Issue link: https://digital.shearman.com/i/1162884
40 Shearman & Sterling LLP Shareholder Proposals 2019 – ESG No-Action Letter Trends and Strategies | 47 * Many companies use multiple bases of exclusion in their no-action letter requests. SEC STAFF GUIDANCE ON "ECONOMIC RELEVANCE" AND "ORDINARY BUSINESS" The SEC published Staff Legal Bulletin 14I (SLB 14I) in November 2017, and, after one proxy season of experience with it, published Staff Legal Bulletin 14J (SLB 14J) in October 2018. This guidance applies to the tests for exclusion under the economic relevance exception under Rule 14a-8(i)(5) and the exclusion for ordinary business under Rule 14a-8(i)(7), which are summarized below: 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" The test for exclusion under the ordinary business exception under Rule 14a-8(i)(7) has the following two alternatives: "ordinary business" The first requirement is that the shareholder proposal relates to operations that account for less than 5% of a company's total assets, net earnings and gross sales The second requirement is that the shareholder proposal is not otherwise significantly related to the company's business 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 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 Ordinary business of the company/ "micromanagement" (Rule 14a8(i)(7)) Substantially implemented (Rule 14a8(i)(10)) Economically irrelevant (Rule 14a8(i)(5)) 64 40 9 ESG-RELATED NO-ACTION LETTERS – BASES FOR EXCLUSION* Further patterns emerged in the approaches issuers took to exclude ESG-related proposals. The most common bases for requesting exclusion (setting aside technical bases such as the failure to meet the conditions of Rule 14a-8 or duplicating other proposals) were that the proposal: • related to the ordinary business of the company or micromanaged the company (Rule 14a-8(i)(7)) • that it had been substantially implemented (Rule 14a-8(i)(10)) or • was economically irrelevant (Rule 14a-8(i)(5))