The SEC recently issued no-action letters permitting companies to exclude shareholder proposals relating to virtual-only shareholder meetings and greenhouse gas reductions under the “ordinary business operations” exception.
Virtual-Only Shareholder Meetings. The SEC permitted the exclusion of shareholder proposals seeking to require that two companies adopt a corporate governance policy to initiate or restore in-person annual meetings, and to publicize the policy to investors. Each company has been holding its annual meetings solely online, an increasingly common practice in recent years (sometimes referred to as virtual-only annual meetings). Each company argued that the proposal was excludable under Exchange Act Rule 14-8(i)(7), as a proposal dealing with a matter relating to the company’s ordinary business operations. The SEC has previously noted that the underlying policy of the “ordinary business” exception is to confine the resolution of ordinary business problems to management and the board of directors, because certain tasks are fundamental to management’s ability to run a company’s day-to-day operations, and that shareholders should not be able to micromanage a company. The companies noted that the SEC has in prior years granted no-action relief allowing exclusion of proposals that sought to prohibit a company from holding its annual meeting in a particular city. In each case, the SEC permitted the exclusion of the proposals as relating to the company’s ordinary business operations.
Greenhouse Gas Reductions. The SEC also recently permitted the exclusion of shareholder proposals seeking to require that the board of directors issue a report to shareholders assessing the feasibility of, and setting forth policy options for the company to reach, a net-zero greenhouse gas emissions status by the year 2030. Again, in each case the company argued that the proposal was excludable from its proxy materials because it deals with ordinary business operations. In each case, the SEC concurred with the company’s request to omit the proposal as relating to the company’s ordinary business operations. The SEC stated in each no-action letter that it viewed the proposal as seeking to micromanage the company by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.