A trio of Republican congressmen on Friday sent a letter to SEC Chairman Gary Gensler criticizing changes the agency has made that make it easier for shareholder proposals with an environmental or social focus to make it onto company proxy statements.
"In recent years, countless groups have been pressing companies to take action on a broad array of environmental, social and political issues often unrelated — or even detrimental — to the companies' ability to create shareholder value," the letter signed by Rep. John Rose, R-Tenn.; Rep. Pete Sessions, R- Texas; and Rep. Bryan Steil, R-Wisc., said.
The Republicans take issue with a November 2021 legal bulletin from the SEC's division of corporation finance. That legal bulletin rescinded the division's previous three legal bulletins — promulgated under the Trump administration — related to Exchange Act Rule 14a-8, that concern shareholder proposals. The November 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 previous 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 November 2021 bulletin took a different approach.
"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 November 2021 bulletin said. "We have also concluded that such analysis did not yield consistent, predictable results."
In their letter Friday, the Republicans posed several questions to Mr. Gensler and requested a response by Jan. 27.
The questions include:
- Is it appropriate for Rule 14a-8 to be used to drive social changes through public companies? Do you believe it is right for institutional shareholders, with their own political agendas, to exercise voting rights on behalf of beneficial owners of the share who are likely to have widely varying views?
- Does the SEC and it staff consider the costs to companies associated with the regulatory uncertainty that is created through widespread and/or seemingly irrational reversal of no-action precedent?
"The SEC, under Chair Gensler, has embraced so-called 'stakeholder capitalism' which undermines our U.S. capital markets in favor of political activists and to the detriment of long-term investors," Mr. Rose said in a statement. "If Chair Gensler and his pals want to change the way in which capital is allocated based on social and political whims, then they should run for elected office."