There are a lot of rights and responsibilities that come with taking a company public, and shareholders are entitled to a significant amount of information in accordance with the rules of the Securities and Exchange Commission (SEC). This includes a rule that governs the process for including shareholder proposals within the company’s proxy statement. Recently, the SEC proposed amendments to that rule to clarify the information to which shareholders are entitled.
The Current Rule 14a-8
Under Rule 14a-8, companies are required to include shareholder proposals in all proxy statements. On the other hand, the rule also indicates several bases for exclusion. This includes several substantive requirements that proposals need to include if they want to avoid exclusion.
Now, the SEC has proposed amendments that would revise the bases for exclusion. The goal is to create more predictability and consistency in the application of this rule. That way, companies have an easier time figuring out what information they should include in the proxy statement.
The Three Amendments Proposed by the SEC
There are several amendments that the SEC has proposed to Rule 14a-8. They include:
Substantial Implementation: This amendment will specify that a proposal can be excluded under the provision if the company has already implemented the essential elements of the proposal itself. The goal is to eliminate redundant work.
Duplication: Under this amendment, if the proposal substantially duplicates another proposal that was submitted during the same shareholder meeting (or otherwise addresses the same subject matter), it can be excluded.
Resubmission: A proposal constitutes a resubmission if it substantially duplicates another proposal that has already been submitted by the company. That way, the company does not have to worry about submitting the same material again.
The goal of this amendment is to make everything easier for companies and shareholders.
The SEC Chair Issues Amendments for a Clearer Framework
According to SEC chair Gary Gensler, the goal is to create a much clearer framework within which companies and shareholders can operate. He stated, “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.” He goes on to state that shareholders own a piece of that company, which comes with certain rights under the law. That includes the right to elect directors to the company board and make proposals to the management team that could improve the company and its processes.
The Proposal Is Open To Public Comment
Already, these amendments have been published by the SEC on its website. They are also available on the Federal Register. The public comment period is open for 60 days. It will be interesting to see what companies and individual shareholders have to say about the proposed amendment. If these amendments are enacted, it is possible that they could streamline the daily operations of public companies and increase transparency for shareholders.