Today [July 13], the Commission will consider proposed amendments to Rule 14a-8 that would provide greater certainty as to the circumstances in which companies are able to exclude shareholder proposals from their proxy statements. I am pleased to support the proposed amendments because, if adopted, they would improve the shareholder proposal process.
When shareholders buy stock in a public company, they own a piece of the company, which comes with certain rights under state law. That includes the right to elect directors to the company’s board and the right to make proposals to the management team for consideration by fellow shareholders.
This aspect of shareholder democracy is not new. In the Securities Exchange Act of 1934, Congress included provisions about shareholder participation in the proxy process. For decades, there have been debates about which shareholder proposals must be included in the proxy for consideration by other shareholders and which can be excluded.
We first adopted a version of what is now Rule 14a-8 in 1942, and it has been amended from time to time since. In 2020, the SEC addressed separate aspects of Rule 14a-8.
Currently, existing Rule 14a-8 outlines the 13 substantive bases in which companies may exclude shareholder proposals from their proxy materials. Today’s proposed amendments would revise three of those bases for exclusion. Specifically:
- Under the current rule, a company can exclude a proposal that has been “substantially implemented.” The amendments would provide that a company has “substantially implemented” a proposal if the company has already “implemented the essential elements of the proposal”;
- Under the current rule, a company can exclude a proposal that “substantially duplicates” another proposal. The amendments would further provide that a proposal “substantially duplicates” another proposal if it “addresses the same subject matter and seeks the same objective by the same means as” another proposal previously submitted to the company;
- Under the current rule, a company can exclude a proposal that is a resubmission of a previous proposal that failed to meet required voting thresholds. The amendments would harmonize the definition of a resubmission with the “substantially duplicates” standard when applying the resubmission thresholds, thereby harmonizing terms within Rule 14a-8.
I believe these proposed amendments would provide a clearer framework for the application of this rule, which market participants have sought. They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders. I am pleased to support today’s proposal and, subject to Commission approval, look forward to feedback from the public.
I’d like to thank the staff for their hard work in making these important amendments, including:
- Renee Jones, Michael Seaman, and Kasey Robinson in the Division of Corporation Finance;
- Dan Berkovitz, Megan Barbero, Bryant Morris, Dorothy McCuaig, David Russo, and Joe Valerio in the Office of the General Counsel;
- Lauren Moore, Andrew Glickman, and Olga Itenberg in the Division of Economic and Risk Analysis;
- Ray Be, Terri Jordan, and Toyin Momoh in the Division of Investment Management;
- Jeffrey Weiss in the Division of Enforcement; and
- David Fernandez in the Office of the Chair.
* * *
Rules on Proxy Voting Advice
Today [July 13], the Commission will consider adopting amendments to the rules governing proxy voting advice. I am pleased to support these amendments because they address issues concerning the timeliness and independence of proxy voting advice, which would help to protect investors and facilitate shareholder democracy.
Institutional investors—and their investment advisers—often find it helpful to turn to specialized businesses called proxy advisory firms to provide them with voting recommendations concerning important corporate matters such as the election of directors, merger transactions, and shareholder proposals.
It is critical that investors who are the clients of these proxy advisory firms are able to receive independent and timely advice.
In 2020, the Commission adopted a rule that addressed several matters concerning proxy advisory firms. That rule provided important benefits for investors and market participants by improving disclosure of conflicts of interest in proxy advisory firms and expressly including proxy voting advice within the definition of a proxy solicitation so that the investor protections of the federal proxy rules extend to such advice.
We have, however, continued to hear from many investors that certain conditions in the 2020 rule might restrain independent proxy voting advice. Given those concerns, we have revisited certain conditions and determined that the risks they impose to the independence and timeliness of proxy voting advice are not justified by their informational benefits. Therefore, the rule before us today would repeal those conditions. Separately, other amendments would address potential risks of confusion regarding the application of liability to proxy voting advice that was unintentionally created by the 2020 rules while affirming that proxy voting advice is generally subject to liability under the proxy rules.
Based on feedback from the public, this rule will also rescind 2020 Commission guidance on the proxy voting responsibilities of investment advisers.
I’d like to thank the SEC staff for their work on these amendments, including:
- Renee Jones, Michele Anderson, Ted Yu, Valian Afshar, and Joseph Dilley in the Division of Corporation Finance;
- Dan Berkovitz, Michael Conley, Megan Barbero, Meridith Mitchell, Bryant Morris, Malou Huth, Tracey Hardin, Dorothy McCuaig, Natalie Shioji, Dan Matro, Cathy Ahn, and Lisa McCann in the Office of the General Counsel;
- Vlad Ivanov, Andrew Glickman, and Matthew Pacino in the Division of Economic and Risk Analysis;
- William Birdthistle, Nadya Roytblat, Rachel Loko, Terri Jordan, and Tara Varghese in the Division of Investment Management;
- Janene Smith in the Division of Enforcement; and
- David Fernandez in the Office of the Chair.
These statements were issued on July 13, 2022, by Gary Gensler, chairman of the U.S. Securities and Exchange Commission.