The SEC’s March 2019 Disclosure Modernization and Simplification rule provided an opportunity to make MD&A less repetitive and hopefully a better communication tool by allowing the third year back to be omitted from the discussion.  The rule added this language to instruction 1 in S-K Item 303:

Instructions to paragraph 303(a): 1. …..  For registrants providing financial statements covering three years in a filing, discussion about the earliest of the three years may be omitted if such discussion was already included in the registrant’s prior filings on EDGAR that required disclosure in compliance with Item 303 of Regulation S-K, provided that registrants electing not to include a discussion of the earliest year must include a statement that identifies the location in the prior filing where the omitted discussion may be found. …..

If you would like to find an example of a company that has made this change check out this Procter and Gamble June 30, 2019 Form 10-K.

If you have seen any other examples of this change please let everyone know with a comment on this post, and thanks for doing that!

As always, your thoughts and comments are welcome!

Back in November we presented a long and technical post about the confusion surrounding how to use “Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure” in Form 10-K.  As we discussed in that post, the folks who teach our Form 10-K In-Depth Workshop, Reed Wilson and Rich Alven, find a fair number of mistakes as they prepare for their workshops by reviewing participant’s 10-Ks.  At the year-end sessions of the Form 10-K In-Depth Workshop they continued to see this confusion and thought an example might be appropriate to reinforce proper use of Item 9.

The example starts with a change in auditor that was properly reported on Form 8-K.

The Audit Committee (the “Audit Committee”) of the Board of Directors of Medical Properties Trust, Inc. (the “Company”) annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Audit Committee elected to dismiss KPMG LLP (“KPMG”) as the Company’s independent registered public accountants for the year ending December 31, 2008.

 No Adverse Opinion or Disagreement. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008:

(1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and

(2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company provided KPMG with a copy of the foregoing disclosure.

The Company has requested and received a letter from KPMG, dated September 12, 2008, addressed to the Securities and Exchange Commission. A copy of this letter is attached hereto as Exhibit 16.1 to this Current Report on Form 8-K.

Also on September 8, 2008, the Audit Committee engaged PricewaterhouseCoopers, LLP (“PwC”), effective immediately, to serve as the Company’s independent registered public accountants for the year ending December 31, 2008. During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods, the Company did not consult with PwC regarding any of the matters or events set forth in Item 304(a)(2)(i) and (ii) of Regulation S-K.

This was a very straightforward auditor change, no disagreements or reportable events, and it was appropriately reported on an Item 4.01 Form 8-K.

As our earlier post discusses, this kind of a change should not be mentioned in the following Form 10-K.  However, the company’s Form 10-K for the year that included the auditor change ERRONEOUSLY included this disclosure:

The Audit Committee of the Board of Directors of the Company annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Company notified KPMG LLP (KPMG) that the Company’s Audit Committee, on September 8, 2008, decided not to renew the engagement of its independent registered public accountants, KPMG, and selected PricewaterhouseCoopers LLP (PwC) to serve as the Company’s independent registered public accountants for 2008.

The audit reports of KPMG on the consolidated financial statements of the Company as of and for the years ended December 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008: (1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and (2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

And, to make things even more confusing, the company also included the following disclosure in their Form 10-K for the second year following the auditor change, misunderstanding the two-year look-back requirement in Item 9:

The Audit Committee of the Board of Directors of the Company annually considers the selection of the Company’s independent registered public accountants. On September 8, 2008, the Company notified KPMG LLP (KPMG) that the Company’s Audit Committee, on September 8, 2008, decided not to renew the engagement of its independent registered public accountants, KPMG, and selected PricewaterhouseCoopers LLP (PwC) to serve as the Company’s independent registered public accountants for 2008.

