SEC Adopts Amendments to Modernize Shareholder Proposal Rule
The SEC adopted amendments to modernize the rule governing the process for a shareholder to have proposals included in a company’s proxy statement for consideration by the company’s shareholders. The amendments cover the principal requirements for: (1) initial inclusion in the proxy statement — the amount and length of ownership of the proposing shareholder — and (2) for subsequent resubmission if the proposal is not approved — the amount of support from other shareholders. The SEC said the amendments will facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest. Under the rules, any shareholder may submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time. The rules also provide for a transition period so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission (and through the date of the relevant meeting). The amendments also update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at future shareholder meetings, so as to relieve companies and their shareholders of the obligation to consider, and spend resources on, matters that had previously been voted on and rejected by a substantial majority of shareholders without sufficient indication that a proposal could gain traction among the broader shareholder base in the near future. Commissioner Allison Herren Lee in a statement assailed the amendments, noting the strong opposition from comment letters and stating that the amendments will undermine ESG initiatives. The amendments, Commissioner Lee said, “represent the capstone in a series of policies that will dial back shareholder oversight of management at the companies they own.” She asserted that last year’s guidance on proxy advisors and proxy solicitation made it more difficult and costly for investment advisers to vote shares on behalf of their clients in reliance on independent proxy voting advice and that recent new rules and guidance related to proxy advisors injected further cost and complexity into the voting process and mandated greater issuer involvement in proxy voting decisions. “These actions collectively put a thumb on the scale for management in the balance of power between companies and their owners.” Commissioner Lee said.