July 13, 2022
Today the Securities and Exchange Commission proposed amendments to the shareholder proposal rule, Rule 14a-8, modifying and clarifying elements of the rule relating to when a proposal can be excluded as substantially implemented, and limiting the circumstances under which a proposal that has different objectives or methods may block another proposal submitted for the current or subsequent year.
The Shareholder Rights Group (SRG) supports these overdue changes to the shareholder proposal rule. According to SRG Director Sanford Lewis, "The changes should reduce the cost and uncertainties associated with filing and defending shareholder proposals. We appreciate the leadership of Chairman Gary Gensler, the Commissioners and SEC Staff in supporting the rights of investors to file proposals while making the process more efficient, objective and predictable."
The rulemaking proposal on substantial implementation states that a proposal will be considered substantially implemented by a company if “the company has already implemented the essential elements of the proposal.” This effectively streamlines the substantial implementation rule by eliminating arguments that are sometimes made by issuers, claiming that the company's actions implemented the "essential purpose" without implementing the guidelines of the proposal. The new language makes it much clearer as to the circumstances under which substantial implementation can be found.
The rulemaking proposal says that proposals previously submitted will only block another proposal on the current proxy if it “addresses the same subject matter and seeks the same objective by the same means.” Similarly, to the extent that a proposal did not receive sufficient votes for resubmission, a subsequently submitted proposal would only be blocked by the prior vote if the subsequently submitted proposal " “addresses the same subject matter and seeks the same objective by the same means.” These technical fixes are supportive of the interest of investors in having clarity about the functioning of the rules, and should ease concerns about whether a conflicting proposal with very different objectives may nevertheless block another proposal from being submitted at a current or subsequent meeting.
The Shareholder Rights Group is a group of leading proponents of shareholder proposals. http://www.shareholderrightsgroup.com/