SEC Adopts Amendments to Modernize Shareholder Proposal Rule

The Securities and Exchange Commission today voted to adopt amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders.  The principal requirements for: (1) initial inclusion in the proxy statement — the amount and length of ownership of the proposing shareholder — and (2) for subsequent resubmission if the proposal is not approved — the amount of support from other shareholders — have not been substantively amended since 1998 and 1954, respectively.     

The amendments will facilitate engagement among shareholder-proponents, companies and other shareholders, including preserving the ability of smaller shareholders to access the proxy statements of the companies in which they have demonstrated a continuing interest.  Under the rules, any shareholder may submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time.  The rules also provide for a transition period so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission (and through the date of the relevant meeting). 

“Today’s amendments reflect many years of the staff’s engagement with investors and market participants as well as their extensive experience with shareholder proposals,” said Chairman Jay Clayton. “These amendments ensure there is an appropriate alignment of interests between shareholder-proponents and their fellow shareholders and illustrate again why retrospective review and, as appropriate, modernization of our rules is necessary.  There have been many significant changes in communication methods and technology, as well as the methods investors, particularly retail investors, use to access our markets in the 20 years and 75 years since the initial and resubmission thresholds were last revised.  I would like to commend the staff for their dedicated efforts to improve the proxy process, and I thank Commissioner Roisman for his leadership on this initiative.”

“I want to thank Chairman Clayton for making this rulemaking a priority on behalf of investors,” said Commissioner Elad Roisman.  “The only constant in our markets is the fact that they will change. It is our job as regulators to make sure our rules keep pace. The amendments to Rule 14a-8 that the Commission adopted today aim to ensure that shareholder-proponents demonstrate a sufficient economic stake or investment interest in a company before they are able to submit proposals to be included in a company proxy’s statement, paid for by all shareholders.”

In updating the initial submission criteria, the amendments help ensure that a shareholder’s ability to have a proposal included in a company’s proxy materials—and thus to draw on company resources and to command the time and attention of the company and other shareholders—appropriately takes into consideration the interests of not only the shareholder who submits a proposal, but also the other shareholders who bear the costs associated with reviewing, considering and voting on such proposals in the company’s proxy statement. 

The amendments also update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at future shareholder meetings, so as to relieve companies and their shareholders of the obligation to consider, and spend resources on, matters that had previously been voted on and rejected by a substantial majority of shareholders without sufficient indication that a proposal could gain traction among the broader shareholder base in the near future.

The amendments are based on the staff’s extensive experience reviewing shareholder proposals. In 2018 alone, almost 5,700 proxy materials were filed with the Commission, and the staff in the Division of Corporation Finance received more than 250 no-action requests relating to shareholder proposals. As explained in the proposing release and referenced in the adopting release, as part of their efforts to appropriately calibrate the resubmission thresholds, the staff conducted a review of shareholder proposals that ultimately received a majority of the votes cast on a second or subsequent submission between 2011 and 2018. Of those proposals that ultimately went on to receive majority support, 98 percent of the proposals started with support of over 5 percent of the votes cast in their first submission. Of the proposals that obtained majority support on their third or subsequent submissions, approximately 95 percent received support of over 15 percent on their second submission, and 100 percent received support of over 25 percent on their third or subsequent submission. 

***

FACT SHEET

SEC Open Meeting

September 23, 2020

Action

The Securities and Exchange Commission today adopted amendments to Exchange Act Rule 14a-8, the shareholder-proposal rule.  The Commission’s amendments are intended to help ensure that the 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.

Background

The Commission’s adoption of these amendments is part of its ongoing focus on improving the proxy process and the ability of shareholders to exercise their voting rights.  SEC staff have been deeply involved in the proxy process for decades and review hundreds of unique shareholder proposals and other proxy materials each year.  Over the years, the Commission has become aware of the need to update certain aspects of the rule, which have not been reviewed by the Commission in more than 20 years and not substantively changed since 1998 in the case of the initial submission eligibility thresholds and 1954 in the case of the resubmission shareholder support thresholds. 

Highlights

The final amendments will, among other things:

• amend Rule 14a-8(b) by:
  • replacing the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:
    • $2,000 of the company’s securities for at least three years;
    • $15,000 of the company’s securities for at least two years; or
    • $25,000 of the company’s securities for at least one year.
  • prohibiting the aggregation of holdings for purposes of satisfying the amended ownership thresholds;
  • requiring that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the shareholder’s behalf and to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
  • requiring 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.
     
• amend Rule 14a-8(c) by:
  • applying the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent will not be permitted to 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 will not be permitted to 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.
     
• amend Rule 14a-8(i)(12) by:
  • revising the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings from 3%, 6% and 10% for matters previously voted on once, twice or three or more times in the last five years, respectively, with thresholds of 5%, 15% and 25%, respectively.  For example, a proposal would need to achieve support by at least 5% of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15% and 25% support, respectively, in order to be eligible for resubmission in the following three years.

What’s Next?

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments 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 specified 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.