Sep. 12, 2022
Vanessa A. Countryman Secretary Securities and Exchange Commission 100 F Street NE Washington, DC 20549-1090 Re: Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8, Exchange Act Release No. 95267 (File No. S7-20-22) Dear Secretary Countryman, As You Sow writes to express support for the proposed rule changes to three bases for exclusion proposed in Exchange Act Release No. 95267 (the Release), Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8 (the Proposed Rule). As You Sow is a non-profit shareholder representative. During our thirty-year history, we have spent a great deal of time filing 14a-8 proposals on behalf of a broad range of shareholders. As part of that process, we have had dozens of proposals challenged under the 14a-8 No Action Process. Based on our experience in this area, we urge the Commission to adopt the Proposed Rule, which we believe will decrease the subjectiveness of the No-Action decision making process decrease the number of challenges, saving time and money and serve the goals of the 14a-8 Rule by increasing communication between shareholders, boards/management, and shareholders. We believe the proposed changes will make the no-action process more predictable and efficient and will better serve the goals of the 14a-8 process by limiting subjectivity in precluding proposals. Further, we believe that the Proposed Rule will enable shareholders to better address systemic, portfolio-wide risks with companies by affirmatively allowing proponents to refine proposal strategies over time and by enabling shareholders to vote on a range of approaches to address critical issues. Background Rule 14a-8 plays an important role in public company corporate governance and private ordering. The Rule 14a-8 shareholder proposal process is an important means by which shareholders can highlight emerging material risks to management and boards and seek action before potential risks become material losses. Shareholder proposals also lead to increased transparency, allowing shareholders to more accurately assess the risks facing a company and to make better-informed capital allocation decisions. The Proposed Rule Will Provide a More Objective Basis for Staff Decision making, Decrease Costs Associated with 14a-8 No Action Letters, While Increasing Shareholder Flexibility to Engage Companies on Developing Areas of Material Risk The Proposed Rule would amend the substantive bases for exclusion associated with substantial implementation, substantial duplication, and resubmission thresholds. These proposed changes would remedy overbroad Staff approaches that have too often resulted in inappropriate exclusion of proposals. It would also foster adoption of standards that are more consistent with the dynamic nature and purposes of the shareholder proposal process. Substantial Implementation Rule 14a-8(i)(10) allows a company to omit a proposal that has been substantially implemented. Over time, Staff has formulated various definitions to guide its evaluation of no-action requests on this issue. The Staff has looked to whether a companys policies or disclosures compare favorably with the guidelines of the proposal as well as whether the company had addressed a proposals underlying concerns or satisfied the proposals essential objectives or guidelines. Over time, we have seen these definitions increasingly used to attempt to exclude shareholder proposals. Corporate challenges where they occur are typically longer and more briefs are being submitted per proposal, increasing costs to companies and shareholders, while increasing the Division Staffs workload. We anticipate that the Proposed Rule with regard to substantial implementation may redress these trends. It appropriately provides that a proposal can be omitted only if a company has implemented the essential elements of the proposal, a clearer test than attempting to ascertain a proposals underlying concerns, essential objectives, or attempting to assess whether company actions compare favorably with the alleged guidelines of a proposal. The current rules vague standards have opened the door to issuers ignoring the specific elements requested in a proposal and instead cherry-picking language to argue that the proposals alleged concern or objective was substantially implemented. A good example is the 2019 proposal filed with ExxonMobil by As You Sow. The Proposal asked the Company to issue a report describing how it planned to reduce its carbon footprint in alignment with the Paris Agreements goal of maintaining global temperatures well below 2 degrees Celsius. Despite the fact that the company had disclosed no plan to reduce emissions in alignment with the 2o Celsius Paris goal, including for instance its product emissions, the Company responded that it had satisfied the proposals essential purpose and the guidelines of the proposal. Exxon defined the core of the Proposal or its essential objective as a request for the Company to issue a report. . . on how it can reduce its carbon footprint. . . . The Company stated that since we support the Paris Agreement any actions to reduce emissions undertaken in that context of support is sufficient. The Company concluded that substantial implementation does not require implementation in full or exactly as presented by a Proposal and SEC Staff agreed. Through the fiction of substantial implementation, one of the largest emitters of greenhouse gas pollution was able to ignore a proposals clear goal of moving the company to reduce its emissions in line with a science-based goal. Had Staff focused instead on whether the elements of the Proposal had been met i.e., whether the company had a plan that reduced its full carbon footprint in line with 2 degrees C, including e.g. product emissions, the proposal would most certainly have been allowed to go to a vote. This example underscores the substantial undermining of shareholder intent that is allowed under current guidelines when the essential objective of a proposal can be so broadly rewritten. We note a further consequence of ignoring or allowing the rewriting of the provisions of a proposal where significant issues of material risk are being addressed. With such issues, forward progress is generally iterative. Once a disclosure by an issuer is made or an action taken, the information or outcome is digested and assessed by shareholders. As more knowledge is gained, as standards evolve, as actions are tested or shown to be ineffective in addressing material risk, more information or action may be requested through the shareholder proposal process. Ignoring the iterative nature of such issues does a disservice to shareholders and issuers