September 25, 2020
This week, the Securities and Exchange Commission finalized rules which adjusted the eligibility requirements for shareholders to submit proposals at annual meetings or re-submit a previously voted on proposal. The finalized shareholder proposal rules are effectively the same as the proposed rules published on Nov. 5, 2019. The new thresholds become effective 60 days after publication in the Federal Register and will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022.
Proponents must meet higher eligibility requirements to submit a proposal for a shareholder vote. Previously if a shareholder held $2,000 worth of stock for at least one year, the individual could generally submit a proposal to be included on the proxy statement. The SEC has now shifted to a stepped requirement:
Required support levels to re-submit a proposal were also increased. Previously, a shareholder could resubmit a proposal if it received at least 3% support at the meeting. Proposals submitted a second or third time in the five years after the initial submission require 6% and 10% support, respectively, to be eligible for resubmission. Under the final rule, shareholder proposals would need to achieve at least 5% shareholder support the first year they are submitted to be eligible for resubmission. Proposals submitted two and three times in the five years after the first submission would need to achieve 15% and 25%, respectively, to be eligible for resubmission.
Like proxy advisor reform, this rule may be a target for the Congressional Review Act. Should former Vice President Biden win the White House and Democrats control both chambers of Congress, it is likely they will use the CRA to overturn policies implemented by the current administration. As shareholder proposals are often used to encourage companies to improve diversity and representation policies and increase efforts to address climate risk, it is likely these restrictions will be unpopular if there is a change in executive and congressional control.