The SEC’s initial decisions on whether companies may exclude shareholder proposals under new guidance continue to suggest no blanket indicators of how the agency’s staff will land on certain topics – including in the high-profile diversity, equity and inclusion (DEI) space.
That’s according to another provisional analysis by Governance Intelligence of 14a-8 decisions published by the division of corporation finance since it released Staff Legal Bulletin (SLB) No 14M on February 12. It suggests that – as with companies’ arguments that proposals may be excluded because they relate to their ‘ordinary business operations’ – any changes in the division’s approach to no-action requests on DEI-related resolutions may not be as clear-cut along policy lines as some governance experts had thought.
The staff has so far declined no-action requests regarding both pro- and anti-DEI proposals – albeit with a limited sample size to date. Rather than using the ordinary business argument, the companies in two of these examples asserted that they have ‘substantially implemented’ the proposals at issue.
The SEC declined a no-action request from The Coca-Cola Company that it may omit a proposal from the National Legal and Policy Center requesting that the board’s talent and compensation committee ‘revisit its incentive guidelines for executive pay to identify and consider eliminating discriminatory DEI goals from compensation inducements.’ The group wrote in support of its proposal that DEI incentives ‘leave Coca-Cola ripe for regulatory, reputational and litigation risk.’
The agency did not agree with Coca-Cola’s argument that it has substantially implemented the proposal.
The SEC also declined a Berkshire Hathaway request that it may exclude a proposal from As You Sow asking that its board designate a committee ‘to oversee the company’s diversity and inclusion strategy across its holding companies.’ The proponent wrote in support: ‘Effective DEI programs are linked to significant benefits in financial performance, innovation, risk management and reputation.’
The SEC did not agree with Berkshire Hathaway’s assertion that it may exclude the proposal on the grounds that it has substantially implemented it.
In addition, the agency staff declined to grant no-action relief to Bristol-Myers Squibb Company over a National Center for Public Policy Research proposal asking the company to ‘consider abolishing its DEI program, policies, department and goals.’
The SEC did not agree with Bristol-Myers Squibb’s argument that the proposal seeks to ‘micromanage’ the company. It also disagreed with the company’s assertion that it may omit the proposal because it ‘is so vague or indefinite that it is rendered materially misleading.’
The SEC did not respond immediately to a request for comment.
New guidance
The new guidance rescinds SLB No 14L, which the division had released in November 2021. Both bulletins focus on two of these possible bases for omission: Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. The ordinary business exclusion is based on the proposal’s subject matter and the degree to which it seeks to micromanage the company.
Governance experts at companies and groups that file shareholder proposals believe SLB No 14M will lead to companies more frequently securing no-action relief on one of these or other grounds, particularly when they relate to environmental and social issues. They acknowledge, however, that there is space for interpretation of the guidance by SEC staffers. Proposals also vary in terms of their framing even when they tackle similar topics.
Ben Maiden
Ben Maiden is the editor-at-large of Governance Intelligence, an IR Media publication, having joined the company in December 2016. He is based in New York. Ben was previously managing editor of Compliance Reporter, covering regulatory and compliance...
