SEC Wants Detail When Companies Skip Shareholder Proposals

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By Phyllis Diamond

Companies that want to exclude from proxy materials a shareholder resolution involving “ordinary business operations” should also address the board’s analysis of any significant policy issue raised by the proposal, the SEC staff said Nov. 1.

The rule permitting omission of proposals dealing with a company’s day-to-day business matters is one of the most relied upon bases of exclusion by corporations that don’t want shareholders to vote on a particular topic.

The company’s explanation should detail the specific processes the board used “to ensure that its conclusions are well-informed and well-reasoned,” the Division of Corporation Finance said in Staff Legal Bulletin No. 14I (CF). It said a thorough discussion of the board’s analysis will help the staff in its consideration of a no-action request under 1934 Securities Exchange Act Rule 14a-8(i)(7).

Rule 14a-8 sets out the bases for excluding a shareholder proposal from a corporation’s annual proxy materials, including that the proposal involves the company’s ordinary business operations. However, the staff said, some proposals dealing with ordinary business matters also raise important policy questions.

According to the division, the board is in the best position to decide whether such a proposal “transcends ordinary business and would be appropriate for a shareholder vote.” Going forward, it said, a company’s no-action request should include a discussion of the board’s analysis of the particular policy issue raised.

The legal bulletin also touched on proposals “by proxy"—shareholder resolutions submitted through a representative. While a shareholder’s submission by proxy is permitted under Rule 14a-8, the staff said, such submissions may raise concerns, such as whether the rule’s eligibility requirements are satisfied. Concerns also have been raised that some shareholders may not know proposals are being submitted on their behalf.

Accordingly, the staff said, shareholders submitting a proposal by proxy should include documentation describing their delegation of authority for the proposal. The materials should include the identity of the shareholder and the proxy, the company to which the proposal is directed, and the meeting for which the proposal is submitted.

The staff also offered its views on the use of images in shareholder resolutions and proposals relating to operations that aren’t economically relevant to the company.

To contact the reporter on this story: Phyllis Diamond in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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