After multiple years of tightening up the conditions by which companies could exclude shareholder proposals, the 2017 proxy season featured an uptick in the number of no-action letters granted by the Securities and Exchange Commission, according to Gibson Dunn's annual report on shareholder proposal activity. According to Gibson Dunn, the total number of shareholder proposals submitted was down in 2017 – approximately 827 proposals were submitted compared with the 916 proposals submitted in 2016 and the 943 proposals submitted in 2015. Despite the decrease, Gibson Dunn reported that the SEC granted 78% of the 288 total no action requests in 2017 which represented an increase over the 68% of 245 requests in 2016. Under the no action process, companies may ask the SEC staff for whether it would recommend SEC enforcement against a company that excludes a shareholder proposal, and if the staff agrees, it gives companies greater justification for excluding the proposal.
Beginning in the 2015 proxy season, the SEC began to make it more difficult for companies to exclude certain shareholder proposals, with an emphasis on proposals which touched on the same subject matter as a management proposal. Despite the change to a Republican-controlled Commission, it would be premature to conclude the SEC has necessarily reversed the positions it has built up since 2015. However, coming out of the SEC's shift in shareholder proposal policy there existed a lack of clarity regarding the subject matters and types of proposals which would warrant exclusion under current SEC rules. As Gibson Dunn's analysis discusses, 2017 features some notable trends in the no action requests which could indicate the SEC is trying to provide more clarity to which categories of proposals and subject matters are ripe for exclusion.
- Compensation Proposals Excluded Under Ordinary Business Exception: One of the marquee grounds for excluding shareholder proposals is that the topic matter is one of ordinary business which is not appropriate for shareholder input, and 37.6% of proposals were excluded on this ground in 2017. The SEC’s response to company requests for SEC no-action letters this year, including several asking for companies to adopt principles for minimum wage reform, seem to shore up what constitutes ordinary business in effort to provide clarity for future proposals. Even where proponents explicitly stated that the proposals “did not seek to address the company’s internal approach to compensation,” the staff concluded that “"relates to general compensation matters, and does not otherwise transcend day-to-day business matters." and thus may be excluded.
- Proxy Access Proposals Under Substantial Implementation: Another notable ground for excluding shareholder proposals is where a company believes that it has already substantially implemented the action the proposal seeks to procure. A total of 32.8% of no-action requests were granted on this basis. The majority of no-action requests which cited this exception were for "Amend Proxy Access" proposals, according to Gibson Dunn. This is notable because since 2015, the SEC has prevented companies from excluding competing shareholder proposals which, for example, offer a proxy access proposal which would compete against a management proposal but with more shareholder friendly terms.