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Statement at Open Meeting on Proposed Amendments to Modernize Shareholder Proposal Rule

Nov. 5, 2019

I would like to again thank the Chairman, Commissioner Roisman, the staff in the Divisions of Corporation Finance and Economic and Risk Analysis, and other staff throughout the building.

It is human nature to want other people to pay for things that matter to you.  I live in a condo building, so I have lots of opportunities to observe attempts to make the collective pay for things that only matter to a few.  I, for example, love that the building bought and maintains a rowing machine in our little gym.  I think that I and one other person are the only ones who use it.  Other residents in my building with electric cars sought less successfully to get the building to put in electric charging ports for them.  Still other residents loved it when the building put in a free coffee machine, which allowed me to subsidize their astonishing caffeine habits.  Many of the thirstiest residents were renters, so they had little interest in keeping costs down.  More recently, there was a campaign to ban smoking in the building.  There were some very zealous advocates who managed to get the building (i.e., me and my fellow residents) to pay for, among other elements of the campaign, copying and distributing anti-smoking literature to all of the residents. 

This last example is a bit like the situation we are considering today.  When should one shareholder be able to force other shareholders to pay for including the proponent shareholder’s proposal in the company’s proxy materials?  Rule 14a-8, which we are proposing to amend today, governs that process.  The proposed changes would help to weed out proposals whose proponents do not have a real interest in the company and proposals for which other shareholders do not share the proponent’s enthusiasm.  The proposal would make reasonable changes to the rule, and I am looking forward to hearing from a wide range of commenters about those changes.

Current resubmission thresholds allow shareholder proposals with little support to remain on proxy ballots for years, costing the majority of shareholders money on an issue they have repeatedly and clearly opposed.  Ownership requirements have allowed shareholders with only a small stake in the company—both in terms of the size of their holdings as a percentage of the company’s voting shares and in terms of the shareholder’s own personal interest in the particular company—to use company money to vote on matters that may be of little interest to the remaining shareholders. 

Today’s proposed changes strike a balance between ensuring that shareholders who have demonstrated an interest in the company, either by the size or duration of their investments, to submit proposals while ensuring that the company and its other shareholders do not bear unnecessary costs.  They also will permit shareholders to build support for proposals over time and to resubmit on the basis of growing shareholder interest. 

The proposal largely preserves the existing system, in which the SEC and our staff play an active role in deciding whether shareholder proposals are on or off the ballot.  There might be alternative, better approaches.  Should these decisions instead be left to the states to regulate?  If the SEC is to be involved in deciding what is and is not on the proxy, should it be the Commission, rather than the staff in the Division of Corporation Finance, that weighs in?

I again want to thank my colleague, Commissioner Roisman, for his work on both of today’s proposals.  They require threading a very fine needle, and he has done the work admirably.  I support the recommendation.

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