On November 17, the SEC’s Division of Corporation Finance announced a major shift in how the SEC Staff handles requests to exclude shareholder proposals. This welcome change eliminates a significant source of friction for public companies in establishing whether proposals under Exchange Act Rule 14a-8, the SEC’s shareholder proposal rule, may be excluded from companies’ proxy statements during the 2025-2026 proxy season.
In particular, for the upcoming proxy season, companies need not request Staff no-action relief before excluding a shareholder proposal from an annual meeting proxy statement, except for instances where a company seeks to exclude a proposal as improper under state law. Instead, companies need only notify the Staff at least 80 days before filing their definitive proxy materials that they will exclude a proposal. If the notice includes the company’s unqualified statement that the company has a reasonable basis under Rule 14a-8 to omit the proposal, the Staff will confirm that it will not object to the exclusion in reliance on the company’s representation. Except for proposals that a company claims are improper under state law, the Staff will not entertain traditional no-action requests to exclude shareholder proposals.
Here’s what you need to know about the Staff’s approach for this proxy season:
- Background and prior Staff practice. Exchange Act Rule 14a-8 governs when a company must include a shareholder’s proposal in the company’s proxy statement for its annual meeting. Historically, the Staff has expected companies to obtain no-action relief before excluding a proposal under Rule 14a-8, even though the rule itself does not require no-action relief as a condition of exclusion.
- New procedure for all proposal exclusions except exclusion as improper under state law. For the upcoming proxy season, when a company intends to exclude any proposal other than a proposal that is improper under state law:
- the company must notify the Commission and the proponent that the company intends to exclude the proposal, as required under Rule 14a-8(j), by:
- delivering the notice to the Commission and the proponent no later than 80 days before the company intends to file its definitive proxy statement; and
- explaining in the notice why the company believes it may exclude the proposal.
- A company following this procedure will not receive a response from the Staff, but may then exclude the proposal from its proxy statement.
- A company seeking a response from the Staff must include an unqualified representation that the company has a reasonable basis to exclude the proposal based on Rule 14a-8, prior Staff guidance, and/or judicial decisions.
- Exclusion of proposals that are improper under state law still follow prior approach. A company seeking to exclude a proposal as improper under state law pursuant to Rule 14a-8(i)(1) must still follow the traditional no-action process.
- Prior Staff approach is not binding. A company need not feel bound by prior adverse decisions by the Staff if the company believes it has a reasonable basis for exclusion.
- The lack of a prior Staff response allowing for exclusion of a particular proposal does not prevent a company from concluding that there is a reasonable basis for exclusion.
- A prior Staff response stating that it was unable to concur with a company’s basis for exclusion also does not prevent a company from concluding that there is a reasonable basis for exclusion.
- Some practical tips about implementing the new approach.
- Rule 14a-8(j) notices will resemble abbreviated versions of prior no-action letters, with some changes to the introduction.
- Companies must still state their basis and reasons for exclusion because Rule 14a-8(j) requires a company to include an explanation of why the company believes that it may exclude the proposal in its notice.
- We anticipate that practice will be mixed as to whether to request a response to a Rule 14a-8(j) notice. Some companies may conclude that the extra work involved (i.e., referring to prior no-action letters and/or judicial decisions) is worth the potential comfort of receiving a response.
- We believe that the greater flexibility accorded to companies this proxy season will promote a beneficial realignment of Rule 14a-8 practice and that responsible use of the Staff guidance will give companies a newfound ability to rely on the rule as written.
