SEC Proposed Additional Rules for Proxy Voting Advice and Shareholder Proposals
On November 5, 2019, the SEC issued two new proposed rules. One impacts proxy voting advice and the other impacts shareholder proposals.
Proxy Voting Advice
The proposed rule amends Exchange Act Rule 14a-2(b), which provides exemptions from the proxy rules’ filing and information requirements for certain kinds of solicitations. The amendment would call for enhanced disclosure of material conflicts of interest and would codify the August 2019 guidance’s change in the definition of “solicitation” to include proxy voting advice.
Under the proposed amendments, proxy voting advice businesses (i.e., proxy advisory firms) relying on the Exchange Act Rule 14a-2(b) exemptions from the information and filing requirements of the proxy rules would be subject to the following conditions:
- They must include disclosure of material conflicts of interest in their proxy voting advice
- Public companies must be given an opportunity to review and provide feedback on proxy voting advice before it is issued; and
- Public companies may request that proxy voting advice businesses include in their voting advice a hyperlink or similar method of directing the recipient of the advice to a written statement that sets forth the public company’s views on the proxy voting advice.
The proposed amendments would permit the proxy voting advice businesses to require public companies to enter into confidentiality agreements for materials exchanged during the review and feedback period and would allow proxy voting advice businesses to rely on the exemptions where failure to comply with the new conditions was immaterial or unintentional.
The proposed rule will be subject to a 60-day public comment period.
The SEC announcement about these proposed rules changes can be found at: https://www.sec.gov/news/press-release/2019-231
Shareholder Proposals
The other rule changes that the SEC proposed involved shareholder proposals. The proposed amendments would:
- update the criteria, including the ownership requirements, that a shareholder must satisfy to be eligible to have a shareholder proposal included in a company’s proxy statement.
- Update the “one proposal” rule to clarify that a single person may not submit multiple proposals at the same shareholder’s meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder; and
- Modernize the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings
The changes to the ownership requirements represent a significant increase over the current standard. Currently, the ownership requirement is met if a shareholder hold at least $2,000 or 1 percent of a company’s securities for at least one year. The $2,000 amount is retained, provided the individual has held the shares for at least 3 years but increased to $15,000 if held for at least 2 years and increased again to $25,000 if held for at least 1 year (25 times the current ownership standard!).
Even the changes to the resubmission thresholds for proposals are being increased. The current resubmission thresholds of 3 percent, 6 percent, and 10 percent for matters voted on once, twice or three or more times in the last 5 years, respectively, would be changed to 5 percent, 15 percent, and 25 percent respectively, and an overriding provision would be added for proposals that have been previously voted on three or more times in the last five years could be excluded if (1) it received less than 50 percent of votes cast, and (2) experienced a decline in shareholder support of 10 percent or more compared to the immediately preceding vote.
These proposed changes are also subject to a 60-day public comment period. It will interesting to see what comments shareholders have on these proposals as they all seem to limit the current rights of shareholders with respect to the companies in which they hold securities.
The SEC announcement about these proposed rules changes can be found at: https://www.sec.gov/news/press-release/2019-232
