Jason Milch



New Report Shines Light on SEC’s Review of Shareholder Proposal Exclusion Requests

RESTON, Va. (April 30, 2019) – There are discernible and instructive trends over the last three years in companies’ ability to exclude certain shareholder proposals from proxy materials – particularly those relating to environmental, social and governance (ESG) issues. This according to a new white paper released today by compliance research firm, Intelligize. The report, No Action Letter Citation: Analyzing Excluded Shareholder Proxy Proposals, found that since 2016, more than half of all exclusions allowed by the SEC were based on Rules 14a-8(i)(7) and 14a-8(i)(10). Rule 14a-8(i)(7) relates to a proposal’s impact on a company’s “ordinary business operations,” while the Rule 14a-8(i)(10) exclusion is granted if the SEC determines that a company has already “substantially implemented” a proposal.

The new white paper dissects thousands of no-action letter requests found on the Intelligize platform to identify the most effective methods of securing shareholder proposal exclusions through the no-action letter process, the arguments and citations that have proven most persuasive, and the rules on which the SEC Staff generally rely when concurring.

Companies wishing to exclude shareholder proposals from their annual meeting proxy materials are only required to notify the SEC of the omission pursuant to Securities Exchange Act Rule 14a-8(j). However, they customarily provide this notification through a no-action letter request to exclude such materials. While no-action letters are informal and do not carry the force of law, they provide a level of transparency and guidance that is instructive to similarly situated companies.

“As we advance towards U.S. public company annual meetings in May, the recent government shutdown’s disruption of a well-established shareholder proposal exclusion process continues to reverberate,” said Rob Peters, a senior director at Intelligize and one of the report’s co-authors. “Public companies wishing to block perceived ‘problematic’ or ‘burdensome’ shareholder proposals from proceeding to a vote were somewhat constrained by the timing of the shutdown, meaning that some proposals that would have typically been submitted through the no-action letter process have gone straight to the proxy materials.”

Intelligize found that while companies have submitted a range of no-action letter requests to exclude proposals relating to traditional governance topics — such as classified boards — at a steady rate since 2016, the real movement is on no-action letter requests related to emerging social topics. Requests on human, animal and social rights, for example, jumped from 14 for the entirety of 2016 to 25 in Q1 2019 alone — a 79 percent increase.

Since environmental proposals typically target emerging issues, the Rule 14a-8(i)(10) argument that a request has already been “substantially implemented” generally falls by the wayside. Indeed, that rule has made up just eight percent of all environmental exclusions since 2016, compared to 27 percent for all topics. Companies therefore rely heavily on Rule 14a-8(i)(7) (the ordinary business exclusion), hoping that the SEC’s view that proposals can be excluded if they are judged to be micro managerial in nature. Since 2016, 42 percent of environmental proposals have been successfully excluded based on Rule 14a-8(i)(7).  Many of the same nuances observed in environmental concur letters also apply to shareholder proposals addressing a broad range of social activism topics.

“We are in an era where shareholders are aggressively lobbying management of public companies to look beyond profitability and consider a variety of socio-politically charged ESG issues,” added Peters. “What once may have been considered ‘micromanagement’ is now a core component of building a company’s brand and value. Corporate citizenship is no longer a fringe topic but is increasingly becoming a central concern for a broad spectrum of investors.”

Additional Whiter Paper Takeaways

  • The white paper illustrates an increased frequency of the use of Rule14a-8(i)(7) when companies must deal with activist shareholder proposals based on environmental or social hot topics.
  • If multiple exclusionary arguments are presented to the SEC Staff, proposals that relate to ordinary business operations, proposals that have already been implemented, and failure to provide evidence of eligibility are the three most persuasive arguments for the exclusion of shareholder proposals.
  • There is no direct benefit to issuers that argue to exclude shareholder proposals based on multiple rules.
  • Although Rule 14a-8(i)(3) is a popular addition for companies to include among multiple exclusionary rule requests, exclusions are almost never granted based on this rule. Issuers would be well served to streamline their no-action letters to focus on rules with higher rates of success.
  • The SEC Staff continues to tweak Rule 14a-8(i)(5) and 14a-8(i)(7) guidance, possibly indicating their awareness that, as originally written, they did not accomplish the desired results, or that as business has evolved, so too must these rules. Under Rule 14a-8(i)(5), companies may exclude a shareholder proposal if the proposal relates to operations which account for less than five percent of a company’s total assets, net earnings and gross sales and is not otherwise significantly related to the company’s business.
  • Rule 14a-8(i)(5) is intended to assist companies with social or ethical issues that have a minor impact on their financial viability, however, since 2016, only one exclusionary request that included 14a-8(i)(5) but also included other rules was actually excluded based on 14a-8(i)(5). So, if the Staff does indeed see 14a-8(i)(5) as a remedy to some of these issues, more tweaking of the Rule is needed, as data indicates that in its current form, the rule is not performing its desired function.

Intelligize’s No Action Letter feature offers interactive insights derived from a broad range of no-action letters, enabling lawyers and financial analysts to glean quick insights into no-action letter grants and denials by company, issue and law firm.

EDITOR’S NOTE: The charts contained in this report may be reprinted by any media outlet with credit given to Intelligize as the source.

About Intelligize

Intelligize is the leading provider of best-in-class content, exclusive news collections, regulatory insights, and powerful analytical tools for compliance and transactional professionals. Intelligize offers a web-based research platform that ensures law firms, accounting firms, corporations and other organizations stay compliant with SEC regulations, build stronger deals and agreements, and deliver value to their shareholders and clients. Headquartered in the Washington, DC metro area, Intelligize serves Fortune 500 companies, including Starbucks, IBM, Microsoft, Verizon and Walmart, as well as many of the top global law and accounting firms. In 2016, Intelligize became a wholly-owned subsidiary of LexisNexis®, a leading global provider of content-enabled workflow solutions designed specifically for professionals in the legal, risk management, corporate, government, law enforcement, accounting and academic markets. For more information, visit

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