Washington D.C., Nov. 5, 2019 — The Securities and Exchange Commission today voted to propose amendments to modernize the rule that governs the process for shareholder proposals to be included in a company’s proxy statement.
“Today’s proposed amendments follow from the staff’s extensive experience with shareholder proposals and recognize the significant changes that have taken place in our markets in the decades since these regulatory requirements were last revised, including, in particular, the types and use of communications, the types and frequency of shareholder-company engagement and the substantial shift to investing through mutual funds and ETFs, rather than directly by Main Street investors, ” said Chairman Jay Clayton. “The proposed amendments would
facilitate constructive engagement by long-term shareholders in a manner that would benefit all shareholders and our public capital markets. I would like to again thank Commissioner Roisman for his leadership on our efforts to improve the proxy process.”
“I am proud to support proposing these amendments to Rule 14a-8,” said Commissioner Roisman. “I believe that these proposed changes will facilitate and encourage meaningful company-shareholder engagement, and make changes that can help prevent misuse of the process.”
The proposed amendments would update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to require a company to include a proposal in its proxy statement. In the proposed amendments, the Commission has maintained the long-standing $2,000 minimum ownership threshold. However, the proposed amendments would require that, in order to take advantage of that ownership threshold, a proponent must have held the shares for at least three years in order to demonstrate long-term investment in the company. The proposed amendments would also update the “one prop
osal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting on behalf of different shareholders.
In addition, the proposed rule would update, for the first time since 1954, the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings. Under the proposed amendments, for example, a proposal would need to achieve support by at least 5 percent 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 percent and 25 percent support, respectively, in order to be eligible for resubmission in the following three years.
The proposed 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, 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.
The public comment period will remain open for 60 days following publication of the proposing release in the Federal Register.
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Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8
SEC Open Meeting
Nov. 5, 2019
The Securities and Exchange Commission today proposed amendments to Exchange Act Rule 14a-8, the shareholder-proposal rule, which requires companies subject to the federal proxy rules to include shareholder proposals in their proxy statements, subject to certain procedural and substantive requirements. The rule permits a company to exclude a shareholder proposal from its proxy statement if the proposal fails to meet any of several specified substantive or procedural requirements, or if the shareholder-proponent does not satisfy certain eligibility or procedural requirements. The proposed amendments would:
- update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to have a shareholder proposal included in a company’s proxy statement
- update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder; and
- modernize the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings.
The Commission’s proposal 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 of the rule’s procedural and substantive requirements, which have not been reviewed by the Commission in more than 20 years. After considering the views expressed by members of the public, including feedback received as part of the Commission’s 2018 Roundtable on the Proxy Process, the Commission proposed amendments to modernize the criteria for use of the shareholder-proposal process through the company’s proxy statement.
The proposed amendments would revise the eligibility requirements under Rule 14a-8(b), the one-proposal limit under Rule 14a-8(c), and the resubmission thresholds under Rule 14a-8(i)(12).
In particular, the proposed amendments to Rule 14a-8(b) would:
- update the current requirement that a shareholder-proponent hold at least $2,000 or 1 percent of a company’s securities for at least one year to be eligible to submit a proposal. In addition to eliminating the 1 percent threshold, the proposal would amend the rule with the following three alternative thresholds, any one of which a shareholder could satisfy to be eligible to submit a proposal:
- continuous ownership of at least $2,000 of the company’s securities for at least three years;
- continuous ownership of at least $15,000 of the company’s securities for at least two years; or
- continuous ownership of at least $25,000 of the company’s securities for at least one year.
- require that a shareholder-proponent 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-proponent’s behalf and to provide a meaningful degree of assurance as to the shareholder-proponent’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
- require that each shareholder-proponent 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 business days and specific times that the shareholder-proponent is available to discuss the proposal with the company.
The proposed amendment to Rule 14a-8(c) would:
- apply the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent would 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 would 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.
The proposed amendments to Rule 14a-8(i)(12) would:
- modernize the current resubmission thresholds of 3 percent, 6 percent and 10 percent for matters voted on once, twice or three or more times in the last five years, respectively, with thresholds of 5 percent, 15 percent and 25 percent, respectively; and
- add a new provision that would allow for exclusion of a proposal that has been previously voted on three or more times in the last five years, notwithstanding having received at least 25 percent of the votes cast on its most recent submission, if the proposal (i) received less than 50 percent of the votes cast and (ii) experienced a decline in shareholder support of 10 percent or more compared to the immediately preceding vote.
The proposal will be subject to a 60-day public comment period. To submit comments, use the SEC’s Internet submission form or send an email to email@example.com.
 As a point of comparison, in 1997 the Commission proposed resubmission thresholds of 6, 15 and 30 percent respectively. See Amendments to Rules on Shareholder Proposals, Release No. 34-39093 (Sep. 18, 1997) [62 FR 50682 (Sep. 26, 1997)].