Back to the Future: SEC Staff Issues Sweeping New Guidance on Shareholder Proposals Mid-Season

On February 12, 2025, the Division of Corporation Finance (Staff) of the U.S. Securities and Exchange Commission (SEC) published Staff Legal Bulletin No. 14M (SLB 14M), rescinding Staff Legal Bulletin No. 14L (Nov. 3, 2021) (SLB 14L) and, in large part, reinstating guidance that had previously been issued under Staff Legal Bulletin Nos. 14I, 14J, and 14K (SLBs 14I, 14J, and 14K) (issued in 2017, 2018, and 2019, respectively).

The publication of SLB 14M may have come as a surprise to issuers and shareholder proponents alike, as its publication coincides with the middle of the shareholder proposal “season” and when many companies have already submitted no-action requests seeking exclusion of proposals pursuant to Rule 14a-8 of the Securities Exchange Act of 1934. To address this, SLB 14M provides a question and answer section regarding timing and processing concerns.

Fundamentally, SLB 14M takes a bold approach by “rescinding” guidance issued under the prior leadership of the SEC—though readers may recall that SLB 14L itself began this trend by rescinding SLBs 14I, 14J, and 14K. Consequently, SLB 14M can be viewed as merely resetting the playing field and negating some of the Staff decisions that followed the publication of SLB 14L.

While SLB 14M is lengthy and covers a lot of ground, it does not necessarily upend the shareholder proposal no-action process. Rather, SLB 14M reorients the Staff’s analytical approach to a pre-SLB 14L view, with a few slight changes. SLB 14M provides updated guidance on the economic relevance, ordinary business, micromanagement, substantial implementation, substantial duplication, and resubmission bases for exclusion. SLB 14M also provides some updated guidance on the use of email correspondence and images in proposals.

See a copy of SLB 14M.

Background on Rescinded SLB 14L

For context, the immediate predecessor to SLB 14M, SLB 14L, had a significant impact on the shareholder proposal no-action process. Published in the fall of the first proxy season under the prior leadership of the SEC, SLB 14L introduced the unique approach of reversing a previous SEC administration’s Staff guidance. Thus, in some ways, SLB 14L paved the path for SLB 14M.

As noted above, SLB 14L was preceded by SLBs 14I, 14J, and 14K. Those SLBs introduced and attempted to refine a novel notion of providing a “board analysis” to support no-action requests to exclude shareholder proposals under the ordinary business and relevance exclusions where a significant policy issue was raised by the proposal. The theory behind the board analysis was that proposals often raised policy issues that could be generally significant, but may not necessarily clearly relate to the business of a particular company. The board analysis was designed to assist the Staff in its analysis of the nexus between a proposal and a company’s business. SLBs 14I, 14J, and 14K also provided updated guidance on the micromanagement prong of the ordinary business exclusion that had the effect of making micromanagement arguments more effective.

In reaction to the modified approach to no-action requests (and corresponding results) ushered in by SLBs 14I, 14J, and 14K, SLB 14L purported to correct what it called an “undue emphasis” on evaluating the significance of a policy issue to a particular company, which SLB 14L claimed “did not yield consistent, predictable results.” SLB 14L sought to “realign” the Staff’s approach to no-action requests with the SEC’s initial articulation of the rules, but in practice, it quickly became apparent that SLB 14L dictated a new, stricter approach. 

In the wake of SLB 14L, no-action request success rates declined dramatically from their historical averages, and the Staff overturned no-action letter decisions from not only the SLB 14I, 14J, and 14K years, but long-standing precedent too. The years following the publication of SLB 14L also saw a tightening of standards for no-action requests submitted under the substantial implementation, substantial duplication, and resubmission bases for relief. In addition, SLB 14L introduced a new requirement for companies that received procedurally deficient proposal submissions to submit more than one deficiency letter to proponents in certain circumstances. 

In sum, SLB 14L had the effect of shifting the balance of power in the shareholder proposal arena squarely in favor of shareholder proponents and creating significant uncertainty in the shareholder proposal no-action letter process.

In light of this, perhaps it comes as no surprise that one of the first official acts of Acting SEC Chair Mark Uyeda is undoing the legacy of SLB 14L. SLB 14M does this in a sweeping, though methodical manner.

“Ordinary Business” Exception— A Proposal’s Nexus to a Company Is Once Again Relevant

The “ordinary business” exception provided by 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.” Under this basis, companies may exclude proposals relating to 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, in the Staff’s view, the proposal focuses on policy issues that are sufficiently significant because they transcend ordinary business and would be appropriate for a shareholder vote.

In determining whether a policy issue transcends ordinary business, the Staff historically would consider the nexus between a policy issue and the company. SLBs 14I, 14J, and 14K attempted to refine this inherently difficult inquiry by considering an analysis of the significance of a particular matter to a company by that company’s board of directors. SLB 14L, however, rejected this outright in favor of a blanket approach analyzing “whether the proposal raises issues with a broad societal impact, such that they transcend the ordinary business of the company.”

