New SEC Rule Limits Ability to Exclude Shareholder Proposals

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 proposals 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, and
• Proposals that are resubmissions of previously failed proposals.

The amendments would likely result in activist investors flooding companies with shareholder proposals, including those that are wholly politically motivated or have little to no support among fellow investors. Companies would nevertheless still have to spend considerable resources publishing them on the ballot. Dissenting SEC Commissioner 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.”

Outlook: 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.