SEC Staff Reverses Certain Limitations on Issuers’ Ability to Exclude Shareholder Proposals

On February 12, 2025, the SEC’s Division of Corporation Finance issued SLB 14M, which rescinds SLB 14L and reinstates earlier guidance on the exclusion of shareholder proposals under Rule 14a-8 of the Exchange Act. The SEC narrowed the substantive bases on which a Rule 14a-8 proposal could be excluded from a proxy statement under former SEC Chair Gary Gensler. SLB 14M now expands the ability to exclude shareholder proposals under Rule 14a-8(i)(5)—the “economic relevance” exclusion—and Rule 14a-8(i)(7)—the “ordinary business” exclusion.

Companies that have received Rule 14a-8 shareholder proposals during the current proxy season should consider whether new legal arguments can be made in a new or supplemental no-action request.

ECONOMIC RELEVANCE

The economic relevance ground for exclusion permits a company to exclude a shareholder proposal that (1) relates to operations that account for less than 5% of the company’s total assets at the end of its most recent fiscal year and for less than 5% of its net earnings and gross sales for its most recent fiscal year and (2) is not otherwise significantly related to the company’s business.

SLB 14M broadens the application of the second element of the economic relevance ground. The Staff states that, because Rule 14a-8(i)(5) “allows exclusion only when the matter is not ‘otherwise significantly related to the company,’ we view the analysis as dependent upon the particular circumstances of the company to which the proposal is submitted.” In contrast to the framework in the rescinded SLB 14L, under which proposals raising broad social or ethical concerns related to the company’s business could not be excluded, the Staff states in SLB 14M that “proposals that raise issues of social or ethical significance may be excludable, notwithstanding their importance in the abstract.”

ORDINARY BUSINESS

The ordinary business ground for exclusion permits a company to exclude a shareholder proposal that relates to “a matter relating to the company’s ordinary business operations.” The rationale underlying the exclusion rests on two considerations: (1) the subject matter should not infringe on matters “so fundamental to management’s ability to run the company on a day-to-day basis that they could not, as a practical matter, be subject to direct shareholder oversight,” and (2) the proposal should not “micromanage” the company.

Significance

Under the rescinded SLB 14L, the ordinary business ground for exclusion was not available for a proposal that focused on social policy issues that were sufficiently significant so as to transcend ordinary business. In SLB 14M, the Staff clarifies that this “significance exception” depends on whether the policy issue raised by the proposal has sufficient nexus to the company. The Staff will take a company-specific approach in evaluating the significance of a policy issue raised by a proposal, rather than focusing on whether a proposal raises a policy issue with broad societal impact.

Micromanagement

SLB 14M takes a more expansive view of the “micromanagement” element of the ordinary business ground for exclusion, focusing on the manner in which a proposal seeks to address the subject matter raised, rather than the subject matter itself. Under the rescinded SLB 14L, the Staff’s view was that proposals “seeking detail or seeking to promote timeframes or methods do not per se constitute micromanagement.”

SLB 14M reinstates the sections of Staff Legal Bulletin No. 14J (“SLB 14J”) and Staff Legal Bulletin No. 14K relating to micromanagement. Under the reinstated bulletins, a proposal will be excludable if it “involves intricate detail or seeks to impose specific timeframes or methods for implementing complex policies.”

Ordinary Business and Executive/Director Compensation

Under reinstated SLB 14J, in evaluating proposals that raise both ordinary business and senior executive or director compensation matters, the Staff will examine whether the focus of the proposal is an ordinary business matter or aspects of senior executive or director compensation.

Although proposals that focus on significant aspects of senior executive or director compensation are generally not excludable on the basis of the ordinary business ground for exclusion, the Staff notes that such proposals that “seek intricate detail, or seek to impose specific timeframes or methods for implementing complex policies can be excluded under Rule14a-8(i)(7) on the basis of micromanagement.”

Further, a proposal that addresses senior executive or director compensation may be excludable under the ordinary business ground if “a primary aspect of the targeted compensation is broadly available or applicable to a company’s general workforce and the company demonstrates that the executives’ or directors’ eligibility to receive the compensation does not implicate significant compensation matters.”

