SEC Swings No Action Scythe on Lobbying Proposals

Micromanagement precedent may make it more challenging for investors to file resolutions in future proxy seasons.

The US Securities and Exchange Commission’s (SEC) sceptical stance on shareholder rights has manifested in more than a dozen lobbying proposals being excluded from upcoming proxy meetings.

In Q4 2024, the SEC approved industrial gases company Air Products and Chemicals’ exclusion of a shareholder proposal on lobbying from its 2025 proxy statement, arguing the proposal sought to micromanage its business operations. No-action relief under SEC Rule 14a-8 allows management to exclude shareholder proposals from the annual proxy with SEC staff approval.

Shareholder rights experts expressed alarm over the decision, warning that it could set a new precedent following more than a decade of the identical proposal having been filed successfully at numerous companies, with such proposals sometimes gleaning substantial investor support.

More than 15 companies have since challenged lobbying-focused shareholder proposals with the SEC. Last week, it was reported that the SEC had allowed five companies- ExxonMobil, Goldman Sachs, McDonalds, Morgan Stanley, and United Airlines Holdings – to exclude shareholder proposals related to lobbying activities from their agendas at forthcoming proxy meetings.

The proposals requested the firms annually disclose reports on lobbying payments, information on the company’s policies and procedures governing direct and indirect lobbying activities, as well as details of decision-making by management and the board.

BlackRock, Bristol Myers, Danaher, General Dynamics, HP, Huntsman, LabCorp and Sherwin Williams have also been granted permission by the SEC to omit shareholder resolutions from their proxy meetings. The influx of no-action approvals differs from previous SEC stances, which often saw similar requests from companies declined.

“The micromanagement exclusion is all about how the proposal is written [and] whether it is too prescriptive, so we are left to ask how large a change is the SEC making in how it interprets micromanagement if it is excluding a proposal that it has allowed since 2011,” Sanford Lewis, Director and General Counsel of investor association the Shareholder Rights Group told ESG Investor.

“Subsequent rulings at a number of companies demonstrate that the staff has changed its decision-making principles to allow exclusion of all the proposals using this model language,” he added. “What is most surprising is that the SEC has generally allowed proposals on major concerns like lobbying disclosure to be fairly specific in their requested disclosures. This seemed a significant turn of events.”

Shareholder concerns

Shareholders had been anticipating a paring back of their rights under a second Donald Trump presidency, due to the expected appointment of Paul Atkins, a known critic of shareholder rights, as Chair of the SEC.

However, the SEC’s Staff Legal Bulletin (SLB) 14M arrived as somewhat of a surprise last month, especially with Atkins’ confirmation hearing still yet to be scheduled. The new SLB 14M guidance reinstates prior staff guidance on micromanagement that had been rescinded by SLB 14L, allowing shareholder proposals to be excluded more easily.

Of particular concern to investors, SLB 14M will retroactively apply to shareholder proposals written specifically to comply with SLB 14L. Institutional investors have urged the SEC not to apply guidance to proposals written specifically to comply with SLB 14L.

“The tilt away from shareholders and toward corporates from this commission is unsurprising,” said Cleo Rank, Program Manager – Climate Finance at InfluenceMap. “Allowing companies to exclude lobbying proposals means that it will be more difficult for investors to get material information on companies’ key policy engagement positions and activities, as well as those of their trade associations and where these might be misaligned.”

SLB 14L being rescinded was applauded by many big business representatives, including the National Association of Manufacturers, the Business Roundtable, and the US Chamber.

“The immediate impact of 14M is likely to be an increase in uncertainty among investors over whether their proposals will be allowed to move forward, as some have already been excluded based on new guidance,” added Rank.

While the SEC has sided with shareholders on some proposals targeting hot-button topics, such as one on diversity and racial justice at Boeing, all the no action applications to the SEC on lobbying on the grounds of micromanagement have to date resulted in resolutions being omitted.

“Companies that challenge the lobbying resolution even if it got strong support, of say 35% or 40%, previously seems strange to us,” said Timothy Smith, Senior Policy Advisor at the Interfaith Center on Corporate Responsibility. “They have a legal right to challenge, but they also seem to be oblivious to listening to a significant group of their shareholders who have voted for expanded disclosure.

“I expect the SEC will continue its rulings of blocking lobbying resolutions with a few decisions still pending,” he added.

A higher bar

The change in the stance of the SEC will necessitate a change in shareholders’ framing of lobbying-related proposals. However, with the vast majority of proposals filed in November and December ahead of spring shareholder meetings, there has yet to be an opportunity to test what alternate language for such proposals can circumnavigate the SEC’s new micromanagement threshold.

“It’s possible that shareholders can redraft the lobbying disclosure proposals in a form that will be acceptable to the SEC. But there is also a danger that the real effect of the ruling is to make it much more difficult for shareholders to file any such proposal at most companies,” said Lewis.

“Proposals that are less prescriptive in their disclosure request might enable a claim that the company has done enough to affirm that the vaguer request is ‘substantially implemented’,” he added. “If so, it may prove impossible to use shareholder proposals to seek better disclosure on lobbying under the SEC’s new micromanagement principle.”

Smith added that investors are not solely concerned by no action decisions, with acting SEC chair Mark Uyeda and fellow Republican Commissioner Hester Peirce having also hinted that they may make it more challenging for shareholders to file resolutions. This could manifest in investors needing a higher stake in the company to file proposals.

“We are very concerned about these trends, as are the scores of investors who are involved in that engagement and resolution process,” said Smith.

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