SEC Proposes Changes to Requirements for Shareholder Proposals in Proxy Statements
November 12, 2019
On November 5, the SEC released its widely anticipated proposed changes to some of the procedural requirements for shareholder proposals to be included in management’s proxy statement under Exchange Act Rule 14a-8.
The proposed changes, which a divided SEC released concurrently with proposed new rules about proxy advisory firms, come nearly a year after the SEC hosted a roundtable to solicit stakeholder views on the proxy process and a related SEC invitation for public comment on the proxy process.
The SEC first adopted Rule 14a-8 (formerly, Rule X-14A-7) in 1942 to require management to include in its annual proxy statement any shareholder proposal that was “a proper subject for action by the security holders.” Since 1942, it and related rules governing shareholder proposals have been amended several times to impose and update substantive and procedural limitations on the ability of a shareholder to include a proposal for a vote in management’s proxy statement. These rules have generated strong and opposing views over the decades because many companies view them as overly permissive, giving very small shareholders with agendas unrelated to shareholder value access to “valuable real estate” in management’s proxy statement, while shareholders, including some large institutional shareholders, point to very important governance reforms that have their origins in shareholder proposals. The SEC since 2001 has also provided interpretive guidance about Rule 14a-8 through Staff Legal Bulletins (SLBs), which in recent years have mainly addressed the substantive grounds on which a company can exclude a proposal.
In this latest release, the SEC addresses procedural requirements that it has not publicly reviewed in more than 20 years.
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This article was republished by the Lexis Practice Advisor.