SEC’s Division of Corporation Finance Issues New Shareholder Proposal Guidance

October 27, 2009

On October 27, 2009, the Securities and Exchange Commission’s Division of Corporation Finance (the "Division") issued Staff Legal Bulletin No. 14E (the "Bulletin"), which provides guidance relating to the excludability of certain shareholder proposals under the ordinary business exclusion in Rule 14a-8(i)(7) of the Securities Exchange Act of 1934, as amended ("Rule 14a-8(i)(7)").  The Bulletin addresses two topics: 

  • Risk Assessment Shareholder Proposals:  In the past, when assessing proposals that requested that a company engage in an internal assessment of the risks or liabilities that the company faces as a result of a particular aspect of its operations, the Staff concurred that those types of assessments were an ordinary aspect of engaging in business, and therefore would concur with exclusion of the proposal under Rule 14a-8(i)(7), as relating to an evaluation of risk.  As announced in the Bulletin, going forward, the Staff will not address whether the proposal relates to an evaluation of risk but instead will focus on the "underlying subject matter" of the proposal.  Thus, if the underlying subject matter raises policy issues that are significant to that particular company, such as climate change or human rights, the proposal generally will not be excludable under Rule 14a-8(i)(7).  When, however, the underlying subject matter does not raise significant policy considerations relevant to the particular company, the proposals will be excludable.  As noted by the Division, shareholders submitted a significant number of evaluation of risk proposals in recent years, and thus companies and shareholders can expect many more such proposals to appear in proxy statements in the future.
  • CEO Succession Planning Shareholder Proposals:  The Division previously took the position that shareholder proposals focusing on CEO succession planning were excludable as an ordinary business matter under Rule 14a-8(i)(7) because the proposals related to the termination, hiring, or promotion of employees.  The Bulletin announces a change in position, stating that such proposals will no longer be excludable as an ordinary business matter under Rule 14a-8(i)(7).  The Division noted, however, that a CEO succession planning proposal still may be excludable "if it seeks 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."

The Bulletin is available at:

Gibson, Dunn & Crutcher LLP 

Gibson, Dunn & Crutcher’s Securities Regulation and Corporate Governance Practice Group is available to assist in addressing any questions you may have regarding these issues.  Please contact the Gibson Dunn attorney with whom you work, or any of the following in the firm’s Washington, D.C. office:  

John F. Olson – (202-955-8522, [email protected])
Brian J. Lane – (202-887-3646, [email protected])
Ronald O.  Mueller – (202-955-8671, [email protected])
Amy L. Goodman – (202-955-8653, [email protected])
Gillian McPhee – (202-955-8230, [email protected])
Elizabeth A. Ising – (202-955-8287, [email protected])

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