The audit reports of KPMG on the consolidated financial statements of the Company as of and for the years ended December 31, 2005 and 2004 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. The audit reports of KPMG on the consolidated financial statements and on the effectiveness of internal control over financial reporting of the Company as of and for the years ended December 31, 2007 and 2006 did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

During the two fiscal years ended December 31, 2007 and 2006 and the subsequent interim periods through September 8, 2008: (1) there were no disagreements with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in its audit reports on the consolidated financial statements of the Company, and (2) there were no “reportable events” as defined in Item 304(a)(1)(v) of Regulation S-K.

The Company has agreed to indemnify and hold KPMG harmless against and from any and all legal costs and expenses incurred by KPMG in successful defense of any legal action or proceeding that arises as a result of KPMG’s consent to the inclusion or incorporation by reference of its audit report on the Company’s past consolidated financial statements included or incorporated by reference in the Registration Statements on Form S-8 and Form S-3.

Clearly this disclosure was not required, and to add even more confusion, for some reason the company decided to leave out Item 4 from their 10-K and renumbered all the remaining items.

They did not follow Exchange Act Rule 12b-13 which requires all item numbers to be included:

12b-13   Preparation of statement or report.

The statement or report shall contain the numbers and captions of all items of the appropriate form, but the text of the items may be omitted provided the answers thereto are so prepared as to indicate to the reader the coverage of the items without the necessity of his referring to the text of the items or instructions thereto. However, where any item requires information to be given in tabular form, it shall be given in substantially the tabular form specified in the item. All instructions, whether appearing under the items of the form or elsewhere therein, are to be omitted. Unless expressly provided otherwise, if any item is inapplicable or the answer thereto is in the negative, an appropriate statement to that effect shall be made.

Given the “red flag” nature of this disclosure and the confusion about this item, it is always good to have a review and a checklist to help get this right!  Courtesy of our Form 10-K In-Depth Workshop Leader Rich Alven, here is an easy test you can follow to determine that an Item 9 disclosure is not required.

You know you don’t need an Item 9 when:

• You are only describing what was provided in the 8-K filing or
• You are only referencing the 8-K filing

As a reminder, an Item 9 disclosure is only required when ALL of the following conditions are met:

• You are within two fiscal years of when the new auditors were engaged AND
• You had a disagreement with the previous auditor or other reportable event (as described in Item 304(b) AND
• During the first two years of engagement, an event has come up that is similar to the event that caused the disagreement with the previous auditor AND
• Your current auditor allows you to account for it differently than your previous auditor.

So, to recap – Within the first 2 years of a change in auditor:

• If there was no disagreement with your previous auditor – NO Item 9
• If there was a disagreement with your previous auditor and your current auditor requires the same accounting as the previous auditor – NO Item 9
• If your current auditor agrees with you on an issue that was the subject of a disagreement with your previous auditor (which would have been included in your 8-K filing) – Item 9 is required.

As always, your thoughts and comments are welcome!

In a recent presentation members of the SEC’s CorpFin staff mentioned that they have been seeing more companies use supply chain finance programs.  In these types of programs companies make arrangements with their suppliers and financial institutions to help manage the timing of payments to suppliers in an effort to better manage cash.  (You can read more details in the comment letter exchange below.)

One of the concerns the staff raised was that the use of these kinds of programs should be addressed in MD&A in the liquidity and capital resources discussion.  The following comment illustrates this concern:

1. We note your “Accounts Payable days” are 71 days as of December 31, 2018. We further note your Accounts Payable days has increased substantially over the past ten years, with a low of 47 days in 2009, followed by a substantial increase to 63 days in 2011. Please tell us if you are engaging in supply chain finance operations and mechanisms, such as reverse factoring or similar methods to increase your Accounts Payable days. Otherwise, please explain how you have been able to achieve such extended accounts payable terms with your suppliers.

