New SEC Rule Limits Ability to Exclude Shareholder Proposals

Along with rescinding the most important provisions of proxy advisory oversight rules, the SEC recently proposed amendments to shareholder proposal rules that could have significant consequences for companies. In 2020, the SEC passed HR Policy-supported revisions to shareholder proposal rules that would make it harder for activists to place proposals on the ballot without sufficient ownership stake and shareholder support. The new rule would leave those in place, but encourage activist proposals by limiting companies’ ability to exclude them. The following categories of proposal would now be much more difficult for companies to exclude:

• Proposals that have already been substantially implemented
• Proposals that are duplicative of others on the ballot, unless they are almost identical
• Proposals that are resubmissions of previously failed proposals

The end result of the amendments would almost certainly be that activist investors will flood companies with shareholder proposals, some of which are either totally politically motivated or have almost no support among fellow investors, but companies would still have to spend considerable resources publishing them on the ballot. Dissenting Commission Hester Peirce noted that “if this proposal is adopted, company proxy statements are likely to look like our rulemaking agenda—packed with items, many of which overlap with one another and rehash recently completed matters.”

For a detailed review of the proposed rule amendments, see the Cooley PubCo post here.

The proposal will be open for comment for 30 days after publication in the Federal Register or September 12, 2022, whichever is later, and comments can be submitted directly to the SEC here.