On September 23, 2020, the SEC, by a 3-2 vote, adopted amendments to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, the rule that governs the submission of shareholder proposals. The amendments, which will not be effective for the 2021 proxy season, include increases to the ownership and/or duration thresholds a shareholder must meet to submit a proposal and higher shareholder support thresholds required for shareholders to be eligible to resubmit a failed proposal in subsequent years. In its
press release the Exchange notes that the principal requirements relating to the initial inclusion and resubmission of a shareholder proposal have not been substantially updated since 1998 and 1954, respectively. According to Commissioner Elad Roisman, who voted in favor of the rule proposal, the amendments "…aim to ensure that shareholder-proponents demonstrate a sufficient economic stake or investment interest in a company before they are able to submit proposals…" Dissenting commissioners Allison Herren Lee and Caroline Crenshaw argued that the amendments will curtail shareholders' rights to express their views, particularly on issues of climate change and corporate governance. In addition to updated ownership and support requirements, the amendments address other matters including aggregation of holdings, shareholder representatives, communication with the company and number of submissions allowed. The final amendments will apply to all shareholder proposals submitted for meetings held on or after January 1, 2022, with a further transition period until January 1, 2023 with respect to the increased ownership threshold requirements. Key aspects of the new amendments, as compared to their treatment under the current rule, are illustrated below.
| Current Requirements Under 14a-8 | 14a-8 Requirements Applicable to Shareholder Proposals submitted for meetings on or after 1/1/221 | |
|---|---|---|
| Ownership threshold | At least $2,000 or 1% of a company’s securities for at least one year | $2,000 of a company’s securities for at least three years; or $15,000 of a company’s securities for at least two years; or $25,000 of a company’s securities for at least one year |
| Aggregation | Co-proponents may aggregate holdings to satisfy ownership requirements | No aggregation of holdings to satisfy amended ownership thresholds (each co-proponent must individually satisfy the ownership requirement) |
| Shareholder Representatives | Shareholders may elect to use a representative for the purpose of submitting a proposal | New information requirements for proposals submitted by representatives of a shareholder will require clear identification of the represented shareholder and an affirmative statement that the shareholder supports the proposal and authorizes the representative to act on its behalf. See also Number of Submissions below. |
| Communications | No requirement that the shareholder proponent(s) be available to discuss the proposal with the company | No fewer than ten days and no greater than 30 days after submission, the shareholder must state they are able to meet with company to discuss the proposal, including providing specific days and times of availability |
| Number of Submissions | Each “shareholder” may submit one proposal per meeting. However, the current use of shareholder representatives effectively allows a shareholder to submit multiple proposals at a single company | Each “person” may, directly or indirectly, submit one proposal, such that a shareholder is precluded from submitting one proposal and serving as representative for another shareholder’s proposal at the same meeting, nor can a representative submit more than one proposal at the same meeting, even if on behalf of different shareholders |
| Resubmission Thresholds | A company may exclude a proposal from its proxy statement if it addresses substantially the same subject matter as a proposal included in a company’s prior proxy statement, the most recent vote on the matter occurred within the preceding three calendar years, and in that most recent vote received less than:
| The applicable thresholds for the five calendar year period increase such that proposals must receive shareholder support of 5%, 15% and 25% in their first, second and third or more appearance during such period in order to be resubmitted |
As noted above, these rule amendments do not apply to shareholder meetings until January 1, 2022. However, in light of the forthcoming increases to resubmission thresholds, it is possible that shareholder proponents will have increased urgency in the upcoming 2021 annual meeting season to test new proposal topics or variants to existing topics prior to such increases taking effect. Combined with the expected expansion of proposal topics as investors assess the impacts of the ongoing pandemic and societal reckoning regarding racial inequality, this may result in an increased volume of proposals in the 2021 season, after several years of declining submissions. It also remains to be seen whether new individual or institutional shareholder proponents emerge due to the amendments addressing the number of proposal submissions per person. In addition, over the past several seasons, we have observed an increased frequency in the use of "vote no" campaigns by shareholders seeking to voice concerns regarding a company's governance and compensation practices. As these amendments take effect, we may see such campaigns further proliferate as an alternative avenue to shareholder proposals.
Georgeson acts as solicitor and advisor on over 400 meetings annually and has extensive experience assisting our clients with shareholder activism of all types. Our recently published
2020 Annual Corporate Governance Review provides detailed information regarding shareholder proposal support levels and trends in the 2020 proxy season. Please contact your existing Georgeson representative or use the link below if you would like information on how Georgeson can assist you in assessing shareholder inquiries and proposals and engaging with your institutional investors.
If you have questions or comments, please email info@georgeson.com or call 212 440 9800.
1 The increased ownership thresholds will not take effect until January 1, 2023