SLB 14M explicitly rebukes this approach with a return to focusing on whether a particular policy issue raised by a proposal is significant to a particular company, rather than a view that certain issues or categories of issues are universally “significant.” The Staff’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 on a “case-by-case basis.”

Micromanagement— A More Expansive View

Companies also may exclude proposals under the ordinary business exclusion that are found to “micromanage” a company “by probing too deeply into matters of a complex nature.” Historically, successful micromanagement arguments were relatively rare. SLBs 14I, 14J, and 14K expanded the circumstances where a proposal would be found to micromanage a company, with SLB 14K explaining that the Staff’s analysis would focus on whether a proposal is overly prescriptive in its request. 

SLB 14L again reversed this course, noting that proposals seeking detail or seeking to promote time frames or methods “do not per se constitute micromanagement” and that instead of the prescriptiveness of a proposal, the Staff would focus on “the level of granularity sought in the proposal and whether and to what extent it inappropriately limits discretion of the board or management,” among other considerations.

In SLB 14M, the Staff once again reverts to views articulated in SLBs 14I, 14J, and 14K. In addition to guidance focusing on the prescriptiveness of a proposal, the reinstated guidance also specifically notes that the micromanagement framework applies to proposals that call for a study or report and that the Staff will consider the underlying substance of the matters addressed by the study or report. In addition, when determining a proposal’s underlying concern or central purpose, the Staff looks not only to the “resolved” clause but to the proposal and the supporting statement in their entirety. SLB 14M also clarifies that proposals relating to senior executive and/or director compensation may still micromanage a company.

Going forward, the Staff will evaluate micromanagement based on the level of prescriptiveness with which a proposal approaches its subject matter. This along with some recent successful micromanagement arguments during the 2024 proxy season will likely lead to a flood of new micromanagement arguments being advanced. It remains to be seen how successful they will be.

A Return to Relevance for the “Economic Relevance” Exception?

The “economic relevance” exception of 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, the economic relevance exception was seldom successful because the Staff took a narrow view that if a company conducted any business, no matter how small, related to the issue raised in the proposal then the exception would not apply. In SLB 14I the Staff reversed course on this, stating that the Staff’s application “has unduly limited the exclusion’s availability” and encouraging companies to submit a board analysis to demonstrate that a proposal topic was not “otherwise significantly related to the company’s business.” This was reversed in SLB 14L, with the Staff returning to the view that proposals raising issues of broad social or ethical concern may not be excluded so long as the company’s business could be viewed as related to the issue at hand, no matter how small.

SLB 14M returns to a company-specific approach. According to the updated guidance, the Staff’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. 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. SLB 14M notes that when a matter raised in a proposal is not “otherwise significantly related to the company,” the availability of the economic relevance exclusion will depend on “the particular circumstances of the company to which the proposal is submitted.” The mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business” and that Staff will consider the proposal in light of the “total mix” of information about the issuer. 

The Staff notes, however, that it will continue to generally view substantive governance matters to be significantly related to almost all companies.

SLB 14M also explains that despite some overlap in the language and analysis of the ordinary business and economic relevance exclusions, the Staff “will not look to [a company’s] analysis under Rule 14a-8(i)(7) when evaluating arguments under Rule 14a-8(i)(5)” and believes that “applying separate analytical frameworks will ensure that each basis for exclusion serves its intended purpose.”

Board Analysis Likely Not Returning

As described above, a key feature of SLBs 14I, 14J, and 14K was the notion of a “board analysis” to support a company’s request for no-action relief. While SLB 14M largely reinstates the prior guidance in these SLBs, it acknowledges that prior no-action requests with a board analysis “did not generally have a dispositive effect.” Thus, going forward the Staff will generally not expect companies to provide board analyses. Companies may still voluntarily submit a board analysis if they believe it may be helpful, but the time and expense associated with these analyses, coupled with their lack of dispositive effect and the Staff’s clear indication that such analyses are not expected, suggests that this aspect of SLBs 14I, 14J, and 14K will not return.

Substantial Implementation, Duplication, and Resubmission Exclusions—A Repudiation of Recent Approaches

On July 13, 2022, the SEC proposed amendments to modify the “substantial implementation,” “duplication,” and “resubmission” bases for exclusion. The proposed amendments would generally make it more difficult for companies to exclude proposals under these bases.

For example, Rule 14a-8(i)(10) provides that a company may exclude from its proxy materials a shareholder proposal that “the company has already substantially implemented.” In determining whether a proposal has been substantially implemented, the Staff traditionally looked at whether a company’s particular policies, practices, and procedures “compare favorably” with the guidelines of the proposal, whether the company has addressed the proposal’s underlying concerns and whether the essential objectives of the proposal have been met. Historically, proposals could be excluded on the basis of substantial implementation even if a company had not implemented all of the proposal’s requested elements.  The proposed amendments, however, would modify this standard to require a company to implement all of a proposal’s essential elements.

