Harvard Law School Corporate Governance Forum: SEC Resets Shareholder Proposal Process

 Media Advisory 

December 23, 2021

SEC Policy Change Supports ESG Shareholder Proposals

On November 3, 2021,  the Securities and Exchange Commission issued a Staff Legal Bulletin regarding shareholder proposals.  The change streamlined the process by which companies can ask the SEC to issue an opinion as to whether a proposal is eligible for exclusion under its rules.

According to a new analysis  by Sanford Lewis, Director of the Shareholder Rights Group published today in the Harvard Law School Corporate Governance Forum,   the new bulletin has renovated the program to better enable shareholders to write clearly articulated ESG requests in their proposals.   “The new  Staff Legal Bulletin is a laudable move by the SEC that will reduce costs and uncertainties for shareholders who file proposals, as well as for the companies who receive them,” said Lewis. 

The potential for a company to try to exclude a shareholder proposal is typically determined through written company requests to the SEC for a “no action letter.” In recent years, that process became more complicated as staff added new interpretations that were inconsistent with the existing rule, according to the article.

The principal effect of the bulletin is allowing investors to write their proposals more clearly, in order to describe what they would like the company to do.   The bulletin restored the ability of shareholders to file proposals on issues like asking a company to set  greenhouse gas reduction targets aligned with global goals, or asking a company like J.P. Morgan Chase to evaluate the effect it is having on the broader economy by underwriting  multiclass stock companies.

 A number of corporate  lawyers and law firms have made outsized claims that the bulletin will change the purpose of the corporation or allow inappropriate proposals to appear on corporate proxies. But according to the article, these concerns are exaggerated and the  new bulletin is better aligned with  the shareholder proposal rule written by the Commission.  The rule is intended to allow investors to weigh in on significant social issues that may be important to their companies.   The growing support of shareholders for improved ESG disclosure and performance  demonstrates that  the shareholder proposal process  is a critical channel for investor intelligence and guidance for companies.

 In addition to issuing the new bulletin, on December 13, 2021 the Staff announced that it would go back to the prior practice of issuing a written letter describing the rationale for each no action decision. This change will also benefit shareholders and companies by providing additional clarity on the rationale used by staff, according to the Shareholder Rights Group.