SEC proposes amendment to rule on shareholder proposals in proxy statements

The Securities and Exchange Commission proposed amendments related to a rule that requires the inclusion of shareholder proposals in a company’s proxy statement.

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Generally, companies must include shareholder proposals in their proxy statements, but there are several exclusions. The proposed amendments would revise three of the bases for exclusion to promote more consistency in the application process.

“When shareholders buy stock in a public company, they own a piece of the company, which comes with certain rights under state law. That includes the right to elect directors to the company’s board and the right to make proposals to the management team for consideration by fellow shareholders,” SEC Chair Gary Gensler said. “Currently, existing Rule 14a-8 outlines the 13 substantive bases in which companies may exclude shareholder proposals from their proxy materials. Today’s proposed amendments would revise three of those bases for exclusion. I believe these proposed amendments would provide a clearer framework for the application of this rule, which market participants have sought. They also would help shareholders exercise their rights to submit proposals for consideration by their fellow shareholders.”

Specifically, the proposed amendments would specify that a proposal may be excluded under this provision if the company has already implemented the “essential elements” of the proposal; “substantially duplicates” another proposal previously submitted for the same shareholder meeting; and constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings.

The amendments will be published on SEC.gov and in the Federal Register. The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.