The Relevance of "Economic Relevance"

For those who use “March Madness” to describe proxy season rather than basketball, they'll immediately know that the “economic relevance” exclusion under Rule 14a-8(i)(5) is something of a lore in the SEC's shareholder proposal world. As an example, we are aware of fewer than ten examples of companies successfully getting no-action relief under this exclusionary basis in the last two decades. 

For the uninitiated, the SEC's shareholder proposal rules say that you can exclude a shareholder proposal if it relates to less than 5% of a company's financial metrics unless the proposal is “otherwise significantly related" to a company. This makes sense – why should a company's shareholders be bombarded with proposals that are not financially material to their interests?  

The nuance lies in what it means to be “otherwise significantly related” to a company. The SEC has historically held that if a proposal relates to a social or ethical issue, it is de facto “significantly related" to a company under Rule 14a-8(i)(5). So even if the proposal is not “economically relevant” to a company, it could still be significant – and therefore worthy of a shareholder vote. 

Putting no value judgment on the social or ethical issues raised by proposals, the problem with this logical framework was that it rendered the “economic relevance” exclusion redundant, since tying a proposal to a social or ethical issue automatically trumped financial materiality. 

Fast-forward to February 2025 when the SEC issued Staff Legal Bulletin No. 14M (SLB 14M), guidance that revives the “economic relevance” exclusion so that it, in their words, can serve its “intended purpose." Under SLB 14M, if a proposal is not “economically relevant” to a company and yet relates to a social or ethical issue, the staff will consider the proposal in light of the “total mix” of information about a company. Per the staff, “a matter [that is] significant to one company may not be significant to another.” In other words, it's not sufficient for a proposal's social or ethical issue to be significant in the abstract. It must be significant to the specific company.

So will SLB 14M cause the “economic relevance” exclusion to finally be relevant again?

Companies seem to think so – or they at least think it's worth a shot. We've seen a little over 20 requests under Rule 14a-8(i)(5) this proxy season so far. Approximately 60% of these were submitted after SLB 14M. And, a majority of the post-SLB 14M requests relate solely to “economic relevance” and do not seek relief in the alternative. 

Companies may be shooting their shot, but will they be successful?  It's still early days, but we've seen a couple of examples of the SEC granting relief under Rule 14a-8(i)(5). For example, PepsiCo was granted relief on a proposal requesting a report on the effectiveness of PepsiCo's efforts to uphold its human rights standards throughout its sugar supply chain in India.

So, yes – the “economic relevance” is indeed relevant again. Just how relevant remains to be seen.