Shareholder Proposals and the "Significance"/"Relevance" Test

The case against a portfolio-wide approach

The Securities and Exchange Commission’s Rule 14a-8 gives shareholders the right to submit proposals to be included in a company’s proxy materials. But that right is not unlimited. Among the key exclusions available to companies is Rule 14a-8(i)(5), known as the “relevance” exception. This rule permits companies to exclude proposals that pertain to operations that account for less than 5% of total assets, net earnings, and gross sales — unless the subject matter is “otherwise significantly related to the company’s business.”

That last clause has prompted heated debate. Some shareholder activists, notably the Shareholder Rights Group, now argue that “significance” should be interpreted not in relation to the company’s business at all, but in relation to the portfolio-wide interests of investors. In other words, even if a proposal has no material connection to the company submitting it, they argue it should be included if the issue it raises could affect diversified investor returns across the entire market.

This is a deeply misguided approach — one that would erode the foundations of Rule 14a-8, strain the SEC’s interpretive framework, and turn the shareholder proposal process into a Trojan horse for policy activism unmoored from corporate relevance. Here's why.