Sanford Lewis, Director, Shareholder Rights Group
The SEC published Staff Legal Bulletin 14K on October 16, 2019. We appreciate the publication of these guidance documents, and believe the Bulletin in many aspects provides helpful clarifications that may reduce the number of misdirected no action request filed by issuers.
However, we are troubled by a problematic passage which solidifies the Staff's controversial new approach to micromanagement, an approach which led to exclusion of important climate change proposals in 2019, including at Exxon Mobil:
[ w]e look to whether the proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board.… Following a successful vote on a shareholder proposal, management and the board generally consider whether and how to implement the proposal. Notwithstanding the precatory nature of a proposal, if the method or strategy for implementing the action requested by the proposal is overly prescriptive, thereby potentially limiting the judgment and discretion of the board and management, the proposal may be viewed as micromanaging the company.
This language appears inconsistent with, and a clear deviation, from other language that appears in a note to the Rule which states quite clearly that most proposals will be acceptable (not unlawfully interfering with the business judgment and discretion of the board or management) as long as they are framed as advisory proposals. The Commission established in the Note to Rule 14a-8(i)(1), that:
Depending on the subject matter, some proposals are not considered proper under state law if they would be binding on the company if approved by shareholders. In our experience, most proposals that are cast as recommendations or requests that the board of directors take specified action are proper under state law.
It is hard to reconcile this language with the new interpretation of micromanagement. We continue to believe that the Staff has taken an unfortunate turn in its interpretations of micromanagement, and we will continue to advocate for a reversal of this new policy.