Issue link: https://digital.shearman.com/i/1019978
Shearman & Sterling LLP 68 | Shareholder Proposals 2018 – Was 14I Really a Game Changer? THREADING THE 5% NEEDLE The (i)(5) exclusion has, historically, not been relied upon because of the expansive view the SEC staff has taken when applying the"not otherwise significantly related" portion of the exclusion. Where a proposal related to operations that did not meet the 5% test, if a company did any business related to the issue in question and the issue touched upon a matter of "broad social or ethical concern," the SEC staff has been inclined to deny exclusion of the proposal. Only one no-action letter submitted this proxy season was excluded on the basis of the (i)(5) exception – the "less than 5%" and "not otherwise significantly related" exception. The proposal to Dunkin' Brands⁸ requested a report assessing the environmental impact of continuing to use K-Cup coffee pods packaging. Dunkin' Brands does not actually manufacture K-Cup coffee pods. In the no-action letter, Dunkin' Brands noted that it derived most of its revenues relating to K-Cup coffee pods from licensing fees and the remainder from royalties attributable to the sale of K-Cup coffee pods in franchised restaurants. Additionally, Dunkin' Brands confirmed that the K-Cup-related business did not exceed 5% on any of the relevant financial metrics. The board considered whether the K-Cup business was otherwise significantly related to its business and reasonably concluded it was not, referencing the SEC staff's statement in SLB 14I that the mere possibility of reputational or economic harm will not preclude no-action relief. The SEC staff granted no-action relief. Based on the SEC staff's statements in SLB 14I, an (i)(5) no-action letter was bound to get over the finish line and Dunkin' Brands was the perfect case, given the policy issue really related to a third-party manufacturer to whom Dunkin' Brands was only licensing its brand. Nonetheless, given the SEC staff's approach to other broader policy issues in the (i)(7) context this season, and the absence of any other successes on (i)(5), it remains to be seen whether there will be other fact patterns that can similarly achieve exclusion on the basis of (i)(5). 8 Dunkin' Brands Group, Inc., SEC No-Action Letter (Feb. 22, 2018). OF THE 21 NO-ACTION LETTERS WE REVIEWED, ONLY ONE WAS SUCCESSFULLY EXCLUDED ON THE BASIS OF THE "LESS THAN 5%" EXCEPTION.