On July 13th, the SEC announced that it is proposing updates to Exchange Act Rule 14a-8, the shareholder proposal rule under which companies that are subject to the federal proxy rules must include shareholder proposals in their proxy statements, subject to certain procedural and substantive requirements.
The basis for engagement between company management and shareholders is the shareholder proposal process, which provides an important means for investors to offer feedback to companies, present issues for shareholders to consider, and provide oversight of management. Should the proposed amendments be approved, they would:
improve communication between shareholders and the companies they invest in
enhance disclosure requirements and provide greater certainty and consistency to shareholders and companies as they evaluate whether the bases for exclusion would apply to particular proposals
The proposed amendments would update the following bases for excluding shareholder proposals:
Under Rule 14a-8(i)(10), a company may exclude a shareholder proposal that “the company has already substantially implemented”. The proposed amendments would establish that a proposal may be excluded as substantially implemented if “the company has already implemented the essential elements of the proposal”.
Under Rule 14a-8(i)(11), a company may exclude a shareholder proposal that “substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company’s proxy materials for the same meeting”. The proposed amendments would specify that a proposal “substantially duplicates” another proposal if it “addresses the same subject matter and seeks the same objective by the same means.”
Under Rule 14a-8(i)(12), a company may exclude a shareholder proposal that “addresses substantially the same subject matter as a proposal, or proposals, previously included in the company’s proxy materials within the preceding five calendar years” if the matter was voted on at least once in the three years prior and failed to receive sufficient shareholder support. The proposed amendments would establish that a proposal is a resubmission if it “substantially duplicates” a prior proposal.
The proposal also would clarify that, similar to the duplication exclusion, a proposal “substantially duplicates” another proposal if it “addresses the same subject matter and seeks the same objective by the same means”. These changes would align the “resubmission” standard under Rule 14a-8(i)(12) with the “duplication” standard under Rule 14a-8(i)(11) because of the comparable objectives of these exclusions.