SEC Proposes Amendment to the Shareholder Proposals Rule (14a-8) and Adopts Amendments to Rules Impacting Proxy Advisory Firms – JD Supra

Last week, the Securities and Exchange Commission (SEC) voted 3-2 to take the following actions:

With respect to the 14a-8 amendments, the SEC is proposing to amend three of the substantive exclusions on which companies rely to omit shareholder proposals from their proxy materials, which will arguably make it harder for companies to omit shareholder proposals under the relevant provisions.

Concerning the amendments to the rule governing proxy voting advice, the SEC is rescinding certain rules that were adopted by the SEC in 2020, including a rule that effectively would have required ISS and Glass Lewis to adopt and publicly disclose written policies and procedures designed to ensure that companies subject to such proxy voting advice had access to such advice at or before the time when such advice is disseminated to the proxy advisory firms clients, as well as a mechanism by which the clients of proxy advisory firms are provided with a means of becoming aware of any written responses by companies to the proxy voting advice.

A summary of each of these actions follows.

The proposed amendments to Rule 14a-8 would revise the following bases for exclusion:

For example, the staff historically has concurred in the exclusion, under Rule 14a-8(i)(10), of proposals seeking the adoption of a proxy access provision that allows an unlimited number of shareholders who collectively have owned 3 percent of the companys outstanding common stock for 3 years to nominate up to 25 percent of the companys directors, where the company had adopted a proxy access bylaw allowing a shareholder or group of up to 20 shareholders owning 3 percent of its common stock continuously for 3 years to nominate up to 20 percent of the board. Under the proposed amendment, because the ability of an unlimited number of shareholders to aggregate their shareholdings to form a nominating group generally would be an essential element of the proposal, exclusion would not be appropriate.

As another example, where a proposal calls for a company to issue a report about a particular topic, a companys existing reports or disclosures about that topic may not implement the essential elements of the proposal, especially if the plain language of the proposal explains how the companys existing reports or disclosures are insufficient. Additionally, where a proposal requests a report from the companys board of directors (such as disclosure regarding the boards assessment of a topic, or the boards process in approaching a topic), the staff may determine that the company has not implemented an essential element of the proposal if the report comes from management rather than the board, if the proposal demonstrates a clear emphasis on reporting directly from the board.

To take an example, the staff previously had viewed the following proposals as addressing the same subject matter for purposes of the resubmission exclusion: (1) a proposal requesting that the board adopt a policy prohibiting the vesting of equity-based awards for senior executives due to a voluntary resignation to enter government service (a government service golden parachute); and (2) a proposal requesting that the board prepare a report to shareholders regarding the vesting of such government service golden parachutes that identifies eligible senior executives and the estimated dollar value of each senior executives government service golden parachute.65 Under the proposed amendment to Rule 14a-8(i)(12), although these proposals concern the same subject matter (namely, government service golden parachutes for senior executives), exclusion would not be warranted because they do not seek the same objectives by the same means.

For additional information, a link to the proposed rule is here.

Comments on the proposal should be received on or before 30 days after publication in the Federal Register or September 12, 2022, whichever is later.

The final amendments rescind certain rules applicable to proxy voting advice businesses (i.e., ISS and Glass Lewis) that the Commission adopted in 2020. First, the final amendments rescind conditions to the availability of two exemptions from the proxy rules information and filing requirements on which proxy voting advice businesses often rely.

Those conditions generally required proxy advisory firms to adopt and publicly disclose written policies and procedures reasonably designed to ensure that:

Second, the final amendments also delete the 2020 changes to the proxy rules liability provision in Rule 14a-9. Specifically, the SEC is rescinding Note (e) to Rule 14a-9, which provides that the failure to disclose material information regarding proxy voting advice, such as the proxy voting advice businesss methodology, sources of information, or conflicts of interest, could be considered misleading for purposes of Rule 14a-9s prohibition of misleading statements in connection with a proxy solicitation.

Finally, the SEC is rescinding guidance that the SEC issued in 2020 to investment advisers regarding their proxy voting obligations because such guidance was tied to the rules that are being rescinded.

For additional information, a link to the final rule is here.

The amendments and the rescission of the guidance are effective 60 days after publication in the Federal Register.

Read this article:

SEC Proposes Amendment to the Shareholder Proposals Rule (14a-8) and Adopts Amendments to Rules Impacting Proxy Advisory Firms - JD Supra