SEC Adopts Amendments to Modernize Shareholder Proposal Rule

September 24th | 2020

The SEC recently voted to adopt amendments to modernize its shareholder proposal rule, which governs the process for a shareholder to have its proposal included in a company’s proxy statement for consideration by all of the company’s shareholders. The proposal amends the amount and length of ownership of the proposing shareholder for initial inclusion in the proxy statement and the amount of support from other shareholders needed to subsequently resubmit a proposal that fails. A few of the highlights from SEC’s press release state the amendments will:

  • Replace the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:

$2,000 of the company’s securities for at least three years;

$15,000 of the company’s securities for at least two years; or

$25,000 of the company’s securities for at least one year.

  • Prohibit the aggregation of holdings for purposes of satisfying the amended ownership thresholds;

  • Require that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the shareholder’s behalf and to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and

  • Require that each shareholder state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.

  • Apply the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting.

  • Revise 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% for matters previously voted on once, twice or three or more times in the last five years, with thresholds of 5%, 15% and 25%.

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow certain shareholders to rely on prior ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

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