On November 5, 2019, the Securities and Exchange Commission (SEC) announced proposed amendments to modernize Exchange Act Rule 14a-8, also known as the “shareholder proposal rule.” The current shareholder proposal rule requires companies subject to the federal proxy rules to include shareholder proposals in their proxy statements unless the shareholder proposals fail to satisfy certain procedural and substantive requirements. The proposed amendments would modify two of the rule’s procedural requirements and one of its substantive requirements. The SEC press release announcing the proposed changes is available here and the proposed rule release is available here.
If adopted, the proposed amendments would make the following changes to the current shareholder proposal rule:
- tighten the minimum ownership requirements that a shareholder must satisfy to be eligible to have a shareholder proposal included in a company’s proxy statement, generally replacing the current $2,000 or 1% ownership criteria with a sliding scale ($2,000, $15,000 and $25,000) based on the number of years the shareholder held the requisite amount of shares, eliminating the 1% ownership criteria, and no longer allowing multiple shareholders to aggregate their securities holdings to meet the thresholds;
- revise 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
- increase the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings, from 3%, 6% and 10%, to 5%, 15% and 25%, respectively, and allow for exclusion of a proposal that received less than 50% support after 3 years and experienced a decline in shareholder support of 10% or more compared to the prior year.
The public comment period will remain open for 60 days following publication of the proposed rule release in the Federal Register.
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