SEC Revises Guidance Affecting Shareholder Activism Under SLB No. 14M and C&DIs

Release of SLB 14M

SLB 14M revises guidance relating to Rule 14a-8, the rule governing the shareholder proposal process, and rescinds Staff Legal Bulletin No. 14L ("SLB 14L"), published in November 2021. Key takeaways from SLB 14M include:

• The SEC staff's new guidance regarding Rules 14a-8(i)(5) and 14a-8(i)(7) generally reverts to that issued under previously rescinded SLB 14I, 14J, and 14K;
• SLB 14M is immediately applicable to no-action requests submitted and currently pending in this ongoing shareholder proposal season; and 
• Companies can supplement pending no-action requests or submit new no-action requests past the 80-day deadline under Rule 14a-8(j)'s "good cause" exception due to the publication of SLB 14M if such requests relate to SLB 14L. Companies should be mindful though that supplemental requests may delay the SEC's response. 

Rule 14a-8(i)(5) – The Economic Relevance Exclusion

SEC staff's prior guidance under SLB 14L addressed Rule 14a-8(i)(5)'s "economic relevance exclusion" by following an interpretative approach outlined in Lovenheim v. Iroquois Brands to determine whether a shareholder proposal was "not otherwise significantly related to the company's business." Under the Lovenheim approach, proposals raising issues of broad social or ethical concern related to the company's business could not be excluded. 

Now, SLB 14M adopts a case-by-case analysis, focusing not on the issue's social or ethical significance in the abstract, but on the particular circumstances of the company to which the proposal is submitted. Under this approach, a company may exclude proposals raising social or ethical issues that are not meaningfully tied to the company's business.

Rule 14a-8(i)(7) – The Ordinary Business Exclusion

Significant Social Policy. SLB 14L made it more difficult for companies to rely on Rule 14a-8(i)(7)'s "ordinary business exclusion" to exclude proposals raising universally significant social issues. Specifically, SLB 14L focused on the issue's "broad societal impact" rather than its relevance to the company itself.

SLB 14M rejects this analysis, reverting to a company-specific evaluation. SEC staff will now focus on the proposal's significance "in relation to the company" and the company's "ordinary business operations," as they did before SLB 14L.

Micromanagement. SLB 14L also narrowed the ability of companies to exclude proposals under the ordinary business exclusion on the basis of "micromanagement." Under SLB 14L, proposals "seeking detail or seeking to promote timeframes or methods do not per se constitute micromanagement." Instead, SEC staff focused on the "level of granularity sought" and whether and to what extent the proposal limited the company's discretion.

SLB 14M reinstates the former guidance from SLB 14J and 14K, which centered on whether a proposal is "overly prescriptive." Examples include when a proposal requests an intricately detailed study or report or the imposition of specific timeframes or methods.

Procedural Updates

SLB 14M imposes a number of procedural updates as well, including:

• Use of Email. SLB 14M recommends that if proponents and companies send proposals via email, they make an effort to obtain proof of receipt. Senders should request a reply email or utilize email read receipts where possible.
• Proof of Ownership Letters. SLB 14M states that companies should not seek to exclude a shareholder proposal based on drafting variances in the proof of ownership letter if the language used in such letters is clear and sufficiently evidences the requisite minimum ownership requirements. 
• Use of Images in Shareholder Proposals. SLB 14M clarifies that the word limit in Rule 14a-8(d) does not preclude the use of graphics or images in shareholder proposal submissions. 

Rule 14a-8(i)(10), Rule 14a-8(i)(11), and Rule 14a-8(i)(12) Proposed Amendments

On July 13, 2022, the SEC proposed amendments to Rule 14a-8(i)(10) (the "substantial implementation exclusion"), Rule 14a-8(i)(11) (the "duplication exclusion"), and Rule 14a-8(i)(12) (the "resubmission exclusion"). It was expected that adoption of these amendments would make it more difficult for companies to exclude proposals under these exclusionary bases. 

While the amendments were never adopted, it appears that even before they were proposed, SEC staff was applying their narrowed application, resulting in a decrease in the number of successful no-action requests submitted under these rules. For example, in the 2022 proxy season, approximately 13% of requests were successful under the substantial implementation exclusion, as compared to 55% in 2021. SLB 14M clarifies that these amendments remain mere proposals and, as such, will not influence no-action request decisions going forward.

C&DI Updates 

SLB 14M arrives on the heels of the SEC's recent revisions to its C&DIs, which update guidance surrounding voluntary notices of exempt solicitation under Rule 14a-6(g) and beneficial ownership reporting requirements under Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act").

On January 27, 2025, the SEC made two significant revisions to its C&DIs for Proxy Rules and Schedules 14A/14C:

• First: Questions 126.08 and 126.09 specify that shareholder proponents can only submit written materials under a Notice of Exempt Solicitation through EDGAR if they have already been sent or given to security holders through other means. Only written communications that constitute a "solicitation" under Rule 14a-1(l) should be submitted. 
• Second: Question 126.10 clarifies that Rule 14a-9, which prohibits materially false and misleading statements, applies to written materials filed under a Notice of Exempt Solicitation. This may subject exempt solicitations to more rigorous SEC scrutiny and should prompt shareholder proponents to closely adhere to the proxy rules. 

On February 11, 2025, the SEC also revised C&DIs on Exchange Act Sections 13(d) and 13(g) and Regulation 13D-G Beneficial Ownership Reporting. Under the Exchange Act, 5% beneficial owners must file a Schedule 13D if they have acquired or held their securities "for the purpose of or with the effect of changing or influencing the control of the issuer." Schedule 13D is generally more onerous than Schedule 13G, which is used by "passive" investors. New Question 103.12 clarifies that a shareholder seeks to exert "control" over an issuer if it explicitly or implicitly threatens not to support a company's director nominee(s) if the issuer refuses to comply with the shareholder's recommendations. Recommendations captured in the new guidance can include a variety of subject matters, including voting policies advocating for specific actions on governance, social, environmental, or political issues.

Collectively, these C&DI updates will likely benefit companies by further limiting how shareholders can conduct proxy solicitations, the information contained in such solicitations, and the influence that shareholders can exercise.