Introduction

On September 23, 2020, the Securities and Exchange Commission voted to adopt amendments to its rules governing shareholder proposals. The amendments aim to help ensure that a shareholder’s ability to have a proposal included alongside management’s in a company’s proxy materials—and thus to draw on company and shareholder resources and to command the time and attention of the company and other shareholders—is appropriately calibrated and takes into consideration the interests of not only the shareholder who submits a proposal but also the company and other shareholders who bear the costs associated with the inclusion of such proposals in the company’s proxy statement.

Who is affected by the amendments?

The amendments affect companies that receive shareholder proposals and shareholder-proponents (i.e., shareholders who submit shareholder proposals).

What do the amendments do?

Rule 14a-8 requires companies that are subject to the federal proxy rules to include shareholder proposals in their proxy statements, subject to certain procedural and substantive requirements.[1] The rule permits a company to exclude a shareholder proposal from its proxy statement if the proposal fails to meet any of several specified procedural or substantive requirements, or if the shareholder does not satisfy certain eligibility or procedural requirements.

The amendments to Rule 14a-8:

1. amend the criteria that a shareholder must satisfy to be eligible to have a proposal included in a company’s proxy statement,
2. modify the rule limiting the number of proposals a person or entity may submit for a particular company’s shareholder meeting, and
3. revise the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings.

What specific changes were made to the rules?

• Rule 14a-8(b). Rule 14a-8(b) was amended to replace the prior ownership thresholds, which required holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds as shown in the table below.

  Pre-Amendment Ownership Requirements	Amended Ownership Requirements
  ≥$2,000 or 1% of a company’s securities for at least 1 year	≥$2,000 for at least 3 years
  	≥$15,000 for at least 2 years
  	≥$25,000 for at least 1 year

  The amendments to Rule 14a-8(b) also prohibit shareholders from aggregating their holdings for the purpose of satisfying the amended ownership thresholds. Although shareholders are permitted to co-file proposals, each co-filer must individually satisfy one of the ownership thresholds.

  In addition, new paragraph (b)(iv) requires that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide written documentation that:

  • identifies the company to which the proposal is directed;
  • identifies the annual or special meeting for which the proposal is submitted;
  • identifies the shareholder submitting the proposal and the shareholder’s designated representative;
  • includes the shareholder’s statement authorizing the designated representative to submit the proposal and otherwise act on the shareholder’s behalf;
  • identifies the specific topic of the proposal to be submitted;
  • includes the shareholder’s statement supporting the proposal; and
  • is signed and dated by the shareholder.

  Finally, new paragraph (b)(iii) requires that each shareholder state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.

• Rule 14a-8(c). Amended Rule 14a-8(c) establishes that a person may not submit multiple proposals for the same shareholder meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder. As a result, a shareholder-proponent cannot submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting. Likewise, a representative cannot submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.
• Rule 14a-8(i)(12). The amendments to Rule 14a-8(i)(12) revise the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings. Under the amendments, a company may exclude a shareholder proposal addressing substantially the same subject matter as a proposal or proposals previously included in the company’s proxy materials within the past five years if the most recent vote occurred within the past three years and the level of shareholder support at the time of the most recent vote was less than the amended thresholds, as shown in the table below.

  	Pre-Amendment Levels of Shareholder Support Necessary to be Eligible for Resubmission	Amended Levels of Shareholder Support Necessary to be Eligible for Resubmission
  If previously voted on once	3%	5%
  If previously voted on twice	6%	15%
  If previously voted on three times or more	10%	25%

Refer to the adopting release for a complete description of all amendments.

What are the compliance dates of the amendments?

The amendments are effective on January 4, 2021, and will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting certain conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

Other Resources

The adopting release for the new rules can be found on the SEC’s website at https://www.sec.gov/rules/final/2020/34-89964.pdf.

Contacting the SEC Staff

The SEC’s Division of Corporation Finance is happy to assist small companies and others with questions regarding the amendments. You may contact the Division for this purpose at (202) 551-3400 or at https://www.sec.gov/forms/corp_fin_interpretive.

Questions on other SEC regulatory matters concerning smaller reporting companies may be directed to the Division’s Office of Small Business Policy at (202) 551-3460.

The SEC’s Division of Investment Management’s Chief Counsel’s Office is also available to assist small entities and others with questions regarding the new rules and rule amendments applicable to investment companies. You can contact the Office for this purpose at (202) 551-6825 or IMOCC@sec.gov

[*] This guide, dated as of December 28, 2020, was prepared by the staff of the U.S. Securities and Exchange Commission as a “small entity compliance guide” under Section 212 of the Small Business Regulatory Enforcement Fairness Act of 1996, as amended. The guide summarizes and explains rules adopted by the SEC, but is not a substitute for the rule itself. Only the rule itself can provide complete and definitive information regarding its requirements.