PROCEDURAL CONSIDERATIONS

In SLB 14M, the Staff also provides guidance on certain procedural matters.

EARLY RESULTS UNDER SLB 14M

While SLB 14M is undoubtedly useful for issuers seeking to exclude shareholder proposals under the economic relevant and ordinary business operations exclusions, SLB 14M does not guarantee exclusion, as witnessed by the handful of issuers whose no action requests on these grounds have been denied by the SEC – even after issuance of SLB 14M.

A link to No Action Letters under Rule 14a-8 is available here, and letters can be searched by both date of SEC determination and issuer name.

For more information, see The Debevoise Update.

SEC Expands Accommodations for Issuers Submitting Draft Registration Statements

On March 3, 2025, the Staff announced that it will further expand the accommodations available for issuers to submit draft registration statements for nonpublic review. These expanded accommodations are designed to facilitate capital formation and reflect the SEC’s continued efforts to streamline the registration process for issuers while ensuring appropriate safeguards for investors.

The enhanced accommodations include:

• Expanding review of initial registration statements. In addition to its review of registration statements under the Securities Act of 1933, as amended (the “Securities Act”), and Section 12(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the SEC will now permit issuers to submit for nonpublic review initial registration statements on Forms 10, 20-F or 40-F under Exchange Act Section 12(g).

• Removing time constraints on review of subsequent draft registration statements. The SEC historically limited nonpublic review of draft registration statements to a 12-month period following the effective date of the issuer’s initial Securities Act registration statement or an issuer’s initial Exchange Act Section 12(b) registration statement. The SEC will now permit nonpublic review of subsequent draft registration statements for any offering under the Securities Act or registration of a class of securities under either Section 12(b) or Section 12(g) of the Exchange Act regardless of when the issuer became subject to Section 13(a) or 15(d) Exchange Act reporting requirements. Issuers submitting subsequent draft registration statements for nonpublic review must publicly file their registration statement and nonpublic draft submission on EDGAR at least two days preceding the requested effective time and date. 

• Expanding review to include de-SPAC transactions. The SEC will allow issuers to submit registration statements in connection with de-SPAC transactions for nonpublic review as if such registration statements were an initial Securities Act registration statement where the SPAC is the surviving entity, provided the co-registrant target would otherwise be independently eligible to submit a draft registration statement.

• Special considerations for FPIs. Instead of electing to submit draft registration statements under these new accommodations, FPIs will have the option to follow the procedures available to EGCs (if they so qualify), or they can follow alternative guidance issued in the SEC’s 2012 statement.

• Allowing issuers to omit underwriter(s) from initial draft registration statements. The SEC will permit issuers to omit the underwriter name(s) from initial registration statements where such information would otherwise be required by Items 501 and 508 of Regulation S-K, provided such information is included in subsequent submissions and public filings.

For more information, see The Debrief.

New SEC Guidance for M&A Sign-and-Consent Structures and Tender Offers

On March 6, 2025, the SEC issued two updated C&DIs relating to the use of “lock-up” agreements and written consents in certain business combination transactions, which reverses its previous guidance on the topic. In addition, the SEC issued five new C&DIs related to tender offers.

Updated Guidance for Certain Rule 145(a) Transactions

In a significant departure from its 2008 guidance, the SEC updated the C&DI to align with its current practice of permitting subsequent registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) when a “sign-and-consent” structure has been implemented, provided: (1) the insiders of the target company, who provided written consents, are offered and sold acquiring company securities only in an offering validly exempt from the Securities Act, and (2) the registered securities (on either Form S-4 or F-4) are offered and sold only to security holders who did not sign on to such written consent.

Where lock-up agreements have been signed instead, there are four conditions that must be satisfied in order to ensure the non-objection of SEC staff to the registration of offers and sales: 

• the lock-up agreement involves only “target company insiders” that are executive officers, directors, affiliates, founders and their family members, and holders of 5% or more of the voting equity securities of the target company;

• those signing the lock-up agreement own, in the aggregate, less than 100% of the target company’s voting equity securities;

• votes are solicited from the target company’s stockholders who have not signed lock-up agreements if such votes are required to approve the transaction under state or foreign law; and

• the acquiring company must deliver a prospectus to all target company security holders who are entitled to vote on the transaction.

