New amendments adopted by the Securities and Exchange Commission to raise the thresholds for submitting and resubmitting shareholder proposals in subsequent years has drawn the ire of investors large and small.
"The amendments weaken the voice of investors and jeopardize faith in the fairness of U.S. public capital markets by making the filing process more complicated, constricting and costly," said Amy Borrus, executive director of the Council of Institutional Investors in Washington, in a statement. "The result will be fewer shareholder proposals — and that is precisely the goal of the business lobby that pressed the SEC to make these changes. Simply put, CEOs and corporate directors do not like being second-guessed by shareholders on environmental, social and governance matters."
In a 3-2 vote, with the commission's two Democrats dissenting, the SEC on Sept. 23 amended Exchange Act Rule 14a-8 by replacing the current ownership threshold to submit a shareholder proposal, which currently requires holding at least $2,000 or 1% of a company's stock for at least one year.
Under the new rule, shareholders submitting any proposal for an annual or special meeting to be held on or after Jan. 1, 2022, will have to meet one of three alternative thresholds: $2,000 of the company's stock for at least three years; $15,000 for two years or $25,000 for one year, among other changes.
With the new rule, which would take effect 60 days after publication in the Federal Register, the SEC also raised the vote thresholds a proposal must get to be eligible for resubmission. Under the amendment, proposals must get at least 5% support in the first year, 15% in the second and 25% in the third in order to be resubmitted within a five-year span. That is up from the current thresholds of 3%, 6% and 10%, respectively.
The final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after Jan. 1, 2022.
New York state Comptroller Thomas P. DiNapoli, trustee of the $216.3 billion New York State Common Retirement Fund, Albany, said in a statement that the SEC's action will "negatively impact investors and make it harder for shareholders to hold corporations accountable. These changes are unwanted by investors and may silence those challenging corporations to address issues like gender and racial pay equity, workplace diversity and racial discrimination."
Patrick McGurn, special counsel and head of strategic research and analysis at proxy advisory firm Institutional Shareholder Services Inc., Rockville, Md., said the vote "shows that the comment period doesn't count for much at the SEC anymore because if you look at the comments it was overwhelming from an investor perspective. Most of the changes that were adopted by the commission were not only not welcome, but were thought to be unnecessary by the vast majority of commenters on the investor side."
The SEC originally proposed modernizing the rules concerning shareholder proposals in November, at the same time it proposed amendments to the rules governing proxy advisory firms that require those firms to disclose conflicts of interests to clients and allow companies that are the subject of voting advice to be able to access that advice prior to or at the same time as the advice is disseminated to clients.
The proxy advisory firm rules were finalized in July. But both of the SEC's proxy-related initiatives have broadly garnered similar reactions: support from the business community and opposition from the investor community.