On September 23, 2020, the Securities and Exchange Commission (the “SEC”) adopted amendments to modernize its shareholder proposal regulations under Rule 14a-8, which raise the thresholds and requirements for submission of shareholder proposals. Key highlights of the final amendments include (i) implementation of a tiered approach to the ownership requirements for submitting a proposal, (ii) application of the one-proposal limit to “each person” rather than to “each shareholder,” and (iii) an increase in the minimum levels of support a proposal must receive in order to be eligible for resubmission.
The amendments are intended to balance shareholders’ interests in maintaining proxy access against the costs imposed on companies (and thus their shareholder base) in connection with addressing such proposals. SEC Commissioner Elad Roisman stated that the amendments aimed “to ensure that shareholder-proponents demonstrate a sufficient economic stake or investment interest in a company before they are able to submit proposals to be included in a company’s proxy’s statement, paid by all shareholders.”
Ownership Eligibility Requirements for Submitting a Proposal
The current rule provides that, in order to be eligible to submit a proposal, a shareholder must have continuously held at least $2,000 in market value, or 1%, of the company’s voting securities for at least one year. The amendments replace this ownership threshold with a sliding scale that will require a shareholder to demonstrate continuous ownership of at least:
- $2,000 of the company’s voting securities for at least three years,
- $15,000 of the company’s voting securities for at least two years, or
- $25,000 of the company’s securities for at least one year.
The amended rule also eliminates the alternative percentage ownership test.
Additionally, the amendments prohibit shareholders from aggregating their securities with other shareholders for the purpose of meeting the ownership requirements. Shareholders may continue to make a group submission provided that each shareholder independently meets the ownership requirements.
One-Proposal Limitation Applied to “Each Person”
Currently, Rule 14a-8(b) provides that “[e]ach shareholder may submit no more than one proposal[.]” The amendments apply the one-proposal rule to “each person” who submits a proposal, instead. This is intended to prevent a shareholder-proponent from submitting a proposal in its own name, while simultaneously submitting another proposal as a representative for another shareholder. Similarly, the amended rule prohibits a representative from submitting more than one proposal for the same meeting, even if submitted on behalf of different shareholders.
Minimum Levels of Support for Resubmission
The amendments also increase the minimum levels of support required in order to be eligible for resubmission of a shareholder proposal. The current rules allow a company to exclude a resubmitted proposal if the last time it was included the proposal received less than 3%, 6%, or 10% for matters voted on once, twice or three or more times, respectively, in the last five years. The amendments raise those thresholds to 5%, 15% and 25%.
Additional Procedural Amendments
The final amendments also include certain heightened procedural requirements. A shareholder that uses a representative to submit a proposal on its behalf must provide documentation to show that the representative is authorized to act on behalf of that shareholder and provide a statement as to why the shareholder is supporting the proposal. In addition, shareholders putting forth a proposal must state that they are able to meet with the company (in person or telephonically) between 10 to 30 days after submitting a proposal.
* * *
The final amendments will be applicable to any proposal submitted for an annual or special meeting being held on or after January 1, 2022. However, the amendments provide for a one-year transition period during which shareholders can rely on the current ownership threshold (holding $2,000 in market value of securities for one year) in order to be eligible to submit a proposal.
The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation. Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.