Client Newsflash

SEC Revises Position on Exclusion of Shareholder Proposals Related to Risk and CEO Succession

October 28, 2009

The SEC staff has issued Staff Legal Bulletin No. 14E which revises its historical positions on the exclusion under Rule 14a-8(i)(7) of shareholder proposals related to risk evaluation and CEO succession.


Proposals Requiring an Evaluation of Risk

The staff has previously permitted a company to exclude a shareholder proposal that focused on the company engaging in an internal assessment of risks and liabilities, even where the proposal did not explicitly request an evaluation of risk. According to the new SLB, the staff will focus on whether the underlying subject matter of the proposal involves an ordinary business matter or a significant policy issue. Whether or not implementing the proposal would require a risk evaluation would be irrelevant to whether the proposal may be excluded. If the underlying subject matter of the proposal raises significant policy issues, it is unlikely to be excludable. In addition, the SLB indicates that a proposal that focuses on the board's role in the oversight of a company's management of risk would not be excludable.


Proposals Relating to CEO Succession Planning

The staff has also reversed its position on the exclusion of proposals related to CEO succession planning. Going forward, a company generally may not rely on Rule 14a-8(i)(7) to exclude a proposal focused on CEO succession planning because, in the staff’s view, such proposals raise significant policy issues.  Historically, the staff had allowed the exclusion of these proposals as ordinary business matters because they related to the termination, hiring or promotion of employees.



If you have questions regarding this newsflash, please call any of the lawyers listed below or your regular Davis Polk contact.

William M. Kelly 650 752
Joseph A. Hall 212 450
Ning Chiu 212 450 4908
Janice Brunner 212 450
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