This list of requirements builds on the pre-existing framework with key updates to the third element, clarifying that a vote is only required by the SEC if also required by state or foreign law and adding delivery of a prospectus as a new fourth requirement.

New Guidance for Tender Offers

Summaries of the new C&DIs are provided below:

• Question 101.17: The SEC acknowledges that its “general rule” requiring that all-cash tender offers remain open at least five business days following the initial disclosure date of material changes may not always be practical. In certain contexts, a shorter time frame may be acceptable, provided security holders have sufficient time to consider the material information disclosed when contemplating whether to tender, withdraw, sell or hold. The relative materiality of the information matters.

• Question 101.18: When an offeror announces a partly financed or unfinanced tender offer subject to Regulation 14D and discloses the lack of sufficient funds in its offer, the SEC considers the offeror’s subsequent securing of funding as a material change to the previously disclosed information, requiring the offeror to promptly disclose this change and disseminate the updated disclosure to security holders.

• Question 101.19: The SEC clarifies that binding commitment letters from lenders constitutes a fully financed transaction. However, “highly confident” letters from lenders are not viewed with the same binding effect and are not considered fully financed.

• Question 101.20: Where an offeror has received a binding commitment letter from a lender but discloses that it may purchase the securities via an alternative funding source, if the offeror does utilize the alternative funding (including cash), the SEC does not consider the funding substitution a material change requiring disclosure. However, the offeror should still consider whether the offer materials should be updated to reflect the change.

• Question 101.21: This C&DI contemplates a situation in which there is an all-cash tender offer subject to Regulation 14D, where the offeror obtains a binding commitment letter from a lender but conditions the purchase of the tendered shares on receiving the funds from the lender.

• If the lender satisfies the contract and provides the funds, there is no disclosable material change.
• If the lender does not meet its contractual obligation to fund, but the offeror waives the condition and utilizes alternative funding to purchase the tendered shares, the SEC does not consider this a material change.
• Finally, if the lender does not fulfill its obligation, but the offeror waives the funding condition without any alternative funding source, the offeror’s waiver would constitute a material change requiring prompt disclosure and dissemination to security holders.

For more information, see The Debevoise Update.

Proxy Advisors and Institutional Shareholders Revise Voting Guidelines on Board Diversity

Several proxy advisors and institutional shareholders have revised their voting guidelines for the 2025 proxy season to scale back their expectations regarding board diversity. The renewed scrutiny on board diversity unfolds against a backdrop of intensifying “anti-DEI” sentiment in the United States, causing many public companies to reconsider their DEI commitments and related disclosures.

Revised Guidance

• ISS. On February 11, 2025, Institutional Shareholder Services issued a press release announcing that it “will no longer consider the gender and racial and/or ethnic diversity of a company’s board when making vote recommendations with respect to the election or re-election of directors at U.S. companies.” The policy change applies to ISS’s U.S. benchmark and specialty policies and applies to proxy statements filed on or after February 25, 2025. Other ISS guidance regarding directors of U.S. companies, including guidance relating to independence, accountability and responsiveness, remains the same.

• Glass Lewis. Glass Lewis’ supplemental statement on diversity considerations (effective March 10, 2025) states that it will offer clients two recommendations when evaluating director election and shareholder proposals where diversity is a factor: one based on its benchmark policy guidelines and another that excludes gender and underrepresented community diversity as considerations. Glass Lewis’ current policy under its benchmark policy guidelines is that it generally recommends against the chair of the nominating committee of a board with fewer than one director from an underrepresented community on the board at companies within the Russell 1000 index.

