The Securities and Exchange Commission staff has issued new guidance under Rule 14a-8 of the Securities Exchange Act of 1934 regarding exclusion from management’s proxy materials of shareholder proposals relating to director independence and to environmental and public health issues.  The new guidance also clarifies several technical points relating to processing of Rule 14a-8 proposals.  See SEC Staff Legal Bulletin No. 14C (June 28, 2005), available at http://www.sec.gov/interps/legal/cfslb14c.htm.

Rule 14a-8 gives eligible shareholders of U.S. public companies the right to submit proposals for inclusion in management’s proxy materials under certain circumstances.  Rule 14a-8 also lays out 13 grounds for exclusion of submitted proposals (e.g., improper under state law; would cause company to violate law; relates to personal grievance; relates to “ordinary business operations”).  To exclude a proposal otherwise submitted in compliance with Rule 14a-8 based on one or more of these grounds, management must first obtain concurrence of the SEC staff through a no-action letter.

SLB No. 14C adds to the extensive body of SEC staff guidance regarding the Rule 14a-8 exclusions and no-action process in SLB Nos. 14 (general guidance on process), 14A (proposals on equity compensation) and 14B (updating guidance in No. 14). 

Director Independence

SLB No. 14C indicates that shareholder proposals seeking to impose independence qualifications on a director (e.g., chairman of the board) or directors may be omitted under the Rule 14a-8(i)(6) exclusion (company lacks “power or authority to implement”), if the proposal requires a director to maintain his or her independence at all times.  Proposals worded in absolute terms may therefore be excluded, but those permitting limited exceptions or violations with cure periods (e.g., “whenever possible” or “except in rare and explicitly spelled out, extraordinary circumstances”) may not.  SLB No. 14C excerpts text from proposals in several recent no-action letters to illustrate those subject to the 14a-8(i)(6) exclusion and those not. 

Environmental and Public Health Issues

According to SLB No. 14C, proposals dealing with environmental or public health concerns may be omitted under the “ordinary business operations” exclusion in Rule 14a-8(i)(7), if they call for internal assessment of risks or liabilities in the event of adverse developments, but not if they call for actual minimization or elimination of operations relevant to such concerns.  The staff contrasts the proposal it permitted to be excluded in Xcel Energy Inc. (April 1, 2003) (calling for board assessment of economic risks and benefits of certain emissions) with the one it did not in Exxon Mobil Corp. (March 18, 2005) (calling for “a report . . . on the potential environmental damage that would result from the company drilling for oil and gas in protected areas”) to illustrate the distinction.

Technical Matters

In addition, SLB No. 14C clarifies the new SEC mailing address for Rule 14a-8 submissions, confirms that shareholders should fax proposals to the number designated in the company’s most recent proxy statement, re-emphasizes that SEC submissions should be accompanied by all relevant correspondence exchanged with the proponent, lays out conditions under which the staff will fax no-action responses and re-affirms that withdrawal of a no-action request relating to a proposal by multiple proponents should include documentation demonstrating each proponent’s agreement to the withdrawal.