Shareholder Proposals: Staff Legal Bulletin No. 14K (CF):
Rule 14a-8(i)(7), the “ordinary business” exception, permits a company to exclude a proposal that “deals with a matter relating to the company’s ordinary business operations.” The purpose of the exception is “to confine the resolution of ordinary business problems to management and the board of directors, since it is impracticable for shareholders to decide how to solve such problems at an annual shareholders meeting.”[1] The Commission has stated that the policy underlying the “ordinary business” exception rests on two central considerations.[2] The first relates to the proposal’s subject matter; the second relates to the degree to which the proposal “micromanages” the company.
Under the first consideration, ... we believe the focus of an argument for exclusion under Rule 14a-8(i)(7) should be on whether the proposal deals with a matter relating to that company’s ordinary business operations or raises a policy issue that transcends that company’s ordinary business operations.
...
Under the Commission’s second consideration, a proposal may be excludable under the “ordinary business” exception if it “micromanages” the company. This prong of the Rule 14a-8(i)(7) analysis rests on an evaluation of the manner in which a proposal seeks to address the subject matter raised, rather than the subject matter itself. ...
In considering arguments for exclusion based on micromanagement, and consistent with the Commission’s views,[9] we look to whether the proposal seeks intricate detail or imposes a specific strategy, method, action, outcome or timeline for addressing an issue, thereby supplanting the judgment of management and the board. Thus, a proposal framed as a request that the company consider, discuss the feasibility of, or evaluate the potential for a particular issue generally would not be viewed as micromanaging matters of a complex nature. However, a proposal, regardless of its precatory nature, that prescribes specific timeframes or methods for implementing complex policies, consistent with the Commission’s guidance,[10] may run afoul of micromanagement.
All of which, of course, is idiotic. The SEC's "considerations" are vague to the point of being non-administrable. They provide no useful guidance to either directors or proponents. The considerations are detached from the state law rights and powers of corporate boards and shareholders.
In my article, Revitalizing SEC Rule 14a-8's Ordinary Business Exemption: Preventing Shareholder Micromanagement by Proposal, I put forward a test that is grounded in relevant state corporate law principles, while also being easier to administer than the existing judicial tests. Under it, courts first look to the state law definition of ordinary business matters. The court then determines whether the matter is one of substance rather than procedure. Only proposals passing muster under both standards should be deemed proper.