• BlackRock. BlackRock’s proxy voting guidelines (effective January 2025) remove BlackRock’s previous recommendation that boards aspire to have at least 30% of their directors be diverse as well as BlackRock’s prior policy of considering voting action if a company did not adequately explain its approach to board diversity. Notwithstanding BlackRock’s shift away from an explicit policy on board diversity, the institutional shareholder retained flexibility in its guidelines, stating that it may vote against members of the nominating committee of an S&P 500 company whose board “does not have a mix of professional and personal characteristics that is comparable to market norms.” In describing “market norms,” BlackRock noted that 98% of S&P companies have a “diverse board,” which it defines as one in which at least 30% of the members are from diverse backgrounds.

• Vanguard. Vanguard’s proxy voting policy (effective February 2025) states that boards should be “fit for purpose by reflecting sufficient diversity of skills, experience, perspective, and personal characteristics (such as gender, age, race, and ethnicity) resulting in cognitive diversity.” Under the policy, Vanguard funds may vote against a nominating committee chair if a company’s board composition and/or related disclosure is inconsistent with relevant market-specific governance frameworks or market norms. The revised policy takes a softer stance to board diversity than Vanguard’s prior policies, which stated that boards should, “at a minimum, represent a diversity of personal characteristics, inclusive of at least diversity in gender, race, and ethnicity on the board.”

Takeaways

ISS and Glass Lewis’ policy changes are late-breaking developments for companies with a December 31 fiscal year-end, many of whom are currently finalizing the drafting of their proxy statements. However, many companies had already been revising their board diversity disclosures, including following President Trump’s Executive Orders on DEI. When doing so, companies should keep in mind that shareholders like BlackRock and Vanguard have retained flexibility in their guidelines for engagement with or votes against boards whose composition is inconsistent with market norms.

For more information, see The Debrief.

Notable SEC Announcements

SEC to Host Roundtable on Security Status

On March 3, 2025, the SEC announced that its Crypto Task Force will host a series of roundtables, titled “Spring Sprint Toward Crypto Clarity,” to discuss key areas of interest in the regulation of crypto assets. The inaugural roundtable, “How We Got Here and How We Get Out – Defining Security Status,” will take place on March 21, 2025 and is open to the public.

For more information, see this SEC press release.

SEC Provides “EDGAR Next” Guidance for Filers

On March 6, 2025, the SEC published guidance to help filers navigate EDGAR Next, which will go live on March 24, 2025. The resources include instructional videos on the SEC YouTube channel, written materials and answers to “Frequently Asked Questions” on the EDGAR Next webpage.

For more information, see this SEC press release. For information about how filers should prepare for EDGAR Next, see The Debevoise Update.

SEC Mandates Return to Office for Staff

On February 25, 2025, the SEC issued an agency-wide memo announcing the return of all staff to the office in mid-April in accordance with President Trump’s return-to-office directive for federal workers.

FCA Publishes Consultation Paper on Further Changes to UK Listing Rules

On January 31, 2025, the FCA published Consultation Paper CP25/2, which sets out further proposed changes to the UK Listing Rules under the POATRs.

The proposals follow from CP24/12 (covered by us here), which was published in July 2024, and continue the FCA’s aim to streamline the listing process for companies wishing to have securities admitted to UK-regulated markets.

Key Proposals

The key elements of the Proposal include:

1. Further Issuances. The FCA proposes to remove the requirement to submit a new listing application for further issuances of a class of securities that is already listed on a UK-regulated market. Instead, issuers would submit a single application covering all securities of the same class, including existing securities and future issuances made after the FCA’s approval of the listing application.
2. Listing Particulars Requirement. The FCA proposes to remove the requirement for issuers to prepare Listing Particulars when applying for admission to trading on the LSE’s Professional Securities Market and for issuances of certain types of securities that are currently exempt from the prospectus requirements. Affected issuers will need to consider listing on a different segment in the event of future issuances.

3. Disclosure Requirements for Low Denomination Bonds. The FCA proposes to align the disclosure standard of low denomination bonds (bonds with a denomination per unit below €100,000 or an equivalent amount) with the standard currently applicable to wholesale bonds (bonds with a denomination per unit of at least €100,000 or an equivalent amount).

