On September 23, 2020, the SEC voted to adopt amendments to the shareholder proposal rules (Rule 14a-8) (SEC Press Release 2020-220). The SEC published a draft rule for comment in November 2019 (see my blog post, SEC Proposed Additional Rules for Proxy Voting Advice and Shareholder Proposals, for details).
On the share ownership requirements that entitle a shareholder to submit a proposal and the proposal resubmission requirements, the SEC adopted the most of the changes proposed in the draft rules released last November:
Share ownership requirements met in any of three ways:
- $2,000 of company securities entitled to vote on the proposal held for at least 3 years;
- $15,000 of company securities entitled to vote on the proposal held for at least 2 years; or
- $25,000 of company securities entitled to vote on the proposal held for at least 1 year.
Shareholders will no longer be able to aggregate their shares in order to meet the minimum ownership requirements. Additionally, there will be a transition period that allows shareholders who meet the current requirement ($2,000 of company securities held for at least 1 year) to submit proposals before January 1, 2023.
As for the shareholder resubmission rules, the SEC amended them to provide that the shareholder support threshold will be increased as proposed in the draft rule amendment. A proposal that deals with substantially the same subject matter as a previous proposal or proposals included in the company’s proxy materials within the preceding 5 years may be excluded if the most recent vote was within the preceding 3 years and was:
- Less than 5% of the votes cast if previously voted on once;
- Less than 15% of the votes cast if voted on twice; and
- Less than 25% of the votes cast if voted on three or more times.
The final resubmission rules differ form the proposed rules in that they do not include a provision that would permit excluding resubmitted proposals that experienced declining shareholder support.
Generally, the final rules will be effective 60 days after publication in the Federal Register.
The final SEC shareholder proposals rules are detailed in SEC Release No. 34-89964, available at: https://www.sec.gov/rules/final/2020/34-89964.pdf