December 9, 2019

December 06, 2019

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SEC Proposes Modernizing Shareholder Proposal Rule

On November 5, 2019, the U.S. Securities and Exchange Commission (SEC) proposed amendments to Rule 14a-8 under the Securities Exchange Act of 1934 in response to changes in the markets and recent shareholder proposal trends [1] . The proposed changes are also intended to facilitate long-term shareholder engagement and curb abuse of the shareholder proposal process. If adopted, the proposed amendments would:

1. Update Shareholder Proponent Ownership Eligibility Requirements to:

  • Eliminate the requirement that a shareholder proponent hold at least 1% of a company’s securities for at least one year before submitting a proposal; and

  • Provide the following three alternative thresholds of dollar value and continuous ownership of a company’s securities for eligibility to submit a proposal:

 

Value

Minimum duration

Threshold 1

$2,000

3 years

Threshold 2

$15,000

2 years

Threshold 3

$25,000

1 year

2. Promote Shareholder Engagement by:

  • Requiring that each shareholder proponent (i) state that he or she is able to meet with the company to discuss the proposal within a specified timeframe and (ii) provide contact information and dates and times for the meeting; and

  • Requiring that a shareholder proponent who chooses to use a representative to submit a proposal provide documentation (i) showing that the representative is authorized to act on the shareholder proponent’s behalf and (ii) providing meaningful assurance as to the shareholder proponent’s identity, role and interest in the proposal.

3. Move to One Proposal per “Person” by:

  • Changing the one proposal per “shareholder” rule to a one proposal per “person” rule, to prevent a shareholder proponent from submitting a proposal in his or her own name while also serving as a representative to submit another proposal on behalf of another shareholder. Similarly, a representative would only be able to submit one proposal per meeting regardless of the number of shareholders he or she represents.

4. Replace Resubmission Thresholds and Add “Momentum” Requirement by:

  • Providing for the exclusion of a proposal if it deals with substantially the same subject matter as a proposal previously included in the company’s proxy statement within the past five years so long as:

    • the most recent vote took place within the past three years; and

    • at its most recent vote, the proposal received support from:

      • less than 5% of the votes cast if previously voted on once;

      • less than 15% of the votes cast if previously voted on twice; and

      • less than 25% of the votes cast if previously voted on three or more times; and

  • Adding a provision that would allow a company to exclude a proposal if it deals with substantially the same subject matter that has been voted on three or more times in the past five years if:

    • the proposal, at its most recent vote, received support from less than a majority of the votes cast; and

    • support for the proposal declined by 10% or more compared to the immediately preceding vote on the proposal.

Next Steps

Comments on the proposed rule amendments are due 60 days after publication of the proposing release in the Federal Register. Companies should review the proposed rule amendments, including the specific requests for comment in the proposing release, consider how the amendments, if adopted, would impact them, and determine whether to timely submit any comments to the SEC. However, because these are not final rules, companies should continue to rely on the current shareholder proposal and other proxy rules as they head into the 2020 proxy season.

[1] See Procedural Requirements and Resubmission Thresholds under Exchange Rule 14a-8,” SEC Release No. 34-87458 (Nov. 5, 2019).

Copyright © 2019 Womble Bond Dickinson (US) LLP All Rights Reserved.

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About this Author

Jessica L. Dickerson, Womble Bond Dickinson, finance lawyer
Associate

Jessica Dickerson primarily focuses her practice on public company representation, including capital markets transactions, securities regulatory and compliance advice, corporate governance advice, mergers and acquisitions, and other general corporate and securities matters.

Having worked both in private practice and at the U.S. Securities and Exchange Commission (SEC), Jessica’s experience encompasses a wide array of transactional and securities compliance matters. Her work includes advising companies on public and private securities offerings, tender offers, and...

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