April 11, 2014
This week, the Association's Center On Executive Compensation joined with the U.S. Chamber of Commerce, the National Association of Corporate Directors, and six other organizations in asking the SEC to formally revisit its shareholder proposal "Resubmission Rule" which as currently written allows small minority shareholders to subject companies and their shareholders to the same proposals year after year so long as extremely low minimal support thresholds are met. The SEC's current shareholder proposal rule allows any shareholder who has owned at least $2,000 worth of stock for one year to require the company to include one proposal in the company's proxy statement sent to all shareholders. The Resubmission Rule, however, prevents companies from excluding repeat proposals if a proposal received the support of three percent of shareholders the last time it was voted on (if voted on once in the past five years), six percent if it was voted on twice in the past five years, and ten percent if it was voted on three or more times in the past five years. With the influence of Glass Lewis and ISS, who often support these proposals, the 3/6/10% hurdle is not hard to overcome, even if shareholder support never approaches a majority. The real effect of the rule is that it gives disproportionate power to minority activist shareholders who have what SEC Commissioner Dan Gallagher called "idiosyncratic and often political agendas" that conflict with the interests of long-term shareholders. To remedy the situation, the Center requests the SEC reconsider the Resubmission Rule and conduct a full cost-benefit analysis of the current rule. The heart of the Center’s recommendation, however, is that the SEC amend its rule to significantly increase the 3/6/10% resubmission thresholds or alternatively to increase the ownership requirements shareholders must meet to be eligible to submit proposals. The Commission is required to formally respond to the petition.