When the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) released Staff Legal Bulletin No. 14I (“SLB 14I”) last fall, it seemed that the Staff was potentially signaling that it would be taking a more issuer-friendly approach in its review of no-action letter requests (“NALs”). In particular, the language in SLB 14I regarding the role of the board of directors suggested that the Staff may defer to the board’s determination of whether a shareholder proposal focuses on a significant policy issue, in the case of the “ordinary business” exception (Rule 14a-8(i)(7)), and whether the shareholder proposal is significantly related to the issuer’s business, in the case of the “economic relevance” exception (Rule 14a-8(i)(5)), as long as the NALs provided a sufficiently detailed discussion of the board’s analysis and the “specific processes employed by the board to ensure that its conclusions are well-informed and well-reasoned.” For example, SLB 14I stated that these types of “determinations often raise difficult judgment calls that the Division believes are in the first instance matters that the board of directors is generally in a better position to determine.” One could read that language to mean that including a well-developed board analysis could significantly influence the outcome for a NAL based on the “ordinary business” exception and/or the “economic relevance” exception. Continue Reading Making Sense of the SEC’s 2018 NALs on Shareholder Proposals for the Proxy Statement

On November 1 2017, the Securities and Exchange Commission (“SEC”) released guidance (Staff Legal Bulletin No. 14I (“SLB 14I”)) clarifying the scope and application of the ordinary business and economic relevance grounds for excluding a shareholder proposal under Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) from a company’s proxy statement.[1]  On November 20, Apple Inc. became the first corporation to attempt to use this guidance in a request for no-action relief from the staff of the SEC’s Division of Corporation Finance (the “Staff”), in response to governance activist Jing Zhou’s proposal that Apple create a board committee focused on human rights (the “Proposal”).  On December 21, 2017, the Staff responded, denying Apple’s request to exclude the Proposal from its proxy materials.

Continue Reading Apple’s Unsuccessful Test of the SEC’s Recent Guidance on Shareholder Proposals

Just as companies are starting to gear up for the 2018 proxy season, on November 1, 2017, the staff (the “Staff”) of the Division of Corporation Finance of the Securities and Exchange Commission (“SEC”) released new guidance on shareholder proposals that seems to indicate the Staff will be taking a more company-friendly approach in its review of no-action letter requests.

Specifically, Staff Legal Bulletin No. 14I (“SLB 14I”) clarifies the scope and application of two grounds for excluding a shareholder proposal from a company’s proxy statement – the “ordinary business” exception (Rule 14a-8(i)(7)) and the “economic relevance” exception (Rule 14a-8(i)(5)) – and provides guidance on proposals submitted on behalf of shareholders (“proposals by proxy”) and the use of graphs and images in proposals. The following is a summary of the guidance.

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