SEC Issues Staff Legal Bulletin Regarding Rule 14a-8
November 9, 2009
On November 4, 2009, the Division of Corporation Finance issued Staff Legal Bulletin No. 14E (CF) regarding the application of Rule 14a-8(i)(7), a rule that allows companies to exclude a shareholder proposal if the proposal deals with a matter relating to the company’s ordinary business operations. The Bulletin changes the framework under which risk-related proposals are evaluated by focusing on “the subject matter to which the risk pertains or that gives rise to the risk” rather than “whether a proposal and supporting statement relate to the company engaging in an evaluation of risk.” The Commission will focus on the underlying subject matter of the risk evaluation to determine whether the proposal involves a matter of ordinary business or whether the proposal raises policy issues so significant that the shareholders should vote on the proposal.
The Bulletin also changes the Commission’s view on whether proposals focusing on CEO succession planning can be excluded from a shareholder vote under Rule 14a-8(i)(7). Previously, the Commission expressed the view that CEO succession planning proposals could be excluded because they relate to “the management of the workforce,” which the Commission previously stated, in Exchange Act Release No. 40018 (May 21, 1998), relates to ordinary business matters. Due to recent events, the Commission now recognizes that CEO succession planning raises significant policy issues and, as such, going forward a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal that focuses on CEO succession planning.
Additionally, the Bulletin also provides that the SEC encourages companies and shareholder proponents intending to submit correspondence in connection with a no-action request to contact the SEC and, if possible, provide the date by which they intend to submit their correspondence. Companies and shareholder proponents may contact the SEC by telephone at (202) 551-3500 or by e-mail at shareholderproposals@sec.gov.
http://www.sec.gov/interps/legal/cfslb14e.htm
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