On November 3, 2021, the Division of Corporation Finance (“Corp Fin”) of the U.S. Securities Exchange Commission (“SEC”) released Shareholder Proposals: Staff Legal Bulletin No. 14L(CF) (the “SLB”) to provide information for companies and shareholders on the updated views of Corp Fin regarding certain sections of Rule 14a-8 under the Securities Exchange Act of 1934.  The SLB rescinds Staff Legal Bulletins 14I, 14J and 14K (the “Prior SLBs”) which provided guidance on the exclusion of ESG-related shareholder proposals from proxy statements using the “economic relevance” exception under Rule 14a-8(i)(5) and the “ordinary business” exception under Rule 14a-8(i)(7).  The Prior SLBs focused on evaluating whether a specific proposal raised a policy issue that was sufficiently significant to the company’s business.  Instead, the SLB indicates that the SEC staff will focus on the “social policy significance of the issue” as opposed to considering the policy issue’s impact or lack thereof on the specific company.  

Under the new guidance of the SLB, the SEC appears to be less receptive to excluding proposals that could arguably have broad societal impact, such as those related to ESG.  We expect that the effect of the SLB will result in an increased number of ESG-related proposals.

Rule 14a-8(i)(5)

Rule 14a-8(i)(5) permits a company to exclude a shareholder proposal if it “relates to operations which account for less than 5 percent of the company's total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company's business.” Under the SLB, Corp Fin will return to its pre-November 2017 approach, in which “proposals that raise issues of broad social or ethical concern related to the company’s business may not be excluded, even if the relevant business falls below the economic thresholds of Rule 14a-8(i)(5).” A company will no longer be expected to provide the SEC with a board analysis in connection with related no-action requests.

Rule 14a-8(i)(7)

Rule 14a-8(i)(7) permits a company to exclude a shareholder proposal from the company’s proxy statement that “deals with a matter relating to the company’s ordinary business operations.” 

Significant Social Policy Exception

A company may not exclude a proposal under the ordinary business exception if it relates to a significant social policy issue. In order for there to be a significant social policy issue, previous Corp Fin guidance required there to be a nexus between a company’s operations and the social policy, but Corp Fin found that this approach caused time intensive company-specific factual determinations that “did not yield consistent, predictable results.” Under the SLB, Corp Fin “will instead focus on the social policy significance of the issue that is the subject of the shareholder proposal” and “whether the proposal raises issues with a broad societal impact, such that they transcend the ordinary business of the company.” As a result, a company will no longer be able to exclude proposals under the ordinary business exception that do not have a direct connection to the company but raise issues with a broad societal impact. No-action requests will no longer require companies to provide the SEC with a related board analysis.


In determining whether the ordinary business exception applies, the SEC also looks to whether the proposal micromanages company or board discretion on complex matters. Corp Fin determined that its previous guidance was over inclusive in finding limits on company or board discretion to be micromanagement. Under the SLB, Corp Fin will “focus on the level of granularity sought in the proposal and whether and to what extent it inappropriately limits discretion of the board or management.” Corp Fin will no longer agree with the exclusion of proposals that “enable investors to assess an issuer’s impacts, progress towards goals, risks or other strategic matters appropriate for shareholder input” if it allows for discretion in how the company achieves these targets.    

Proof of Ownership Letter

Rule 14a-8(b) requires a proponent of a shareholder proposal to prove that it has “continuously held” a required amount of the company’s securities for a required period of time. Corp Fin clarified in the SLB that a company should not exclude a shareholder proposal on technical grounds if it has received “documentary support sufficiently evidencing the requisite minimum ownership requirements.” 

Use of Email

With the increased use of email to deliver shareholder proposals, Corp Fin suggested in the SLB that:

  • if a company does not provide an email address where proposals may be sent in its proxy statement, proponents should contact companies to request the proper email address for submitting proposals, and companies should comply with such requests; and  
  • proponents request, and companies provide, a reply email acknowledging receipt when a shareholder proposal is sent by email.