Corporate Governance

2018 Corporate Governance & Execution Compensation Survey

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SHAREHOLDER PROPOSALS 2018 — WAS 14I REALLY A GAME CHANGER? Richard B. Alsop, Lona Nallengara and Arielle L. Katzman Shearman & Sterling LLP 64 | Shareholder Proposals 2018 – Was 14I Really a Game Changer? SHAREHOLDER PROPOSALS 2018 — WAS 14I REALLY A GAME CHANGER? Richard B. Alsop, Lona Nallengara and Arielle L. Katzman In November 2017, the staff of the Division of Corporation Finance of the SEC issued Staff Legal Bulletin No. 14I ("SLB 14I"), announcing a new approach for considering requests to exclude shareholder proposals on the basis of the "economic relevance" exception under Rule 14a-8(i)(5) and the "ordinary business" exception under Rule 14a-8(i)(7). This new approach generated a great deal of interest and fueled speculation that it might signal a greater ability to exclude shareholder proposals that in the past were deemed to involve significant policy issues. To determine whether these expectations were realized, we reviewed the 21 SEC no-action letters determined on the basis of the 14a-8(i) (5) and (i)(7) exclusions during the 2018 proxy season, which applied SLB 14I. The first alternative allows exclusion if a proposal's subject matter is so fundamental to management's ability to run the company day-to-day that it could not be subject to direct shareholder oversight, unless the subject matter involves "significant policy issues," which are ones that transcend ordinary business and are appropriate for a shareholder vote The first requirement is that the shareholder proposal relates to operations which account for less than 5% of a company's total assets, net earnings and gross sales The second alternative allows exclusion if the proposal seeks to "micro-manage" the company by probing too deeply into matters of a complex nature on which shareholders would not be in a position to make an informed judgment The second requirement is that the shareholder proposal is not otherwise significantly related to the company's business BACKGROUND The test for exclusion under the ordinary business exception under Rule 14a-8(i)(7) has the following two alternatives: The test for exclusion under the economic relevance exception under Rule 14a-8(i)(5) has the following two requirements to exclude a shareholder proposal: "economic relevance" "ordinary business"

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