Under Rule 14a-8 of the Securities Exchange Act of 1934, shareholders are entitled to submit proposals for company action for inclusion in a company’s proxy statement to be voted on at annual shareholder meetings. In theory, shareholder proposals empower investors to shape corporate action by putting plans shareholders wish to see the company implement to a vote. While not always binding, if the board approves a proposal and it has enough shareholder support, shareholders can put significant pressure on the board to follow the proposal’s advice. Recent years saw a trend in many proposals focused on environmental, social, and governance (ESG) concerns, often conflicting with corporate management’s preferences.
On February 12, 2025, the Division of Corporation Finance of the U.S. Securities and Exchange Commission (SEC) rescinded Staff Legal Bulletin No. 14L (SLB 14L) and issued Staff Legal Bulletin No. 14M (SLB 14M), making it easier for public companies to exclude ESG shareholder proposals from being voted on at annual meetings. SLB 14M rolls back the policy introduced by SLB 14L in 2021, which made it “markedly easier for shareholders to put certain environmental and social proposals to vote” by adopting an expansive view of shareholders’ ability to raise concerns about a company’s social policies. This decision reverts SEC policy to the stance it held during President Trump’s first term, tracking a notable shift in how companies and investors engage in corporate governance: redistributing discretion from shareholders back to the boardroom.
Rule 14a-8 and the SEC No-Action Letter
Companies rely on Rule 14a-8(i)—particularly, Rule 14a-8(i)(5) (the “economic relevance” exclusion) and Rule 14a-8(i)(7) (the “ordinary business” exclusion)—to exclude a proposal from a shareholder vote. If a company wishes to exclude a proposal, it may request SEC staff to comment on whether the rules permit the omission through a “no-action letter.” If granted, the company can exclude the proposal without fear of enforcement action.
SLB 14L’s broad interpretation of these exclusions enabled shareholders to put to vote proposals that normally would be subject to exclusion. SLB 14M re-narrows the scope and application of these exclusions, thus limiting the power of shareholder proposals.
Rule 14a-8(i)(5): The “Economic Relevance” Exclusion
Rule 14a-8(i)(5) allows for the exclusion of proposals that (1) relate to operations which make up less than 5% of the company’s total assets, profit, and gross sales at the end of the last fiscal year and (2) are not otherwise significantly related to the company’s core business. Under SBL 14L’s broad interpretation, proposals that did not meet the economic threshold requirements (and thus did not comply with the rule’s economic concern standard) but raised “broad social or ethical concerns” could not be excluded. Staff would not issue no-action letters for such proposals—regardless of how small the operations were—thus prioritizing corporate responsibility above concerns of shareholder micromanagement. SLB 14M disregards the importance of social and ethical issues “in the abstract,” instead analyzing the economic relevance of the proposal to the company’s business on a case-by-case basis. This would make it effectively impossible for shareholders to address ESG concerns in their proposals unless those concerns significantly affect key aspects of the company’s core business.
Rule 14a-8(i)(7): The “Ordinary Business” Exclusion
Under Rule 14a-8(i)(7), a company may exclude proposals that deal with the company’s “ordinary business operations” on the basis that certain day-to-day tasks should be decided by management rather than being subject to direct shareholder oversight. SLB 14L’s expansive interpretation of “significant social policy” meant that companies couldn’t exclude shareholder proposals that related to day-to-day business matters so long as the proposal also raised broad social concerns—regardless of whether there was a nexus between the policy issue and the company. As a result, “during the 2022 proxy season after SLB 14L’s issuance, proposals concerning environmental topics increased over 50%.” SLB 14M reverts to a pre-SLB 14L “company-specific approach,” with the staff now allowing exclusions when a policy issue is not significant to a specific company. This limits shareholders’ ability to raise ESG proposals that bear on managerial discretion regarding business operations.
Limiting Shareholder Micromanagement
Lastly, SLB 14M also reinstates restrictions on shareholder micromanagement by allowing companies to exclude proposals that (1) seek intricate detail or specific timeframes for implementing complex policies and (2) are highly prescriptive, supplanting management discretion in decision-making. For instance, the bulletin explicitly states that proposals to reach net-zero emissions by a given year are now excludable as micromanagement because they impose timelines and limit management’s flexibility.
Effects on Industry
The Commission’s move follows a sharp decline in investor support for ESG-related shareholder proposals, having dropped from 21% in 2021 (the year SLB 14L was issued) to just 3% by 2023. In 2024, only four (1.4%) out of 279 assessed proposals received majority support. The trend marks a growing resistance to ESG-driven shareholder activism. Considering that six of the largest banks in the U.S.—Citigroup, Bank of America, Morgan Stanley, Wells Fargo and Goldman Sachs—already withdrew from the UN-sponsored net-zero emissions banking alliance weeks before the SEC’s announcement, the new bulletin likely marks the proverbial nail in the coffin for an era of investor-driven environmental impact.
The release of SLB 14M just as the current proxy season gains momentum makes it even harder to hold the world’s largest companies accountable. Many shareholder proposals this year focus on ESG issues that investors believe have a material impact on a company’s financial value. However, a significant number of these proposals will likely be excluded from proxy ballots because SLB 14M was issued too late for investors to adjust their proposals to fit its stricter standards. SEC Commissioner Caroline A. Crenshaw is concerned that the timing of this guidance disproportionately benefits corporations, allowing them to revise their no-action requests to exclude proposals while leaving investors without a similar opportunity to adapt.
The full effect of these changes is unlikely to be seen until next proxy season, but for now, SLB 14M marks a shift toward greater corporate control over shareholder proposals. This will likely lead to a decline in ESG-related initiatives and perhaps a shift toward alternative shareholder advocacy strategies like direct engagement or even litigation. Future regulatory or political changes could reshape these rules again, but as it stands, shareholder activism faces a more restrictive landscape.