The SEC's division of corporation finance in November 2021 issued a legal bulletin that rescinded its prior three legal bulletins — promulgated under the Trump administration — related to Exchange Act Rule 14a-8, the regulation concerning shareholder proposals. The 2021 bulletin also outlined changes in the division's views on what constitutes "ordinary business" and "economic relevance" when it determines whether a shareholder proposal should be excluded from a company's proxy statement.
Shareholders can file proposals before a company's annual meeting. If a company thinks a proposal is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the proposal in its proxy statement.
Under the Trump administration, the SEC issued bulletins that included language that made it more likely for the SEC to rule in favor of companies seeking no-action relief.
But the SEC in its 2021 bulletin said that the rescinded Trump-era bulletins placed an undue emphasis on "evaluating the significance of a policy issue to a particular company at the expense of whether the proposal focuses on a significant social policy, complicating the application of commission policy to proposals."
Moreover, "We have found that focusing on the significance of a policy issue to a particular company has drawn the staff into factual considerations that do not advance the policy objectives behind the ordinary business exception," the SEC said. "We have also concluded that such analysis did not yield consistent, predictable results."
SEC staff said it had gone back to a standard that provides an exception for certain proposals that raise significant social policy issues.
Mr. Rose said in a news release Wednesday that the SEC was wrong "every step of the way by issuing this bulletin. If the American people want companies to take certain actions or political positions, they will exercise those desires through their pocketbooks and consumer choices — not the heavy hand of government. I'm proud to introduce this bill which will get the unelected bureaucrats at the SEC —especially Chair (Gary) Gensler — out of the business of legislating moral and social policy."
Last week, Republicans held hearings on shareholder proposals and the influence of proxy advisory firms at public company annual meetings.