SEC’s Division of Corporation Finance Issues SLB 14M, Rescinding SLB 14L

On February 12, 2025, the SEC’s Division of Corporation Finance (Division) issued Staff Legal Bulletin (SLB) No. 14M.¹ SLB 14M provides guidance on the scope and application of Exchange Act Rules 14a-8(i)(5) and 14a-8(i)(7), which set forth two of the 13 bases upon which companies may exclude shareholder proposals from their proxy materials, as well as other aspects of the rules governing shareholder proposals. SLB 14M rescinds SLB 14L, which had made it more difficult for companies to exclude social policy and environmental shareholder proposals, even where such proposals had little significance to the relevant company, and reinstates prior guidance regarding how the 14a-8(i)(7) exclusion will be evaluated.

Rule 14a-8(i)(5): The “economic relevance” exclusion. This rule permits a company to exclude a shareholder proposal that “relates to operations which account for less than 5% of the company’s total assets at the end of its most recent fiscal year, and for less than 5% 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 SLB 14L, proposals that raised “issues of broad social or ethical concern related to the company’s business” were not excludable, even where the relevant company business fell below the rule’s quantitative thresholds. The Division has reversed this approach in SLB 14M, changing the focus of the analysis from matters “related” to the company’s business to a proposal’s “significance” to the company’s business when it otherwise relates to company operations that account for less than the quantitative thresholds. This will require a case-by-case analysis, as a matter significant to one company may not be significant to another. However, the Division noted that they “would generally view substantive governance matters to be significantly related to almost all companies.”

Where the significance of a proposal to a company’s business is not apparent on its face, the proposal may be excludable unless the proponent can demonstrate that it is “otherwise significantly related to the company’s business.” Where social or ethical issues are raised, proponents must tie those matters to a significant effect on the company’s business. Potential reputational or economic harm alone will not be sufficient. In evaluating whether a proposal is “otherwise significantly related to the company’s business,” the staff will consider the proposal in light of the “total mix” of information about the issuer.

SLB 14M also states that the Division’s analysis of whether a proposal is “otherwise significantly related to the company’s business” under Rule 14a-8(i)(5) has at times been informed by its analysis under Rule 14a-8(i)(7) — the “ordinary business” exception. The Division has clarified that it will not look to its analysis under Rule 14a-8(i)(7) when evaluating arguments under Rule 14a-8(i)(5).

Rule 14a-8(i)(7): The “ordinary business” exclusion. This provision permits a company to exclude proposals that deal with matters “relating to the company’s ordinary business operations.” This exclusion has two central prongs: (1) the subject matter of the proposal; and (2) the degree to which the proposal “micromanages” 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.”

Ordinary Business Operations (the first prong of the “ordinary business” exclusion)

Under the first prong of the exclusion, proposals that raise matters that are “so fundamental to management’s ability to run a company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight” relate to a company’s ordinary business operations (and are therefore excludable). However, in a 1998 release, the SEC stated that proposals that focus on significant policy issues would not generally be excludable under this prong because they “… raise policy issues so significant that it would be appropriate for a shareholder vote.” Consistent with this view, under SLB 14L, the Division said it would no longer focus on “… the nexus between a policy issue and the company,” but would instead focus on the “social policy significance of the issue.” Under SLB 14M, however, the Division reversed this position, stating that it will revert to a company-specific approach in evaluating significance, rather than focusing solely on broad societal impact or universal significance.

Micromanagement (the second prong of the “ordinary business” exclusion)

SLB 14M reinstates the following sections of guidance previously rescinded by SLB 14L:

• Staff Legal Bulletin No. 14J Section C.2. Micromanagement
• Staff Legal Bulletin No. 14J Section C.3. The Division’s application of Rule 14a-8(i)(7) to proposals that address senior executive and/or director compensation
• Staff Legal Bulletin No. 14K Section B.4. Micromanagement

The guidance set forth in these reinstated sections is summarized below.

Complexity: A proposal (including a proposal that calls for studies or reports) may probe too deeply into matters of a complex nature (and is therefore excludable as micromanagement) if it “involves intricate detail, or seeks to impose specific time-frames or methods for implementing complex policies.” Therefore, a proposal may be excludable as micromanagement where it prescribes specific actions without allowing the company sufficient flexibility or discretion to address the matter. However, where a company asserts micromanagement as a reason to exclude a proposal in its no-action request, it should describe how the proposal may unduly limit the ability of management and the board to manage complex matters with a level of flexibility necessary to fulfill their fiduciary duties to shareholders.

