On February 12, 2025, the SEC’s Division of Corporation Finance issued Staff Legal Bulletin No. 14M (SLB 14M), which rescinds prior Staff Legal Bulletin No. 14L (SLB 14L) and provides updated guidance on shareholder proposals under Rule 14a-8, particularly regarding the scope and application of the rule’s economic relevance and ordinary business exclusions. In addition, SLB 14M addresses procedural aspects of Rule 14a-8, including the use of images in shareholder proposals, deficiency notices, proof of ownership letters, and use of email. Below is a summary of SLB 14M that also highlights where changes have been made from prior guidance issued by the Staff.

Ordinary Business Exclusion

Rule 14a-8(i)(7) permits a company to exclude a shareholder proposal that “deals with a matter relating to the company’s ordinary business operations.” The SEC has previously stated that the policy underlying the ordinary business exclusion rests on two central considerations. One consideration is 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 shareholder oversight.” The other consideration is that a shareholder proposal should not “seek[] to ‘micro-manage’ 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.” However, shareholder proposals that relate to ordinary business matters but that focus on a significant policy issue are not excludable under the first consideration because they transcend the company’s day-to-day business matters.

Significant Policy Issue

Under now-rescinded SLB 14L, the determination of whether a shareholder proposal focused on a significant policy issue was based on whether the policy issue was associated with a broad societal impact regardless of whether there was a nexus between the policy issue and the company. SLB 14M reverts to the pre-SLB 14L analysis, which takes a company-specific approach in evaluating significance. In other words, whether a policy issue transcends a company’s day-to-day business matters will be evaluated in light of the individual company’s circumstances.

Micromanagement

SLB 14M also reinstates prior staff guidance on micromanagement that had been rescinded by SLB 14L. In particular, SLB 14M reinstates Section C.2. of Staff Legal Bulletin No. 14J (SLB 14J), Section C.3. of SLB 14J and Section B.4. of Staff Legal Bulletin No. 14K (SLB 14K) which, among other things, confirm that:

• shareholder proposals seeking intricate detail or specific timeframes or methods for implementing complex policies may be excludable as micromanaging the company, including shareholder proposals on compensation available only to senior executives and/or directors; and

• shareholder proposals that are highly prescriptive, thereby supplanting the judgment of management and the board and removing their ability to exercise discretion or flexibility, may be excludable as micromanaging the company.

Additionally, under reinstated Section B.4. of SLB 14K, the Staff expects companies making a micromanagement argument to include an analysis of how the shareholder proposal may unduly limit the ability of management and the board to manage complex matters with the flexibility necessary to fulfill their fiduciary duties to shareholders.

Economic Relevance Exclusion

Rule 14a-8(i)(5) permits a company to exclude a shareholder 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.” Historically, this exclusion was infrequently used as both the Staff and courts had interpreted Rule 14a-8(i)(5) as not allowing for exclusion of a shareholder proposal reflecting social or ethical issues regardless of economic relevance to the company.¹ 

SLB 14M refocuses the Staff’s analysis under Rule 14a-8(i)(5) on the shareholder proposal’s significance to the company’s business. While proponents may continue to raise social or ethical issues in their arguments, they will now need to tie those issues to a significant effect on the company’s business. Though this company-specific analysis appears similar to the analysis of significant policy issues under Rule 14a-8(i)(7) discussed above, the Staff will apply separate analytical frameworks for these exclusions and will not look to one to inform the other.

No Board Analysis Required

In addition, SLB 14M confirms that the Staff does not expect a company to include a discussion of the board’s analysis of whether a particular policy issue is significant to the company when arguing for exclusion of a shareholder proposal under Rule 14a-8(i)(5) and/or Rule 14a-8(i)(7).

Other Topics Addressed

In addition to its discussion of substantive bases for exclusion, SLB 14M provides and/or reiterates guidance on a number of other shareholder proposal topics, including the following:

• Companies should not apply an overly technical reading of proof of ownership letters and should instead take a plain meaning approach to interpret the language of the letters. Proponents must still, however, provide clear and sufficient evidence of their eligibility to submit a shareholder proposal.

• Companies are not required to send a second deficiency notice to a proponent if the company previously sent an adequate deficiency notice and believes the proponent’s response to the initial deficiency notice nevertheless contains a defect.

• Proponents and companies should seek acknowledgment from the recipient to confirm receipt of emails used to submit shareholder proposals, deliver deficiency notices and respond to deficiency notices. The Staff encourages both companies and proponents to provide such confirming replies.

• While shareholder proposals may contain graphics, exclusion of graphics may be appropriate under Rule 14a-8(i)(3), which allows for exclusion of shareholder proposals that are contrary to the proxy rules, including Rule 14a-9, which prohibits materially false or misleading statements.

Practical Tips and Considerations

In its Frequently Asked Questions section, SLB 14M addresses the timing of the new guidance and, in particular, the potential effects on the current proxy season and pending no-action letters. The Staff confirmed that it will consider the guidance in place at the time it issues a response; therefore, for pending letters, the Staff will look to SLB 14M and the analyses discussed above. While previously submitted no-action letters do not need to be resubmitted, companies may want to raise new or revised legal arguments in light of SLB 14M and will have extended time to do so per Rule 14a-8(j)(1). This rule permits companies to make no-action letter submissions later than 80 days before the company files its definitive proxy statement if the company demonstrates good cause. To the extent that the new or revised legal arguments stem from SLB 14M, the Staff confirmed this will be considered good cause.

The new guidance makes a number of important and welcome changes that will be helpful to companies going forward, in particular the changes in approach to the ordinary business and economic relevance exclusions as well as with regard to deficiency notices. In light of the timing of the issuance of the guidance, the full effect of the changes is unlikely to be seen until next proxy season. For this season, companies and their advisors will need to think carefully (but quickly) about whether to supplement pending letters and/or to submit new letters for shareholder proposals that may now be excludable under SLB 14M. While the Staff will try to meet print deadlines for definitive proxy statements, depending on the volume and timing of new requests and supplemental correspondence received, the Staff may not be able to respond before the relevant print deadline, so companies should take this into account in considering how to move forward.

¹ See Lovenheim v. Iroquois Brands, Ltd., 618 F. Supp. 554 (D.D.C. 1985). SLB 14M confirms that the Staff will focus on the SEC’s prior statements on Rule 14a-8(i)(5) rather than the court’s interpretation of the rule in Lovenheim.