagement – Staff also announced that they would take a “measured approach” to the concept of micromanagement, a rationale for excluding shareholder proposals that deal with issues related to the business of the company that are deemed too complex for shareholders as that group. In the future, a company cannot reject a proposal just because it limits the discretion of the company or the board of directors. Instead, staff will focus on the granularity sought in the proposal and assess the extent to which a proposal inappropriately limits the discretion of the board or management, noting that there are goals, risks or other strategic issues that may be appropriate for shareholder input. Staff referred to proposals that deal with climate change, and that require deadlines and targets, such as the types of proposals that are less likely to be excluded as long as the proposals leave management discretion as to how to proceed. ” achieve these goals.

Economic relevance exception

Another substantial basis for excluding shareholder proposals is rule 14a-8 (i) (5), or the economic relevance exception. A business is allowed to exclude a proposal that “relates to transactions which represent less than 5% of the total assets of the business at the end of its most recent fiscal year, and less than 5% of its net income, and of its gross sales for its most recent financial year and is not otherwise significantly related to the activities of the company. “

According to the new guidelines, proposals that raise general social or ethical issues related to the activities of the company cannot be excluded, even if the activity concerned falls below the economic threshold of rule 14a-8 (i) ( 5).

Procedural grounds for exclusion

Use of graphics and images – Rule 14a-8 (d) is one of the procedural bases for excluding a shareholder proposal. Under the rule, a shareholder proposal cannot exceed 500 words. SLB 14L clarifies that the use of graphics and images in shareholder proposals is permitted in accordance with Rule 14a-8 (d). Words included in these graphics and images count towards the 500 word limit.

Letter of proof of ownership – Another procedural obstacle, rule 14a-8 (b), requires the shareholder making a proposal to prove that he has held the required amount of securities of the company for at least one year prior to the date on which the proposal is made. submitted to society. Staff said companies can’t use overly technical readings of proof of ownership letters as a basis for ruling out shareholder proposals. To this end, SLB 14L provides an example of language that shareholders or their brokers can use in proof of ownership letters, but clarifies that the use of the exact language is not required, as long as the proof of ownership letter. ownership is clear and “sufficiently attests to the minimum required ownership requirements.”

Email communications – Finally, SLB 14L provides guidelines for the use of electronic mail with respect to proof of timely delivery of communications relating to shareholder proposals. To facilitate delivery confirmation, staff recommend that senders request an email response from the recipient acknowledging receipt of the email and encourage companies and shareholders to acknowledge emails when they do so. demand.

The timing of notices and other communications is important to both businesses and shareholders. Rule 14a-8 (e) (1) requires shareholders to submit their proposals by means enabling them to prove timely delivery. Rule 14a-8 (f) (1) requires the company to notify the shareholder of any default within 14 calendar days of receipt of the proposal and, in turn, requires a shareholder to respond to a notice of default. deficiency within 14 days from the date of receipt of such notice of deficiency from the Company. With increased use of electronic mail as the primary means of communication, in order to avoid disputes regarding the timely delivery of proposals, notices of deficiency or responses to notices of deficiencies, with the party responsible for proving delivery in timely is encouraged to request confirmation of receipt of e-mail.


SLB 14L will ultimately make it more difficult for companies to exclude shareholder proposals under the two substantive exceptions discussed above, especially when they relate to climate or social issues. As shareholder proposals on climate issues become increasingly important, the combined impact of the policy changes proposed by SLB 14L and International Shareholder Services (ISS) discussed here can make it particularly intimidating for companies attempting to avoid the inclusion of such shareholder proposals in their proxy statements. Nonetheless, companies can take a proactive approach to avoid future climate-related shareholder proposals. For example, companies can:

  • Engage in dialogue with shareholders on climate-related topics before proxy season.
  • Take action to address or alleviate concerns expressed by shareholders.
  • Continue to monitor developments and anticipate possible proposals and the company’s response.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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