Senior Executive and/or Director Compensation: Although proposals that relate to general employee compensation and benefits are excludable under Rule 14a-8(i)(7), proposals that focus on significant aspects of senior executive and/or director compensation generally are not excludable under this rule. Where a proposal raises both ordinary business matters and senior executive and/or director compensation matters, the staff will evaluate “whether the focus of a proposal is senior executive and/or director compensation, or whether its underlying concern relates primarily to ordinary business matters that are not sufficiently related to senior executive and/or director compensation.” In addition, a proposal that addresses senior executive and/or director compensation may be excludable under Rule 14a-8(i)(7) if “a primary aspect of the targeted compensation is broadly available or applicable to a company’s general workforce and the company demonstrates that the executives’ or directors’ eligibility to receive the compensation does not implicate significant compensation matters.”

Proposals addressing senior executive and/or director compensation that seek intricate detail, or seek to impose specific timeframes or methods for implementing complex policies may be excluded under Rule 14a-8(i)(7) on the basis of micromanagement. However, proposals that focus on significant executive and/or director compensation matters that do not micromanage will continue not to be excludable under Rule 14a-8(i)(7).

Board Analysis: Previously, the Division encouraged companies to include a discussion reflecting the board’s analysis of the particular policy issue raised and its significance to the company with their no-action requests under Rules 14a-8(i)(5) and 14a-8(i)(7). The staff will no longer expect a company’s no-action request to include the board’s analysis of the particular policy issue raised and its significance to the company (but such an analysis may be included if desired).

Word Count/Graphs and Images: Rule 14a-8(d) requires a proposal (including any supporting statement) to be limited to 500 words. This requirement does not prohibit the inclusion of graphs and/or images in a proposal. However, SLB 14M notes that the exclusion of graphs and/or images by a company would be appropriate where they:

• Make the proposal materially false or misleading
• Render the proposal so inherently vague or indefinite that neither the stockholders voting on the proposal, nor the company in implementing it, would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires
• Directly or indirectly impugn character, integrity or personal reputation, or directly or indirectly make charges concerning improper, illegal, or immoral conduct or association, without factual foundation
• Are irrelevant to a consideration of the subject matter of the proposal, such that there is a strong likelihood that a reasonable shareholder would be uncertain as to the matter on which he or she is being asked to vote.

Note that the total number of words in a proposal, including words in the graphics, may not exceed 500.

Proof of Ownership Letter: Under Rule 14a-8(b), a proponent must prove eligibility to submit a proposal by offering proof that it “continuously held” the required amount of securities for the required amount of time. Although the staff has previously suggested a format to use, that format is not mandatory. In addition, a company is not required to send a second deficiency notice to a proponent if the company previously sent an adequate deficiency notice before it receives the proponent’s proof of ownership and the company believes that the proponent’s proof of ownership letter contains a defect.

Use of E-Mail: If using email for communications between a proponent of a shareholder proposal and the company, the sender should seek a receipt acknowledgment from the recipient. E-mail read receipts may also help to establish that emails were received. Finally, companies and proponents are encouraged to use another method of communication or e-mail another contact if a requested confirmation is not provided. Note that screenshots or photos of emails on the sender’s device are not considered to be proof of delivery to the recipient.

FAQs: SLB 14M includes a number of FAQs on transition matters, including the following:

• If a no-action request was submitted prior to publication of SLB 14M, the staff will consider the guidance in place at the time a response is issued. If, after considering the views expressed in SLB 14M, a company believes it is entitled to exclude a proposal, it must make a legal argument that lays out the basis for the exclusion in either the initial no-action request or a supplemental correspondence.
• Previously submitted requests do not need to be resubmitted. However, if a company wishes to raise new legal arguments in light of SLB 14M, such arguments should be submitted as supplemental correspondence via the online portal.
• The staff may permit the company to make a no-action request less than 80 days before the company files its definitive proxy statement and form of proxy if the company demonstrates “good cause” for missing the deadline. The staff will consider the publication of SLB 14M to be “good cause” if it relates to legal arguments made by the new request.
• The staff will endeavor to meet print deadlines for definitive proxy statements (but may not be able to do so).
• Questions should be e-mailed to shareholderproposals@sec.gov. However, the staff will not advise companies or proponents regarding legal arguments or strategy.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.