In response to this comment the company replied:

From 2009 through 2018, we increased our Accounts Payable days by executing a strategic initiative to extend payment terms with our suppliers. Through successful negotiations, principally by more directly leveraging our purchasing volume, we have significantly extended our payment terms with many of our suppliers. During 2012, we began to facilitate, through a third-party intermediary, a voluntary supply chain finance program between certain suppliers and several participating financial institutions, which to a lesser extent also improved Accounts Payable days. From 2012 through 2018, fewer than 3% of our suppliers utilized the program, and less than 10% of our direct material-related purchases were paid under the program in any given year. We retain our right to negotiate with the suppliers that elect to participate in the program and benefit from any negotiated pricing or credit terms. The amounts we pay and our payment terms to the participating financial institutions are the same as if we paid our suppliers directly.

Additionally, as disclosed in our Proxy Statements, our Organization and Compensation Committee selects performance metrics for our annual performance program each year, under which our executives and key employees at each of our businesses can earn cash bonuses and restricted stock awards, if the threshold goal is achieved. From 2009 through 2012, the Committee selected cash flow as a metric for this performance program, and from 2013 through 2018, working capital as a percentage of sales was selected by the Committee as a metric for this program. Additionally, from 2009 through 2018, the executive officers selected the metric of average working capital days to incentivize our business unit employees as part of their annual performance program. These metrics reinforce our executive officers’ and other employees’ focus on liquidity, align their incentive compensation measures and are favorably affected by increases in Accounts Payable and corresponding Accounts Payable days.

The SEC’s follow-up to this response was this comment:

1. We have reviewed your response to our prior comment. Please address the following:

Tell us the dollar amount of accounts payable that were settled via your supply chain finance program for each year from 2012 to 2018.

Tell us the balance of your accounts payable that represents amounts due to participating financial institutions under your supply chain finance programs as of each year from 2012 to 2018.

Provide us an analysis to support your conclusion that amounts settled under your supply chain finance program are accounts payable rather than bank financing.

Your analysis should also address the classification of your payments made to the participating financial institutions as well as related disclosure of non-cash financing activities required by ASC 230-10-50-3.

You state in your response that the payment terms to the participating financial institution are the same as if you paid the supplier directly. Please tell us the terms of your supply chain finance arrangements with the participating financial institutions as well as the payment terms with your vendors.

You also state in your response that the program improved your accounts payable days. Please explain how the supply chain finance program increased your accounts payable days outstanding.

Tell us the extent to which the continued improvement to your accounts payable days, and related liquidity, are expected to continue as well as the factors, such as changes in interest rates, that may limit the availability of your supply chain finance programs.

To the extent material, expand your management’s discussion and analysis to address the impact the supply chain finance program has had on your liquidity and whether or not that impact is expected to continue.

Please ensure you have filed as exhibits, all agreements relating to your supply chain finance program.

You can read the company’s lengthy response to this comment and the results of a follow-up phone call along with the incremental F/S and MD&A disclosure the company agreed to provide in future filings here.

As always, your thoughts and comments are welcome.

The role of proxy advisory firms has been hotly and extensively debated over the years.  In August 2019 the SEC issued guidance that:

 Addressed the ability of investment advisers to establish a variety of different voting arrangements with their clients,

Discussed matters investment advisers should consider when they use the services of a proxy advisory firm,

Included an interpretation that proxy voting advice provided by proxy advisory firms generally constitutes a “solicitation” under the federal proxy rules, and

Provided related guidance about the application of the proxy antifraud rule to proxy voting advice.

The discussion about proxy advisory firms continues, and as part of this evolution ISS has released their annual Global Policy Survey.  For an interesting number of comments and perspectives on the survey, including discussion of ESG issues, you can read this post on the soundboard governance blog.  This blog is authored by Doug Chia, a Fellow at the Rutgers Center for Corporate Law and Governance.

Lastly, as a next step in this area, on November 5, 2019 the SEC proposed a rule to “improve accuracy and transparency of proxy voting advice”.

As always, your thoughts and comments are welcome!

On November 19, 2019 the SEC issued SAB 119 to align its guidance with the FASB’s Current Expected Credit Loss Standard, ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  The new SAB  updates existing guidance dealing with what the staff expects of companies as they develop methodologies and supporting documentation for measuring credit losses.

