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Improving the Shareholder Proposal Process: Statement on Proposed Amendments to Rule 14a-8

July 13, 2022

Shareholder proposals represent a key mechanism for shareholders to engage with management, put issues of importance on the proxy ballot, and generally enhance oversight and accountability. Through this process, shareholders have introduced significant improvements in corporate governance including majority vote rules for the election of directors, elimination of staggered board terms, limits on poison pills that serve to entrench management, and requirements for independent board chairs. Indeed shareholder proposals have often been a catalyst for pivotal corporate governance reforms. And shareholder-proponents have been early and leading voices – bellwethers for management – on significant issues such as climate risk, workforce diversity, and political spending disclosure.

For all of these reasons, it is imperative that the substantive bases for excluding shareholder proposals from the ballot are not overbroad and create as balanced, predictable, and efficient a framework as possible.[1] Accordingly, I am pleased to support the amendments we propose to today, which would clarify the framework governing the inclusion or exclusion of shareholder proposals from the proxy ballot, and help ensure proponents have a fair opportunity to put appropriate proposals before their fellow shareholders.

In particular, the Commission proposes today to amend the provisions of Rule 14a-8 permitting exclusion on three different bases: that a proposal (1) has already been substantially implemented; (2) is duplicative of another current proposal, or (3) constitutes a resubmission of a prior proposal that failed to meet resubmission thresholds.

With respect to substantial implementation, the proposed amendment is intended to focus analysis on whether the essential elements of a proposal have been implemented – establishing a more objective and specific standard to enhance certainty for shareholders and companies alike.[2]

With respect to duplication and resubmission, the proposed amendments would align and narrow these bases for exclusion to circumstances where proposals address the same subject matter and seek the same objective by the same means, thereby facilitating the ability of shareholders to put forth various differing approaches to achieving their objectives.[3] Just as management endeavors to be innovative and creative in driving value and seeking solutions, shareholders too can add value by generating ideas for different approaches to an issue.

The proposed amendments are tailored and thoughtful revisions to Rule 14a-8 that, importantly, are carefully informed by the staff’s experience applying the rule through the 14a-8 no-action process. Thus, I’m pleased to support this recommendation, and I want to thank staff in the Division of Corporation Finance, the Division of Economic and Risk Analysis, and the Office of the General Counsel for their work on this proposal, which as usual reflects their expertise and attention to detail. Thank you.

[1] See Amendments to Rules on Shareholder Proposals, Release No. 34-40018 (May 21, 1998) (describing revisions to 14a-8 as an effort to make the framework as “fair, predictable, and efficient” as possible).

[2] See Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8, Proposed Rule, Release No. 34-[x] (July 13, 2022) (“We believe that an analysis that focuses on the specific elements of a proposal would provide a reliable indication of whether the actions taken to implement a proposal are sufficiently responsive to the proposal such that it has been substantially implemented. . . We believe that the proposed amendment would facilitate shareholder suffrage, provide a more objective and specific framework for the substantial implementation exclusion, assist the staff in more efficiently reviewing and responding to no‑action requests, and benefit shareholders and companies by promoting more consistent and predictable determinations.”) [Adopting Release].

[3] See Adopting Release at 20-21 (describing the proposed amendment to the duplication provision, which is consistent with the proposed approach to the resubmission provision, saying “the proposed amendment would enable the consideration by a company’s shareholders of later-received proposals that may be similar to and/or address the same subject matter as an earlier-received proposal but which seek different objectives or offer different means of addressing the same matter.”).

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