SEC Proposal to Modernize Shareholder Proposal Rule Met with Criticism

On November 5, 2019, the SEC announced two proposed rules, the first of which proposed amendments to its rules governing proxy voting advice businesses (the “Proxy Advisory Amendment”) and the second of which proposed amendments to modernize the rule governing the process for submitting shareholder proposals to be included in a company’s proxy statement (the “Shareholder Proposal Amendment” and, together with the Proxy Advisory Amendment, the “Proxy Amendments”).   

The Proxy Advisory Amendment would amend, among other things: (i) Rule 14a-1(l) which would “specify the circumstances when a person who furnishes proxy voting advice will be deemed to be engaged in a solicitation subject to the proxy rules”; (ii) Rules 14a-2(b)(1) and 14a-2(b)(3), which specify exemptions from the information and filing requirements of the proxy rules and, under the proposed amendments, would impose certain conditions on proxy advisory firms relying on the exemptions; and (iii) Rule 14a-9, which would provide example of when failing to disclose certain information in the proxy voting advice could be considered misleading.

The Shareholder Proposal Amendment would amend the eligibility thresholds under Rule 14a-8(b) to require that a shareholder seeking to submit a proposal must, among other things, satisfy one of the three following requirements:

     •    Continuous ownership of at least $2,000 of the company’s securities for at least three years;
     •    Continuous ownership of at least $15,000 of the company’s securities for at least two years; or 
     •    Continuous ownership of at least $25,000 of the company’s securities for at least one year.

The Shareholder Proposal Amendment would also amend the one proposal limit under Rule 14a-8(c) and the resubmission thresholds under Rule 14a-8(i)(12).  

The SEC received thousands of comment letters in response to the Proxy Amendments, some of which accused the SEC “of serving as a shill for corporate interests, suppressing shareholder votes, and sheltering CEO of big corporations from accountability.”  In response to the comments, on January 30, 2020, SEC Commissioner Elad L. Roisman gave a speech seeking to clarify his views on the Proxy Amendments and address what he believes to be some “common myths” behind the criticisms.   

The public comment period closed on February 3, 2020.  The SEC has not indicated whether it will make any changes to the Proxy Amendments prior to submitting them to a formal vote.