alike, not to mention the global systems in which they operate. The likelihood that complicated but materially important concerns may prompt a variety of reasonable shareholder proposals over time, or that multiple shareholders may weigh in at once with different proposals addressing the same subject matter, should not prompt Staff to ignore the clear requests of such proposals. Shareholders are well equipped to consider and vote on different approaches and solutions to a problem. In the Exxon case, had the standard for substantial implementation been defined by whether the shareholder request had been substantially implemented as defined by its own terms, the proposal would have gone forward and shareholders would have been allowed to vote on the matter. A standard that looks only to whether the essential elements of a shareholder proposal have been met will increase predictability for both proponents and companies, making the no-action process more efficient. A company that has not implemented a proposals specific requests will be more likely to refrain from seeking no-action relief than if it can make creative arguments about essential objectives or generalized guidelines. So long as a company can frame its actions as having met a broader underlying concern or guideline, it is likely to spend time and effort making those arguments rather than working with shareholders to resolve the specific request. Substantial Duplication A proposal can be excluded in reliance on Rule 14a-8(i)(11) if it substantially duplicates an earlier-received proposal that will be included in the companys proxy statement. The Staff has traditionally evaluated duplication claims by deciding whether the proposals have the same principal thrust or focus. As above, this standard incentivizes companies to characterize a proposals objective broadly in order to show overlap and may encourage Staff to disallow meritorious proposals from moving forward if they share a similar subject matter. The principal thrust or focus assessment can also have the paradoxical effect of increasing the number of proposals filed. If shareholders are concerned that their proposal may be found to be duplicative of an earlier filed proposal, because it addresses an issue of wide concern such as climate change or diversity, shareholders may be encouraged to file their proposal early, rather than attempting to engage and resolve concerns with a company prior to filing. Rules that promote gamesmanship rather than thoughtful proposals are generally detrimental to all. When a proponent files far in advance of the submission deadlinewhich is itself already far in advance of the annual meetingthe proposal may lack the most current information. A very early filing may also quash the possibility of a pre-filing dialogue and, potentially, settlement. The Proposed Rule on substantial duplication would do away with the need to file first in order to ensure a sound proposal is able to be brought before s hareholders. Importantly, the Proposed Rule would allow exclusion on substantial duplication grounds only if two proposals address the same subject matter and seek the same objective by the same means. By allowing shareholders to vote on two proposals on the same topic at the same meeting, the Proposed Rule would avoid the situation presented by the Pfizer proposal cited in the Release, where a weaker solution to the problem of political spending and lobbying disclosure made it onto the proxy statement. Voting on a range of solutions can help shareholders clarify their views on preferred solutions and may provide management with greater choice among a range of solutions. By allowing more than one filing on the same subject matter so long the proposals do not seek the same objective by the same means, the Proposed Rule for substantial duplication can help ensure that issues of concern to shareholders are allowed to be raised comprehensively, with solutions brought forward on merit rather than based on early filing status. Resubmission Rule 14a-8(i)(12) allows a company to omit a proposal that addresses substantially the same subject matter as a proposal that has been voted on in the last five years and failed to reach the applicable resubmission threshold. The Rule defines neither substantially the same nor subject matter. The resubmission exclusion is intended to relieve the management of the necessity of including proposals which have been previously submitted to security holders without evoking any substantial security holder interest therein. The current approach to resubmission, however, discourages experimentation and is inconsistent with the way proponents work to address issues at companies. A proponent typically identifies a problem and formulates a potential approach to it for inclusion in a proposal. Through the proxy voting process and any solicitation efforts, the proponent learns whether the approach has traction. Dialogue with the company might provide information about unintended consequences or other reasons the proposal might be difficult to implement. If the proposal receives a low enough vote that the resubmission threshold is not reached, the proponent might return with a different formulation, perhaps one that reflects these inputs. The Proposed Rule on resubmission clarifies that substantially the same subject matter should not be the test for exclusion in the case of resubmission thresholds. We support the proposed criteria for excluding a resubmitted proposal as being whether the new proposal addresses the same subject matter and seeks the same objective by the same means as one that did not achieve the resubmission threshold. This allows shareholders the opportunity to find an approach to a problem that can obtain significant shareholder support, while avoiding exclusion because it addresses substantially the same subject matter, a test that is overly broad and not useful in ensuring an open dialogue about issues of material concern to shareholders. Conclusion As a longtime shareholder representative, As You Sow supports the Proposed Rule which brings more consistent and objective criteria to the 14a-8 process. We share the common goal of ensuring a workable and efficient shareholder proposal process while not arbitrarily denying the rights of shareholders to raise and address issues of material concern. The Proposed Rule creates standards that are easier for the Staff to administer while reducing incentives to arbitrarily challenge proposals, thereby reducing the burden on issuers, shareholders, and Staff alike. We appreciate the opportunity to express our views on this important matter. Very truly yours, Danielle Fugere As You Sow