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I. New Guidance

On February 12, 2025, the SEC’s Division of Corporate Finance issued Bulletin No. 14M, granting management greater freedom to exclude shareholder proposals from proxy ballots, notably those related to social and environmental considerations.

II. Excluding ESG Proposals

Bulletin No. 14M rescinded the Biden-era Bulletin No. 14L, which had limited boards’ ability to exclude ESG shareholder proposals from the ballot.

Some important excerpts from Bulletin No. 14M:

Where a proposal’s significance to a company’s business is not apparent on its face, the Commission has stated that a proposal may be excludable unless the proponent demonstrates that it is “otherwise significantly related to the company’s business.”

The mere possibility of reputational or economic harm alone will not demonstrate that a proposal is “otherwise significantly related to the company’s business.”

It appears that most environmental and social proposals will not be considered “significantly related” and thus will be excludable.

III. Excluding Micromanagement Proposals

Similarly, Bulletin No. 14M also allows the exclusion of “micromanagement” proposals, defined as those which “involve intricate detail, or seek to impose specific time-frames or methods for implementing complex policies.”

Example: mandating net-zero greenhouse gas emission by 2030 and outlining methods and timeframes for achieving net-zero.

Note that federal courts, not the SEC, possess legal authority to determine whether a Company’s exclusion of a shareholder proposal was valid. Still, the SEC possesses the power to issue a ‘no-action letter’ which, although non-binding, states that the Division of Corporate Finance would not recommend enforcement action against the Company if a shareholder were to sue.

IV. Implications

We see four implications from these new guidelines:

1. Decrease in shareholder proposals: There will almost certainly be a significant decrease of shareholder proposals on proxy ballots related to social/DEI and environmental proposals. This is true for both ESG/DEI and Anti-ESG/DEI proposals. Activist shareholders will likely submit fewer of these types of proposals, and companies will likely exclude most of those they receive. We still expect governance issues to be on the ballot, as the new guidelines do specifically allow for “substantive governance matters” to be included.

2. Results of meetings likely to be unchanged: Despite the likely decrease in E&S proposals on proxy ballots this year, ultimately, the results of this year’s annual shareholder meetings will likely not change much, as ESG and anti-ESG proposals have received low shareholder support historically. However, corporate governance matters, such as declassifying boards, have had high success rates and likely will continue to.

3. Activists using proxy ballot to ‘make a statement’: Although ESG/DEI proposals garnered paltry support, they allowed activists to earn headlines via the proxy ballot. The new rules will restrict that channel for activism.

4. Costs to companies: The final implication is that companies are likely to save significant time and money that would otherwise be spent seeking no-action letters, crafting statements of opposition, and operating proxy solicitation campaigns.

Regardless of what shareholder proposals look like this proxy season, Egan-Jones is ready to help with all your proxy voting needs by aligning our recommendations with your interests.