4. Definition of Non-Complex Listed Corporate Bonds. The FCA’s proposals include adding a new definition of “non-complex listed corporate bonds” to further encourage the listing of low denomination bonds.

5. Exemption from the Financial Reporting Requirements in DTRs. Issuers of debt securities are subject to annual and half-yearly financial reporting requirements under the Disclosure Guidance and Transparency Rules (“DTRs”). DTR 4.4.2 provides an exemption for issuers that issue exclusively debt securities admitted to trading with a denomination per unit of at least €100,000 (or an equivalent amount). The FCA’s proposal also includes applying this exemption to wholesale debt issuers and financial subsidiaries that exclusively issue “non-complex listed corporate bonds.”

6. Consumer Duty. The FCA’s proposals include providing a carve-out for “non-complex listed corporate bonds” from the Consumer Duty obligations under the FCA Principles for Businesses Handbook, regardless of denomination.

7. Replacing the Pricing Statement Related to the Discounted Share Issuance Rules. The FCA’s proposals include providing a carve-out for “non-complex listed corporate bonds” from the Consumer Duty obligations under the FCA Principles for Businesses Handbook, regardless of denomination.

8. Sponsors. The FCA’s proposals remove the requirement for a sponsor for an issuer to submit a listing application for a further issuance of shares.

9. Consequential Handbook Changes. The FCA is also consulting on the related changes to the Handbook arising out of CP24/12, including in relation to rules regarding the exercise of its new powers under the POATRs.

Key Takeaways

The proposals continue the FCA’s efforts to make listings on UK-regulated markets easier and more cost-efficient. In particular, the proposed new rules should reduce barriers to listing for issuers of low denomination bonds.

The deadline for comments on CP25/2 is March 14, 2025. The FCA aims to finalize the new rules and publish a Policy Statement in summer 2025. The FCA anticipates the new regime will come into force in early 2026.

For more information, see The Debevoise Update.

SEC Rule-Making Agenda

The latest SEC Regulatory Agenda was posted on October 17, 2024. The SEC approved the publication of an agenda of its rulemaking actions for publication in Fall 2024, which was expected to be released by January 2025 but has not to date been published. However, we expect the SEC’s regulatory agenda and timing to be impacted by the incoming administration’s personnel and priorities. Notably, in recent remarks, SEC Acting Chair Mark Uyeda characterized the previous SEC leadership’s regulatory agenda as “overly ambitious” and anticipates a “very methodical, very thoughtful” approach to setting future rulemaking priorities.

For more information, see the full regulatory agenda here.

PCAOB Standard-Setting and Rulemaking Agenda

On November 4, 2024, the PCAOB released standard-setting and rulemaking agendas for the remainder of 2024 and 2025, and a summary of these key changes is included below. For more information, see the full regulatory agenda here. Of note, on February 11, 2025, the PCAOB filed with the SEC notice to withdraw its Firm and Engagement Metrics and Firm Reporting projects.

Recently Completed and Pending Standard‐Setting Projects
Project	Date of PCAOB Adoption	Date of SEC Approval
Firm and Engagement Metrics	November 21, 2024; Withdrawn February 11, 2025	N/A
Short-Term Standard‐Setting Projects
Project	Next PCAOB Action	Anticipated Timing
Noncompliance with Laws and Regulations (NOCLAR)	TBD pending analysis of comment letters on June 6, 2023 proposal and March 6, 2024 Roundtable, and responses to targeted inquiries of firms about their approach relating to noncompliance with laws and regulations or illegal acts	2025
Attestation Standards Update	Proposal	2025
Going Concern	Proposal	2025
Substantive Analytics Procedures	Adoption	2025
Inventory	Proposal	2025
Recently Completed and Pending Rulemaking Projects
Project	Date of PCAOB Adoption	Date of SEC Approval
Registration (Constructive Requests to Withdraw from Registration)	November 14, 2024	January 2, 2025
Firm Reporting	November 21, 2024; Withdrawn February 11, 2025	N/A

 

This publication is for general information purposes only. It is not intended to provide, nor is it to be used as, a substitute for legal advice. In some jurisdictions it may be considered attorney advertising.