Wednesday, September 30. 2020
The SEC’s adoption of these modifications is a part of its continued focus on improving the proxy process and shareholders’ ability to exercise their voting rights. SEC staff has been closely involved in the proxy process for decades and it reviews hundreds of unique shareholder proposals and other proxy materials each year.
The two principal requirements for inclusion in the proxy statement, initial inclusion (the amount and length of ownership of the proposing shareholder) and subsequent resubmission if the proposal is not approved (the amount of support from other shareholders), have not been significantly amended since 1998 and 1954, respectively.
The SEC’s adopted final rule make changes to multiple rule sections as follows.
Rule 14a-8(b) will be amended 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
- $25,000 of the company’s securities for at least one year
- barring 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 certain that the representative is authorized to act on the shareholder’s behalf. The shareholder is required 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
- 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, following submission of the shareholder proposal. The shareholder must provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.
Rule 14a-8(c) will be modernized through applying the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal. In this way, a shareholder-proponent will not be allowed 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.
The rule changes revise 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 within 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.
The final rules also provide for a transition period regarding the ownership thresholds that will permit shareholders who meet specified requirements 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. The revisions will be in effect 60 days following 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.