SEC Allows Companies to Exclude More Shareholder Proposals in 2017, Returning to More Traditional Interpretations

July 28, 2017

The 2017 proxy season featured an uptick in the number of company requests to exclude shareholder proposals from proxies granted after years of the Securities and Exchange Commission tightening the conditions by which companies could do so, according to Gibson Dunn's annual report on shareholder proposal activity.  Per the report, the total number of shareholder proposals submitted is down so far in 2017—approximately 827 proposals were submitted compared with the 916 proposals submitted in 2016 and the 943 proposals submitted in 2015.  Despite the decrease, Gibson Dunn reported that the SEC granted 78 percent of the 288 total no action requests in 2017, which represented an increase over the 68 percent of 245 requests in 2016.  Under the no action process, companies may ask SEC staff whether it would recommend SEC enforcement against a company that excludes a shareholder proposal, and if the staff agrees, it gives companies greater justification for excluding the proposal.  Over a third of proposals (37.6 percent) were excluded on the basis that the topic of the shareholder resolution is one of ordinary business, which is not appropriate for shareholder input.  This year there were proposals explicitly stating that they "did not seek to address the company's internal approach to compensation," and the staff still concluded that the proposal "relates to general compensation matters, and does not otherwise transcend day-to-day business matters" and thus may be excluded.  The report also noted that environmental and social proposals were the most frequently submitted, with social proposals increasing from 160 in 2016 to 201 in 2017.  Of those, 34 focused on discrimination or diversity-related issues (up from 16 in 2016), and 19 focused on the gender pay gap (up from 13 in 2016).