SEC Proposes Amendments to Rules on Shareholder Proposal Exclusions

The SEC proposed amendments to SEA Rule 14a-8 ("Shareholder proposals") to narrow the bases upon which an issuer can exclude shareholder proposals.

The proposed amendments would revise the substantial implementation, duplication and resubmission bases for exclusion by:

• allowing an issuer to exclude a shareholder proposal on the basis of it being "substantially implemented" only after the issuer implemented "essential elements" of the proposal;
• defining that a proposal will be considered as "substantially duplicative" of another proposal when it contains the same subject matter and seeks the same objective by the same means; and
• establishing that the "resubmission" exclusion only applies when the proposal is substantially duplicative of a previously submitted proposal.

The SEC stated that the amendments will (i) provide greater transparency to shareholders and companies as they evaluate whether these bases for exclusion would apply to particular proposals and (ii) facilitate communication between shareholders and companies.

The public comment period will remain open for 60 days following publication of the proposed amendments on the SEC's website, or 30 days following publication in the Federal Register, whichever is longer.

Commissioner Statements

SEC Commissioner Allison Herren Lee stated that "it is imperative that the substantive bases for excluding shareholder proposals from the ballot are not overbroad and create as balanced, predictable and efficient a framework as possible."

SEC Commissioner Hester M. Peirce expressed concern that the narrowing of exclusion rules will "upset" the careful balance that has already been created between a company and its shareholders. Ms. Peirce asserted that the requirement for a company to exclude a proposal will create too high of a standard for shareholder proposals that are similar. She criticized the short time period that the SEC is allowing for comment on its rule proposals.

SEC Commissioner Mark T. Uyeda opposed the proposed rule amendments, emphasizing that the changes would put companies at a disadvantage and essentially eliminate the duplication and resubmission exclusions. Mr. Uyeda also questioned whether the amendments would be favorable for investors.

SEC Chair Gary Gensler stated that the amendments "would provide greater certainty as to the circumstances in which companies are able to exclude shareholder proposals from their proxy statements."