The SAB addresses areas that will sound very familiar to professionals who have been dealing with the new, subjective estimates required to implement the new standard, including:

1. Measuring current expected credit losses

2. Development, governance, and documentation of a systematic methodology

3. Documenting the results of a systematic methodology

4. Validating a systematic methodology

The SAB will be most relevant for financial institutions but could be helpful for all entities.  As of the date of this writing there is one formal detail still in process for the SAB, publication in the Federal Register.

As always, your thoughts and comments are welcome!

As we mentioned in our quarterly Newsletter, during the late summer the FASB had decided to defer the implementation date for its CECL, Leases, Hedging and Long Duration Insurance Contracts standards for certain types of entities.  On November 15, 2019 the final standard for this change was issued.  You can find a press release and links to the final ASU here.  The press release includes this table summarizing the changes:

As always, your thoughts and comments of celebration are welcome!

After making changes for mining and oil and gas companies the SEC has proposed changes in the statistical disclosures for banks and bank holding companies.  You can read the details of the proposed rule here.  The proposal has a 60-day comment period from the date it is published in the Federal Register.

The proposed rule would eliminate Guide 3 (which has been essentially the same for 30 years) and provide new disclosures in Regulation S-K.  According to the press release announcing the new rule it will require disclosure about:

Distribution of assets, liabilities and stockholders’ equity, the related interest income and expense, and interest rates and interest differential;

Weighted average yield of investments in debt securities by maturity;

Maturity analysis of the loan portfolio including the amounts that have predetermined interest rates and floating or adjustable interest rates;

An allocation of the allowance for credit losses and certain credit ratios; and

Information about bank deposits including amounts that are uninsured.

As always, your thoughts and comments are welcome!

SEC Reporting this year-end presents several challenges, including:

Form 10-K updates from the SEC’s March 2019 Disclosure Modernization rule,

Implementation of Critical Audit Matters, and

New accounting standards including CECL.

Our 35^Th Annual SEC Reporting and FASB Forums in New York and San Francisco (and also via webcast) will provide you all the practical knowledge and useful tools you need to successfully navigate this complexity.  You will also earn an hour of regulatory ethics CPE.  (Note that some state boards of accountancy do not accept regulatory ethics towards their ethics CPE requirements ).  You can find all the details and register here.

As always your thoughts and comments are welcome!

As we move towards the end of the third-quarter and begin preparations for year-end reporting we are presenting a series of blog posts focused on common questions and problems in quarterly and annual reports.

This blog post explores some complexities of Item 9 in Form 10-K and the reporting requirements for auditor changes.  To illustrate this point, Workshop Instructors Reed Wilson and Rich Alven, who lead SECI’s Form 10-K In-Depth Workshop and who review each Workshop participant’s Form 10-K as part of their Workshop preparations, noted that many of the participants’ company filings do not use Form 10-K Item 9 properly.  In a recent Workshop, two out of five companies who had auditor changes misused Item 9.

Clearly, this is a confusing disclosure requirement!

Overview and Summary

The explanation behind this confusion is long and detailed.  To help, here is a summary of how this disclosure requirement works.  You will get all the details as you read the rest of this blog post:

1. Form 10-K Item 9 CANNOT be used to report auditor changes.
2. ALL auditor changes MUST be reported on Form 8-K Item 4.01.
3. Form 10-K Item 9 is only used to report certain information when there has been an auditor change previously reported on Form 8-K and the auditor change involved “disagreements or reportable events”.
4. Auditor changes previously reported on Form 8-K where there were no “disagreements or reportable events” should not be disclosed in Form 10-K Item 9.
5. Form 10-K Item 9 disclosure is only required when there was an auditor change that involved “disagreements or reportable events” that was previously reported on Form 8-K, the accounting issue that was the subject of the “disagreements or reportable events” continues to affect the company’s financial statements, AND the company’s new auditor does not require the company to account for these matters in the way the former auditor thought was in accordance with GAAP.
6. In the event Item 9 disclosure is required, the company must disclose what the financial statements would have looked like had it followed the treatment the former auditor thought was GAAP.

The Details

One reason for this confusion is the Item 9 title in Form 10-K: “Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.”

From simply reading this description it might seem that auditor changes and /or disagreements with the former auditor should be reported here.

That is not the case.

Another issue that creates confusion in this area is the articulation of Form 10-K and 8-K.  Form 10-K  Item 9B can (generally!) be used to report information that would normally be reported on Form 8-K if the deadline for a Form 10-K falls in the period that an 8-K would be required.

However, a change in auditor cannot be reported on Form 10-K Item 9B.  Because auditor changes are such an important watch area for the SEC they issued this Compliance and Disclosure Interpretation.  Confusingly perhaps, the C&DI is not in the 8-K section, but in the overall General Guidance section:

Section 101. Form 8-K — General Guidance

Question 101.01

Question: If a triggering event specified in one of the items of Form 8-K occurs within four business days before a registrant’s filing of a periodic report, may the registrant disclose the event in its periodic report rather than a separate Form 8-K? If so, under what item of the periodic report should the event be disclosed? Item 5 of Part II of Form 10-Q and Item 9B of Form 10-K appear to be limited to events that were required to be disclosed during the period covered by those reports.

Answer: Yes, a triggering event occurring within four business days before the registrant’s filing of a periodic report may be disclosed in that periodic report, except for filings required to be made under Item 4.01 of Form 8-K, Changes in Registrant’s Certifying Accountant and Item 4.02 of Form 8-K, Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review. The registrant may disclose triggering events, other than Items 4.01 and 4.02 events, on the periodic report under Item 5 of Part II of Form 10-Q or Item 9B of Form 10-K, as applicable. All Item 4.01 and Item 4.02 events must be reported on Form 8-K. Of course, amendments to previously filed Forms 8-K must be filed on a Form 8-K/A. See also Exchange Act Form 8-K Question 106.04 regarding the ability to rely on Item 2.02 of Form 8-K. [April 2, 2008]

So, it is clear that neither Item 9B nor Item 9 in Form 10-K should be used to report auditor changes.  All changes in auditors must be reported on Form 8-K because this is such a sensitive issue given the risk of opinion shopping.

So, what exactly is supposed to be reported in Item 9?  The S-K reference in Item 9 is to S-K Item 304(b).  This part of S-K requires the following disclosures:

(b) If: (1) In connection with a change in accountants subject to paragraph (a) of this Item 304, there was any disagreement of the type described in paragraph (a)(1)(iv) or any reportable event as described in paragraph (a)(1)(v) of this Item;

(2) During the fiscal year in which the change in accountants took place or during the subsequent fiscal year, there have been any transactions or events similar to those which involved such disagreement or reportable event; and

(3) Such transactions or events were material and were accounted for or disclosed in a manner different from that which the former accountants apparently would have concluded was required, the registrant shall state the existence and nature of the disagreement or reportable event and also state the effect on the financial statements if the method had been followed which the former accountants apparently would have concluded was required.

These disclosures need not be made if the method asserted by the former accountants ceases to be generally accepted because of authoritative standards or interpretations subsequently issued.

This disclosure requirement begins to unravel the mystery, but to fully understand Item 9 we need to review exactly what “a change in accountants subject to paragraph (a) of this Item 304” is about, and understand what the disclosures about a “disagreement of the type described in paragraph (a)(1)(iv) or any reportable event as described in paragraph (a)(1)(v) of this Item” are about.

It turns out these are the normal requirements for disclosures about a change in auditors required in Form 8-K.  The instructions for Item 4.01 in Form 8-K state:

Item 4.01 Changes in Registrant’s Certifying Accountant.

(a) If an independent accountant who was previously engaged as the principal accountant to audit the registrant’s financial statements, or an independent accountant upon whom the principal accountant expressed reliance in its report regarding a significant subsidiary, resigns (or indicates that it declines to stand for re-appointment after completion of the current audit) or is dismissed, disclose the information required by Item 304(a)(1) of Regulation S-K (17 CFR 229.304(a)(1) of this chapter), including compliance with Item 304(a)(3) of Regulation S-K (17 CFR 229.304(a)(3) of this chapter) .

So, any change in auditors will be covered by S-K Item 304(a).  However not all auditor changes will include the disclosures about a “disagreement of the type described in paragraph (a)(1)(iv) or any reportable event as described in paragraph (a)(1)(v) of this Item”.

These disclosures will only be required when there has been an auditor change where there were reportable events or disagreements.

(As a side note, don’t forget that retaining a new auditor also requires an Item 4.01 8-K.)

So, this means that disclosure in Form 10-K Item 9 is only required if there has been an auditor change that was previously reported on Form 8-K and as part of the change the company disclosed disagreements with the auditor or reportable events.

But the decision process does not end here.  As the instructions to Item 9 refer to S-K Item 304(b) this item provides that disclosure has to be made when the company’s new auditor agrees with the company’s position and does not make the company account for the transactions or other matters involved in the disagreement the way the former auditors thought was appropriate.

Conclusion and Summary

1. Form 10-K Item 9 CANNOT be used to report auditor changes.
2. ALL auditor changes MUST be reported on Form 8-K Item 4.01.
3. Form 10-K Item 9 is only used to report certain information when there has been an auditor change previously reported on Form 8-K and the auditor change involved “disagreements or reportable events”.
4. Auditor changes previously reported on Form 8-K where there were no “disagreements or reportable events” should not be disclosed in Form 10-K Item 9.
5. Form 10-K Item 9 disclosure is only required when there was an auditor change that involved “disagreements or reportable events” that was previously reported on Form 8-K, the accounting issue that was the subject of the “disagreements or reportable events” continues to affect the company’s financial statements, AND the company’s new auditor does not require the company to account for these matters in the way the former auditor thought was in accordance with GAAP.
6. In the event Item 9 disclosure is required, the company must disclose what the financial statements would have looked like had it followed the treatment the former auditor thought was GAAP.

Given the complexity of this decision process, it is not surprising that this disclosure requirement creates confusion.  That said, given the more or less “confessing to opinion shopping” orientation of this disclosure, it is really best to not use Item 9 unless it is really required!

As always, your thoughts and opinions are welcome, and if you know of a particularly interesting auditor change please put it in a comment to this post!

The CorpFin staff has provided two incremental sources of information and guidance dealing with shareholder proposals in the proxy process.  On September 6, 2019, CorpFin published an “Announcement Regarding Rule 14a-8 No Action Requests.”  In this Announcement, CorpFin staff says:

The staff will continue to actively monitor correspondence and provide informal guidance to companies and proponents as appropriate. In cases where a company seeks to exclude a proposal, the staff will inform the proponent and the company of its position, which may be that the staff concurs, disagrees or declines to state a view, with respect to the company’s asserted basis for exclusion. Starting with the 2019-2020 shareholder proposal season, however, the staff may respond orally instead of in writing to some no-action requests.

 The second development is Staff Legal Bulletin 14K issued on October 16, 2019. In the SLB CorpFin states:

 The Purpose of this bulletin

This bulletin is part of a continuing effort by the Division to provide guidance on important issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding:

• the analytical framework of Rule 14a-8(i)(7);
• board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
• the scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
• proof of ownership letters.

Rule 14a-8 addresses shareholder proposals and paragraph (7) provides one of the ways that a shareholder’s proposal can be excluded by the company from its proxy statement:

(7) Management functions: If the proposal deals with a matter relating to the company’s ordinary business operations

How to interpret this language and how much guidance the SEC staff will provide in this process has been evolving over time, and the announcement and SLB are the latest step in this process.  It will likely continue to be a difficult process!

As always, your thoughts and comments are welcome!