Sept. 24, 2020
The SEC yesterday adopted amendments to modernize Exchange Act Rule 14a-8 — shareholder proposal rule, which governs the process for shareholders to make proposals that will be included in a company’s proxy statement for consideration at a meeting of shareholders. The amendments revise two of the rule’s cornerstone provisions — (1) the ownership threshold for initial inclusion in a company’s proxy statement (not substantively revised since 1998); and (2) the support thresholds for subsequent resubmission of a proposal if it is not approved (not substantively revised since 1954).
SEC Chairman Jay Clayton said, “Today’s amendments reflect many years of the staff’s engagement with investors and market participants as well as their extensive experience with shareholder proposals. These amendments ensure there is an appropriate alignment of interests between shareholder-proponents and their fellow shareholders and illustrate again why retrospective review and, as appropriate, modernization of our rules is necessary. There have been many significant changes in communication methods and technology, as well as the methods investors, particularly retail investors, use to access our markets in the 20 years and 75 years since the initial and resubmission thresholds were last revised."
Current Rule 14a-8 allows any shareholder to submit an initial proposal after having held $2,000 worth or 1% of a company’s securities for at least one year. The amendments replace that threshold with three alternative thresholds that combine higher amounts and shorter holding periods. The rules also provide for a transition period so that shareholders who currently are eligible at the $2,000 threshold will remain eligible to submit proposals for meetings prior to January 1, 2023 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 amended criteria are designed to ensure that a shareholder’s ability to have a proposal included in a company’s proxy materials — and thus to draw on company resources and to command the time and attention of the company and other shareholders — appropriately takes into consideration the interests of not only the shareholder who submits a proposal, but also the other shareholders who bear the costs associated with reviewing, considering and voting on such proposals in the company’s proxy statement.
In resetting the support threshold for resubmission thresholds, the SEC staff reviewed shareholder proposals between 2011 and 2018 that ultimately received a majority of the votes cast on a second or subsequent submission. Of those proposals, 98% received over 5% support in the first submission. Of the proposals that obtained majority support on the third or subsequent submissions, approximately 95% received support of over 15% on the second submission, and 100% received over 25% support in their third or subsequent submission.
The final amendments, among other things:
The amendments will be effective 60 days after publication in the Federal Register, and will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rule can be found here: https://www.sec.gov/rules/final/2020/34-89964.pdf.
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