On September 23, 2020, the SEC adopted amendments to modernize its shareholder proposal rule, under the Exchange Act Rule 14a-8. The rule defines requirements for shareholder proposal inclusion in the proxy statement:
- The stake and tenure of the shareholder
- The subsequent resubmission procedure if the proposal is not approved
From the recent amendments, it is evident that the SEC is on a mission to revisit and revise earlier rules, as the one mentioned above was amended in 1998 and 1954, respectively. The SEC Chairman Jay Clayton said, “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.” The amendments will:
- Facilitate engagement between shareholder-proponents, companies, and other shareholders by defining the initial submission criteria and the level of shareholder support for proxy proposals submitted by shareholders
- Allow smaller shareholders to access proxy statements of the company where they have shown continued interest
Amendments:
A. Rule 14a-8(b):
- The current ownership threshold is, holding $2,000 or 1% of a company’s securities for at least one year. The new rule provides three alternatives:
- $2,000 for at least three years;
- $15,000 for at least two years; or
- $25,000 for at least one year.
- Prohibition of acquiring holdings to meet the amended ownership threshold,
- The shareholder must authorize and submit documents that the proposal will be submitted by their representative, ensuring the shareholder’s identity, role, and interest in a proposal that is submitted for inclusion in the company’s proxy statement,
- After submitting the proposal, the shareholder must provide contact details and availability on business days to meet with the company, either in person or teleconference, no less than 10 calendar days, or more than 30 calendar days to discuss the company’s proposal.
B. Rule 14a-8(c):
The one-proposal rule is now applicable to “each person” and not “each shareholder” who submits a proposal. For example, a shareholder-proponent who is a representative for multiple shareholders will only be able to submit one proposal for the meeting.
C. Rule 14a-8(i)(12):
The shareholder support for proposal resubmission is revised from 3%, 6%, and 10% for matters previously voted on once, twice, or three or more times in the last five years, with thresholds of 5%, 15%, and 25%, respectively.
The amendments will be effective 60 days after publication in the Federal Register. They will apply to the proposal submitted for an annual or special meeting on or after January 1, 2022. For details, click here
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