SEC moves forward to revise shareholder proposal rule

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

On July 14, 2022, the SEC voted 3-2 to propose a rule adopting amendments to Rule 14a-8 (the Proposed Amendments), which requires companies subject to the federal proxy rules to include certain shareholder proposals in their proxy statements.1 The SEC seeks public comment on the Proposed Amendments by September 12, 2022.

The SEC issued a release explaining the proposed rules (the Release), which seek to revise three of Rule 14a-8’s bases for excluding certain shareholder proposals from the proxy statement:2

  • the “substantial implementation” exclusion;
  • the “duplication” exclusion; and
  • the “resubmission” exclusion.

The SEC’s proposed changes to each of these three exclusions are discussed in more detail below.

The Substantial Implementation Exclusion3

Currently, under Rule 14a-8(i)(10), an issuer may exclude a shareholder proposal that “the company has already substantially implemented.”4 The Proposed Amendments would change this rule to provide that a shareholder proposal may be excluded as substantially implemented only if the company has already implemented “the essential elements of the proposal.”

According to the Release, issuers will need to determine which components of the proposal are the “essential elements,” and analyze whether those elements have already been addressed. The SEC expects that this analysis will be guided by “the specificity of the proposal” and “its stated primary objectives.” After identifying the essential elements, a shareholder proposal may only be excluded as “substantially implemented” if the company has already adopted all of those essential elements. The SEC has acknowledged that this framework will continue to require a degree of substantive analysis, which “necessarily involves” factual determinations “to be made on a case-by-case basis.”

The “essential elements” approach will likely narrow the question raised by this exclusion, away from whether an issuer has generally addressed the issues raised by a particular shareholder proposal. Typically, the “substantial implementation” analysis has focused on several metrics, such as: whether the company has adopted policies that “compare favorably with the guidelines” described in the shareholder proposal, whether the company has addressed the “underlying concerns” of the proposal, and whether the “essential objectives” of a proposal have been met. Under the Proposed Amendments, the analysis is likely to be more rigid, so that a proposal may only be excluded as “substantially implemented” if the company has adopted all of the essential elements of the proposal.

The Duplication Exclusion5

Currently, under Rule 14a-8(i)(11), an issuer may exclude a shareholder proposal if the proposal “substantially duplicates another proposal previously submitted to the company by another proponent that will be included in the company’s proxy materials for the same meeting.”6 Historically, the SEC staff has considered proposals to be substantially duplicative if the proposals share the same “principal thrust” or “principal focus.”7 The Proposed Amendments would change this rule to provide that a proposal “substantially duplicates” another if it “addresses the same subject matter and seeks the same objective by the same means.”

For example, the Release highlights two proposals: one requesting that the company publish a statement of its political contributions or legislative efforts in newspapers, and a second proposal requesting a report to shareholders on the company’s process for identifying legislative and regulatory public policy activities. Under the Proposed Amendments, the two proposals would not be considered substantially duplicative because they seek different objectives by different means, even though they both address the same subject matter: the company’s political and lobbying expenditures.

The Resubmission Exclusion8

Currently, under Rule 14a-8(i)(12), an issuer may exclude a shareholder proposal if the proposal “addresses substantially the same subject matter as a proposal, or proposals, previously included in the company’s proxy materials within the preceding five calendar years,” and was voted on at least once in the preceding three years without receiving sufficient support.9 The SEC contends that this existing framework discourages shareholders from modifying their proposals to address similar subject matter in subsequent years, and restricts shareholders from presenting different approaches to the same issue.

The Proposed Amendments would revise the definition of what constitutes a resubmission from a proposal that “addresses substantially the same subject matter” as a prior proposal to one that “substantially duplicates” a prior proposal. Similar to the duplication exclusion, a proposal “substantially duplicates” another if it “addresses the same subject matter and seeks the same objective by the same means.”

The effect of this rule change will likely limit issuers’ ability to avoid similar shareholder proposals that have been previously defeated. Under the Proposed Amendments, the resubmission exclusion would permit proponents who did not receive sufficient support in a given year to resubmit a proposal addressing the same subject matter and seeking the same objective, so long as the proponent offers different means of doing so.


1 87 Fed. Reg. 45052 (proposed July 27, 2022). See Proposed Rule: Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8. The corresponding Fact Sheet published by the SEC is available here.

2 Release No. 34-95267 (July 13, 2022).

3 17 CFR 240.14a-8(i)(10) (hereinafter Rule 14a-8(i)(10)).

4 Rule 14a-8(i)(10).

5 17 CFR 240.14a-8(i)(11) (hereinafter Rule 14a-8(i)(11)).

6 Rule 14a-8(i)(11).

7 As an example of this approach, the Release cites Pacific Gas Electric Co. (Feb. 1, 1993), where the SEC staff response letter concluded that the proposed exclusion under Rule 14a-8(i)(11) was inappropriate because the second proposal’s “principal thrust” differed from the first proposal’s “principal focus.”

8 17 CFR 240.14a-8(i)(12) (hereinafter Rule 14a-8(i)(12)).

9 Rule 14a-8(i)(12).

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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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