While the SEC has not adopted the proposed amendments (and may never), the publication of the proposed amendments coincided with a drastic reduction in successful no-action requests under the affected bases. 

SLB 14M appears to implicitly acknowledge this issue, noting that the SEC “has not adopted those proposed amendments” and states that “unless and until” those (or other) amendments are adopted, no-action requests will be analyzed and determined pursuant to “operative” rules and guidance. 

This should result in a rebound in successful no-action requests under these bases and, in particular, return the analytical framework for substantial implementation arguments to a more permissive one that does not require total implementation.

Proof of Ownership and Deficiency Letters

Shareholder proposals may be excluded if certain “procedural” requirements are not satisfied. One of the most common flaws with shareholder proposal submissions is when a proponent is unable to adequately demonstrate that he or she meets minimum ownership requirements. If a proponent does not provide adequate “proof” of their ownership, companies are required to send them a notice of the deficiency within 14 days from receiving the proposal. Proponents often respond with a “proof of ownership” letter from their broker or bank demonstrating that they have held the requisite amount of company securities for an appropriate period of time to submit a proposal.

SLB 14L provided a new Staff approach to this correspondence, requiring that companies identify any specific defects in a proof of ownership letter, even if the company previously sent a deficiency notice prior to receiving proof of ownership.

SLB 14M reverses this requirement. The Staff states that it “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.”

SLB 14M also reiterates prior guidance that the Staff does not find “overly technical” readings of proof of ownership requirements as valid grounds for exclusion of a proposal.

Use of Email and Images in Proposals

SLB 14I initially provided updated guidance on the use of images in proposals. SLB 14L reissued that guidance, presumably because the Staff found it helpful. SLB 14L also provided new guidance encouraging proponents and companies to be generally cordial in their use of email instead of paper mail for submissions and correspondence. 

SLB 14M reiterates this guidance in spite of rescinding SLB 14L. As to the use of images, SLB 14M notes that a proposal may violate the procedural requirement of Rule 14a-8(d) that a proposal may not exceed 500 words if the total number of words in a proposal, including words in the images, exceeds 500.

In addition, images in a proposal must comply with the other provisions of Rule 14a-8, meaning they may not:

• 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
• be 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.

With regards to email communications, SLB 14M encourages senders to seek a reply email from recipients acknowledging receipt of emails to help establish delivery. The Staff also encourages both companies and shareholder proponents to acknowledge receipt of emails when requested. SLB 14M notes that the Staff does not consider screenshots or photos of emails on the sender’s device to be proof of delivery to the recipient.

In instances where a company does not disclose in its proxy statement an email address for submitting proposals, the Staff encourages shareholder proponents to contact the company to obtain the correct email address for submitting proposals before doing so and encourages companies to provide such email addresses upon request.

If companies use email to deliver deficiency notices to proponents, the Staff suggests seeking confirmation of receipt from the proponent or the representative in order to prove timely delivery.

In addition, if a shareholder uses email to respond to a company’s deficiency notice, the Staff notes that 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 again encourages the shareholder or representative to seek confirmation of receipt.

Timing Considerations

Recognizing that SLB 14M has the potential to be disruptive due to its release during the middle of the shareholder proposal season, SLB 14M provides a few answers to anticipated questions regarding process.

Notably, SLB 14M states that the new guidance will be applied to no-action requests in the current season. Pending no-action requests do not need to be resubmitted, but if a company wishes to raise new legal arguments in light of this bulletin, such arguments should be submitted as supplemental correspondence.

Similarly, if a company believes that a new no-action request would be potentially viable due to the publication of SLB 14M but the deadline to submit a request has passed, the Staff will consider the publication of SLB 14M to be “good cause” within the meaning of Rule 14a-8(j) if it relates to legal arguments made by the new request. Rule 14a-8(j)(1) provides that the “staff may permit the company to make its submission later than 80 days before the company files its definitive proxy statement and form of proxy, if the company demonstrates good cause for missing the deadline.”

Finally, the Staff will endeavor to meet print deadlines for definitive proxy statements in responding to no-action requests but depending on the volume and timing of new requests and supplemental correspondence being received, the Staff may not be able to respond before the relevant print deadline. 

Conclusion

SLB 14M represents a significant mid-season development for companies facing shareholder proposals. The stark rejection of SLB 14L and shift in analytical approach to numerous exclusionary bases of Rule 14a-8 may necessitate companies evaluate whether a new no-action request is appropriate, or whether supplemental correspondence should be submitted to the Staff on existing no-action requests. The timing of SLB 14M will require quick decision-making as the calendar advances in what is already a winter of change for many corporate issuers.