SEC Proposes Amendments to Shareholder Proposal Rule

The Securities and Exchange Commission today proposed amendments to the rule that governs the process for including shareholder proposals in a company’s proxy statement. Under Rule 14a-8, companies generally must include shareholder proposals in their proxy statements. The rule, however, provides several bases for exclusion, including several substantive requirements that proposals must comply with to avoid exclusion. The proposed amendments would revise three of the bases for exclusion to promote more consistency and predictability in application.

“When shareholders buy stock in a public company, they own a piece of the company, which comes with certain rights under state law. That includes the right to elect directors to the company’s board and the right to make proposals to the management team for consideration by fellow shareholders,” said SEC Chair Gary Gensler. “Currently, existing Rule 14a-8 outlines the 13 substantive bases in which companies may exclude shareholder proposals from their proxy materials. Today’s proposed amendments would revise three of those bases for exclusion. I believe these proposed amendments would provide a clearer framework for the application of this rule, which market participants have sought. They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders.”

The proposed amendments to Rule 14a-8 would revise the following bases for exclusion:

• Substantial Implementation. The proposed amendments would specify that a proposal may be excluded under this provision if the company has already implemented the “essential elements” of the proposal.
• Duplication. The proposed amendments would specify that a proposal “substantially duplicates” another proposal previously submitted for the same shareholder meeting if it addresses the same subject matter and seeks the same objective by the same means.
• Resubmission. The proposed amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings.

The proposing release will be published on SEC.gov and in the Federal Register. The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.