SEC tightens procedural requirements and resubmission thresholds for shareholder proposals

The SEC recently adopted amendments to Rule 14a-8 under the Securities Exchange Act of 1934 to tighten the requirements that govern the initial submission and resubmission of shareholder proposals for inclusion in a company's proxy materials.

These and associated amendments represent some of the most significant changes to the rule's eligibility provisions in over 20 years. The SEC's goal in approving more stringent requirements is to ensure that shareholder-proponents have a demonstrated "economic stake or investment interest" in a company before imposing the costs of the shareholder proposal process on the company and its other shareholders. The rule changes were adopted over the dissenting votes of two Commissioners.

The most notable amendment modifies the current US$2,000 ownership threshold to require continuous ownership of the company's securities at that level for at least three years, and adds two higher, alternative ownership thresholds with shorter minimum holding periods. The SEC also has increased the levels of shareholder support a proposal must receive to be eligible for resubmission to the same company in future years. Among the other amendments, the SEC has expanded the reach of the existing "one-proposal rule" to provide that a single person may not submit multiple proposals at the same shareholder meeting, whether as a shareholder or as a representative of a shareholder.

The amendments will become effective on January 4, 2021, but will first apply to any proposal submitted for an annual or special shareholder meeting to be held on or after January 1, 2022. The SEC has extended limited transitional relief to shareholder-proponents relying on a US$2,000 ownership position to submit a proposal.

The SEC's adopting release describing the amendments (No. 34-89964) can be viewed here.

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