As the 2020 proxy season looms on the near horizon, recent pronouncements on Rule 14a-8 no-action requests by the SEC’s Division of Corporation Finance (Division or Staff) may have significant implications for the shareholder proposal no-action letter process. Last week, the Division published Staff Legal Bulletin (SLB) No. 14K, which provides guidance and observations, based on the Staff’s experience during the 2019 proxy season, regarding the application of Rule 14a-8(i)(7)’s “ordinary business” exclusion in two key areas: (1) the nature and scope of the “significance” analysis needed to support a company’s (i)(7) no-action request, and the importance to the Staff of knowing what the board of directors thinks in situations where a shareholder proponent argues that a policy issue raised in his or her proposal transcends ordinary business; and (2) the contours of the “micromanagement” prong of the ordinary business exclusion analysis. SLB No. 14K also re-emphasizes the Division’s “substance-over-form” approach to dealing with technical proponent proof-of-ownership deficiencies. As such, SLB No. 14K builds on previous post-season Division guidance set forth in SLB Nos. 14I, 14J and 14F.
Another recent development that may affect the upcoming proxy season – but which is not mentioned in SLB No. 14K – is the Division’s announcement in early September of certain changes in the Staff’s processing of company Rule 14a-8 no-action requests. According to this announcement, the Division plans to issue oral responses to some no-action letters, and decline to state a view under some as yet unidentified circumstances. Despite assurances of full transparency given by senior Division officials during the mid-September meeting of the ABA Business Law Section, corporate and shareholder constituencies alike remain somewhat skeptical that this new approach will improve the shareholder proposal process.
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