In a case of first impression, the SEC denied Apple's request for no-action relief to exclude a shareholder proposal from gadfly activist Jing Zhou which requested Apple appoint a board committee focusing exclusively on human rights. The SEC's decision to decline to grant Apple no-action relief presents the first application of the SEC's updated guidance which clarified the scope and application of the ordinary business and economic relevance grounds for excluding shareholder proposals. In seeking relief, Apple sought to rely on the SEC's updated application of the ordinary business exemption. This exception allows the exclusion of proposals which “deal with a matter relating to the company’s ordinary business operations” unless “such a proposal focuses on policy issues that are sufficiently significant because they transcend ordinary business and would be appropriate for a shareholder vote.” The SEC's November guidance noted that the Staff will specifically look for and take into account the company's board discussion of the proposal which should be detailed in the no-action request.
The guidance seemed to indicate that the SEC would take a board-centric approach to the evaluation of shareholder proposals. However, Apple's No-Action request specifically detailed the board's process and deliberation about the proposals, stating that “the observance of human rights standards factors into every decision made by management in the day-to-day operations of the Company." The SEC's decision to decline to grant the request indicates that the November guidance will not be interpreted as being an automatic win for companies that show board deliberation on the issue of whether to include a shareholder proposal and that companies will still need to effectively demonstrate through an analysis why the proposal does not raise a significant issue for the company.
The Staff's application of the guidance could be a bit of a surprise to observers expecting more deference. This is only one set of facts, and a final determination is far from clear. However, the initial reviews after the Apple decision indicate that, at the minimum, the addition of a board deliberation of the issue to a no-action request will, on its own, be insufficient to persuade the SEC to allow the proposal to be excluded.