SEC Adopts Amendments to Shareholder Proposal Requirements, Modestly Raising Thresholds

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On September 23, the Securities and Exchange Commission (SEC) approved amendments, originally proposed in November 2019 and discussed in a prior blog post, to Rule 14a-8, which governs the process for a shareholder to have its proposal included in a company’s proxy statement.

The amendments to Rule 14a-8 are intended to “modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders, including to help ensure that a shareholder-proponent has demonstrated a meaningful ‘economic stake or investment interest’ in a company before the shareholder may draw on company resources to require the inclusion of a proposal in the company’s proxy statement, and before the shareholder may use the company’s proxy statement to command the attention of the other shareholders to consider and vote on the proposal.”

Set forth below is a chart comparing the key amendments. Practical considerations regarding the amendments follow.

Amendments to Rule 14a-8

  Existing Rule Amended Rule
Ownership Thresholds Requires a shareholder to demonstrate continuous ownership of either of the following:
  1. at least $2,000 worth of the company’s securities entitled to vote on the proposal for at least one year as of the date the shareholder submits the proposal; or
  2. 1% of the company’s securities entitled to vote on the proposal for at least one year as of the date the shareholder submits the proposal.

Permits co-filing by multiple shareholders and aggregation of holdings by such shareholders to satisfy the ownership thresholds above.

Requires a shareholder to demonstrate continuous ownership of one of the following:
  1. $2,000 of the company’s securities entitled to vote on the proposal for at least three years;
  2. $15,000 of the company’s securities entitled to vote on the proposal for at least two years; or
  3. $25,000 of the company’s securities entitled to vote on the proposal for at least one year.

Prohibits the aggregation of holdings by multiple shareholders to satisfy the revised ownership thresholds.

Co-filing proposals by shareholders as a group continues to be permitted, provided that each shareholder individually meets one of the ownership requirements above.

Shareholder Engagement No engagement requirement. Requires shareholder-proponents to provide the company with a written statement providing the following:
  1. that the shareholder-proponents are able to meet with the company in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal;
  2. provide contact information for the shareholder-proponent (not the shareholder’s representative, if any); and
  3. specific business days and times (i.e. more than one date and time) that the shareholder-proponents are available to discuss the proposal with the company.

Meeting times must be during regular business hours of the company’s principal executive offices. If such hours are not publicly disclosed in the company’s proxy statement, then the shareholder must identify times between 9:00 a.m. and 5:30 p.m. on business days in the time zone of the company’s principal executive offices. If a company is not available to engage with the shareholder-proponent on the specific dates and times originally identified by the shareholder-proponent, engagement may take place at a different date and/or time, provided that it is acceptable to both the shareholder-proponent and the company.

The shareholder-proponent’s representative may participate in any discussions between the shareholder-proponent and the company.

Companies are not required to engage with a shareholder-proponent or to state that they attempted to engage with the shareholder-proponent  before submitting a no-action request.

One-Proposal Limit Allows an eligible shareholder to submit no more than one proposal to a company for a particular shareholders’ meeting.

Applies the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in such shareholder’s name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting.

Likewise, a representative will not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.

Representatives No documentation required. Shareholder-proponents electing to use a representative to submit a proposal for inclusion in a company’s proxy statement must provide documentation that:
  1. identifies the company to which the proposal is directed;
  2. identifies the annual or special meeting for which the proposal is submitted;
  3. identifies the shareholder submitting the proposal and the shareholder’s designated representative;
  4. includes the shareholder’s statement authorizing the designated representative to submit the proposal or otherwise act on the shareholder’s behalf;
  5. identifies the specific topic of the proposal to be submitted;
  6. includes the shareholder’s statement supporting the proposal; and
  7. is signed and dated by the shareholder.

Effective Date of Amendments to Rule 14a-8

The final amendments will become effective 60 days after publication in the Federal Register and will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. As a result, the amendments will not apply to shareholder proposals delivered to companies during fall 2020 in connection with annual meetings to be held in the spring of 2021. Instead, the amendments will first become applicable to timely proposals delivered in 2021 for consideration relative to meetings occurring in 2022.

Limited Transition Period for Amendments to Rule 14a-8

A shareholder who has continuously held at least $2,000 of a company’s securities entitled to vote on a proposal for at least one year as of the effective date of the amendments and continuously maintains ownership of at least $2,000 of such securities from the effective date of the amendments through the date such shareholder submits a proposal, will be eligible to submit a proposal to such company and need not satisfy the amended share ownership thresholds for an annual or special meeting to be held before January 1, 2023.

Aggregation will not be permitted for purposes of determining compliance with this temporary provision. A shareholder relying on the transition period allowance will be required to provide the company with a written statement that such shareholder intends to continue to hold at least $2,000 of the company’s securities through the date of the shareholders’ meeting at which the proposal will be considered. This temporary provision will expire on January 1, 2023.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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