Bloomberg’s Peter Rasmussen analyzes a revision of the “ordinary business” exemption for excluding shareholder proposals. He suggests that board members should review management’s assessment that particular proposals should be excluded.
The SEC’s Division of Corporation Finance staff has issued 22 legal bulletins since July 2001. Of those 22, 12 have dealt with shareholder proposals. The most recent release, Staff Legal Bulletin No. 14K (CF), adds some interesting twists, expanding on prior staff advice concerning the “ordinary business” exclusion in Exchange Act Rule 14a-8(i)(7).
The staff noted that proponents and companies have tended to focus on the overall significance of the policy issue raised by the proposal. This “big picture” approach misses the point, according to the staff. Both proponents and companies should direct their arguments for exclusion to the question of whether the proposal deals with a matter relating to that specific company’s ordinary business operations or raises policy issues that transcend that company’s ordinary business operations. The staff does not consider particular policy issues as universally “significant,” and a policy issue that is significant to one company may not be significant to another.
This staff approach to board review of exclusionary requests is rather curious. Management and corporate lawyers that deal with boards generally do so with a view to making the most of the board’s limited time. Boards and management have different functions and obligations, as the directors are responsible for strategic planning and have general oversight authority while management deals with day-to-day business operations. The series of staff legal bulletins, however, practically require boards to take up matters that the SEC itself defined to be specifically within the purview of management.
The legal bulletins suggest that boards should engage in a significant substantive review of these exclusionary requests. In Staff Legal Bulletin No. 14J (CF), the staff compiled a lengthy list of factors that boards might consider when examining a proposal’s ordinary business implications: