The SEC proposed amendments to the procedural requirements and resubmission thresholds of the shareholder proposal rule ("SEA Rule 14a-8") to reflect decades of market changes. (See also SEC Attempts to Enhance Accuracy and Transparency of Proxy Voting Advice.)
SEA Rule 14a-8 requires companies to include shareholder proposals in their proxy statements, subject to certain requirements. The SEC proposal would amend the eligibility requirements, the one-proposal limit and the resubmission thresholds under SEA Rule 14a-8. Specifically, the proposal would:
- replace the $2,000 threshold for shareholder-proponent eligibility with three-tiered thresholds (i.e., requiring continuous ownership of a company's securities of at least (i) $2,000 for three years, (ii) $15,000 for two years or (iii) $25,000 for one year);
- require a shareholder-proponent who uses a representative to provide documentation that affirms the representative is authorized to submit the proposal;
- require every shareholder-proponent to confirm the shareholder is able to meet (either in person or via teleconference) with the company between 10 and 30 calendar days after the submission of the shareholder proposal;
- amend the one-proposal restriction to "each person" rather than "each shareholder" for the same shareholders' meeting;
- increase the resubmission thresholds for matters voted on in the last five years to 5 percent if previously voted on once, 15 percent if previously voted on twice, and 25 percent if previously voted on three or more times (the current thresholds are 3%, 6% and 10%, respectively); and
- allow companies to deny a proposal that has declining shareholder support.
SEC Chair Jay Clayton stated that the proposal is designed to prevent repeated requests from shareholders for proposals with little support and that generate unnecessary costs. According to Mr. Clayton, the proposal will facilitate issuer-shareholder engagement.
SEC Commissioner Robert J. Jackson Jr. criticized the proposal, saying that it would restrict investors' ability to hold corporate managers accountable by "skew[ing]" voting power toward executives. According to Mr. Jackson, the proposal would exclude CEO accountability measures from the ballot.
SEC Commissioner Elad L. Roisman defended the proposal, stating that it would preserve the path of communication for shareholders while addressing the costs of addressing shareholder proposals that are borne by companies and their shareholders.
SEC Commissioner Allison Herren Lee cautioned that the proposal would add "substantial" barriers to shareholder proposals by (i) overhauling the eligibility criteria and (ii) doubling the re-submission thresholds.
Comments on the proposal must be submitted within 60 days of publication in the Federal Register.
The proposed amendments would increase the threshold for allowing a shareholder to submit a first proposal and raise the thresholds of votes required to duplicate a matter on a proxy statement within five years. Although Commissioner Jackson dissented from the higher requirements, there was actually a substantial amount of consensus among the commissioners as to the need to reconsider the proxy rules, on the benefits to facilitating relatively small shareholders being able to put forward proposals for a vote, and on the fact that dealing with some types of proposals (or some types of shareholders - "gadflies," in the terminology of Commissioner Jackson) is a waste of a company's money. Where the various commissioners ultimately differed was on the means by which wasteful proxies could be excluded.
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