Attention companies and shareholders: New guidance from the staff of the Securities and Exchange Commission's Division of Corporation Finance is likely to allow more shareholder proposals relating to risk assessments and chief executive succession onto corporate ballots.

In an Oct. 27 staff legal bulletin the SEC provided new guidance on the application of Rule 14a-8(i)(7) to proposals relating to risk and to proposals focusing on CEO succession planning.

The guidance means fewer shareholder proposals will be excluded under SEC no-action letters, says Amy Goodman, a partner in the law firm Gibson Dun & Crutcher and a former SEC attorney.

"In the past, the staff permitted proposals related to risk assessments and CEO succession to be excluded as ordinary business," says Goodman. "They've changed their position."

"These were two areas where activists had been critical of the SEC's position particularly this past proxy season," she says.

Previously, proposals related to risk assessments were permitted to be excluded without regard to what the risk assessment related to. Now, the staff will look to see if the subject matter of the risk assessment relates to ordinary business.

[Under the guidance] proposals related to CEO succession aren't excludable as ordinary business unless they're so detailed as to be considered micromanagement, says Goodman.

Citing an increase in no-action requests seeking to rely on Rule 14a-8(i)(7) to exclude proposals that don't explicitly request an evaluation of risk based on the argument that they would require the company to engage in risk assessment, the staff says the application of the analytical framework discussed in SLB No. 14C may have resulted in the unwarranted exclusion of proposals that relate to the evaluation of risk but that focus on significant policy issues.

"On a going-forward basis, rather than focusing on whether a proposal and supporting statement relate to the company engaging in an evaluation of risk, we will instead focus on the subject matter to which the risk pertains or that gives rise to the risk," the bulletin states.

The bulletin warns that just because a proposal requires an evaluation of risk, that no longer means it will automatically be excluded under Rule 14a-8(i)(7). Instead, the staff will consider whether the underlying subject matter of the risk evaluation involves a matter of ordinary business to the company.

In cases in which a proposal's underlying subject matter "transcends the day-to-day business matters of the company and raises policy issues so significant that it would be appropriate for a shareholder vote," the proposal generally won't be excludable under Rule 14a-8(i)(7) as long as a sufficient nexus exists between the nature of the proposal and the company, the bulletin states.

The staff has also modified its position on proposals that focuses on CEO succession planning. In the past, SEC staff expressed the view that such proposals could be excluded under Rule 14a-8(i)(7) because they related to the termination, hiring, or promotion of employees. But now, the bulletin states, "We recognize that CEO succession planning raises a significant policy issue regarding the governance of the corporation that transcends the day-to-day business matter of managing the workforce." Going forward, the staff will take the view that a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal that focuses on CEO succession planning.

Finally, the bulletin also encourages companies or shareholder proponents who intend to submit correspondence in connection with a no-action request to contact the SEC staff and let them know when they intend to submit their correspondence, so that staff can try to review the correspondence prior to issuing its no-action response.

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