Statement on Proposed Amendments for Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals under Exchange Act Rule 14a-8
July 13, 2022
Thank you, Chair Gensler. The Rule being discussed today was so recently amended that the Commission has not had the chance to determine the effects of those changes.
It is not clear why the Commission needs to rush to change this Rule. As the release notes “some effects of the 2020 amendments on the number of proposals submitted and included in companies’ proxy statements may not yet be realized.” The release also acknowledges that “[b]ecause the 2022 proxy season is ongoing . . . the information on the current practices . . . is incomplete.” It begs the question – why not simply wait another 90 days to evaluate the data from the 2022 proxy season and then decide whether to proceed with a proposal?
Had the Commission done so, it would have found, at least according to one law firm, that in 2022, the number of shareholder proposals increased by 8% over 2021 and were the highest number of submissions since 2016. Furthermore, there was a significant decrease in the number of excluded proposals – a dramatic decline to a 38% success rate in 2022, down from 71% in 2021 and 70% in 2020.
The changes, if adopted, would further discourage issuers from attempting to seek exclusions of shareholder proposals because they have been substantially implemented or are duplicative of other proposals. They could also effectively nullify the 2020 amendments to the resubmission exclusion and render this basis almost meaningless.
As discussed in the release, if a shareholder proposal merely tweaks an essential element, such as the subject matter, objective, or means, the duplication and resubmission exclusions would no longer apply.
The proposal expresses concern that the existing exclusion standards “may unduly constrain shareholder suffrage by limiting the shareholder-proponents’ ability to engage with the companies whose securities they own.” But it never considers how the relative ease of submitting a proposal can provide leverage to a special interest shareholder that is seeking particular undertakings, concessions, or other benefits from public companies in exchange for not making a proposal. The general lack of transparency surrounding engagement or stewardship meetings with individual asset managers or institutional shareholders means that the investing public may never know how companies altered their actions in response to a shareholder proposal, whether threatened or actual.
This lack of transparency stands in stark contrast to the Commission’s concerns in the proposed regulation of private fund advisors. There, the Commission seeks to prohibit private funds “from providing preferential treatment to certain investors in a private fund, unless the adviser discloses such treatment to other current and prospective investors.” It appears to be inconsistent when, with respect to private offerings involving sophisticated institutional investors, the Commission seeks full transparency while allowing non-disclosure with respect to potentially private benefits involving public companies and retail investors.
Moreover, the proposal does not even attempt to ascertain whether it would add value to investors. It states that “[o]ur economic analysis does not speak to whether any particular shareholder proposal is value-enhancing, whether the proposed amendment would result in inclusion of value-enhancing proposals, or whether the proposed amendments would have a disproportionate effect on proposals that are more or less value-enhancing.” It also acknowledges the failure to gather data “to assess the likelihood of proponent behavior changes or quantify the potential increase in the number of proposals.”
Not only is it uncertain if this proposal is value-enhancing, but the economic analysis acknowledges that it will burden other shareholders with the “costs associated with their own consideration of a shareholder proposal” and these costs can be significant. Increasing the number of shareholder proposals may cause asset managers to rely even more on proxy voting advice, despite the action being taken today that may weaken the integrity of that advice.
Finally, the proposal creates an uneven playing field for U.S. public companies. As the release points out, “the proposed amendment could have a greater effect on U.S. public companies relative to those that are not subject to the federal proxy rules, namely foreign companies and U.S. private companies.” We should not derive satisfaction from disadvantaging U.S. companies in favor of foreign ones.
Today’s proposal, when combined with the staff guidance issued in November 2021 regarding the significant social policy exception to the ordinary business exclusion, sends a message to public companies about shareholder proposals: don’t bother trying to exclude them. It will become one more reason for not becoming a public company to begin with. For these reasons, I am unable to support the recommendation but I do appreciate the efforts of the staff from the Division of Corporation Finance, the Division of Economic and Risk Analysis, the Office of the General Counsel, the Division of Investment Management, and the Division of Enforcement.
 17 C.F.R. § 240.14a-8.
 Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, Release No. 34-89964 (Sept. 23, 2020), 85 FR 70240 (Nov. 4, 2020), available at https://www.federalregister.gov/documents/2020/11/04/2020-21580/procedural-requirements-and-resubmission-thresholds-under-exchange-act-rule-14a-8 (2020 Rule 14a-8 Amendments).
 Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8, Release No. 34-95267 (July 13, 2022), available at https://www.sec.gov/rules/proposed/2022/34-95267.pdf.
 Id. at 40, n. 98.
 Id. at 42.
 See Gibson, Dunn & Crutcher LLP, Shareholder Proposal Developments During the 2022 Proxy Season (July 11, 2022), available at https://www.gibsondunn.com/shareholder-proposal-developments-during-the-2022-proxy-season/.
 The proposal also contains a statement that purports to “reaffirm” certain standards described by the Commission in 1998 for a wholly separate exclusion for proposals relating to ordinary business. Rule 14a-8 Proposal at 7, n. 14 and accompanying text. While there is no question that the Commission made such statements in the past, a reaffirmation constitutes a new decision by the Commission. Such a decision, in the glaring absence of any evidence, data, or economic analysis to support that reaffirmation, is arbitrary and capricious.
 Id. at 55 (“shareholder-proponents could draft a proposal to focus on these essential elements and in turn, increase the likelihood of this proposal appearing in a company’s proxy statement”); id. at 60 (“a proponent could change the objective or the means of a previously submitted proposal about the same subject matter so as to allow for it to be considered an initial submission instead of a resubmission”).
 Id. at 18.
 Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Release No. IA-5955 (Feb. 9, 2022), 87 FR 18886 (Mar. 24, 2022), available at https://www.federalregister.gov/documents/2022/03/24/2022-03212/private-fund-advisers-documentation-of-registered-investment-adviser-compliance-reviews.
 Rule 14a-8 Proposal, at 50.
 Id. at 58.
 Id. at 52.
 Procedural Requirements and Resubmission Thresholds Under Exchange Act Rule 14a-8, Release No. 34-89964 (Sep. 23, 2020), 85 FR 70240, 70267 (Nov. 4, 2020), available at https://www.federalregister.gov/documents/2020/11/04/2020-21580/procedural-requirements-and-resubmission-thresholds-under-exchange-act-rule-14a-8.
 See SEC Adopts Amendments to Proxy Rules Governing Proxy Voting Advice, Press Release No. 2022-120 (July 13, 2022), available at https://www.sec.gov/news/press-release/2022-120.
 Rule 14a-8 Proposal, at 63.
 See Division of Corporation Finance, Shareholder Proposals: Staff Legal Bulletin No. 14L (Nov. 3, 2021), available at https://www.sec.gov/corpfin/staff-legal-bulletin-14l-shareholder-proposals.