As we covered in real-time yesterday at our “Executive Compensation Conference,” (archives will be available soon – and you can still register for on-demand viewing of those), after a high-drama “pause” last week, the Rule 14a-8 amendments are finally here. The Commissioners voted 3-2 to adopt the amendments – which include the first revisions to the submission threshold in over 20 years, and the first revisions to the resubmission threshold since 1954. For companies that focus on keeping proposals out of the proxy statement (not all companies, but many!), this is a big deal. Here are the highlights from the SEC’s Fact Sheet:
Submission Thresholds – amend Rule 14a-8(b) by:
– Replacing the current ownership threshold, which requires holding at least $2,000 or 1% of a company’s securities for at least one year, with three alternative thresholds that will require a shareholder to demonstrate continuous ownership of at least:
– $2,000 of the company’s securities for at least three years;
– $15,000 of the company’s securities for at least two years; or
– $25,000 of the company’s securities for at least one year.
– Prohibiting the aggregation of holdings for purposes of satisfying the amended ownership thresholds;
– Requiring that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation to make clear that the representative is authorized to act on the shareholder’s behalf and to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement; and
– Requiring that each shareholder state that he or she is able to meet with the company, either in person or via teleconference, no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal, and provide contact information as well as specific business days and times that the shareholder is available to discuss the proposal with the company.
Shareholder Representatives – amend Rule 14a-8(c) by:
– Applying the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting. Likewise, a representative will not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.
Resubmission Thresholds – amend Rule 14a-8(i)(12) by:
– Revising the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings from 3%, 6% and 10% for matters previously voted on once, twice or three or more times in the last five years, respectively, with thresholds of 5%, 15% and 25%, respectively. For example, a proposal would need to achieve support by at least 5% of the voting shareholders in its first submission in order to be eligible for resubmission in the following three years. Proposals submitted two and three times in the prior five years would need to achieve 15% and 25% support, respectively, in order to be eligible for resubmission in the following three years.
The amendments will be effective 60 days after publication in the Federal Register – but there’s an important transition period in that the final amendments will first apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022. The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.
We’ll be posting the inevitable flood of memos in our “Shareholder Proposals” Practice Area, and will continue to provide guidance on how practice evolves. One thing is already clear – investor groups aren’t happy. CII’s press release says that the amendments will “muzzle the voice of small investors” and lists several benefits of the current proposal process – asserting that it is a cost-effective way for shareholders to communicate with companies. ICCR’s press release takes it a step further, with this quote from Andy Behar of As You Sow:
“The SEC has intervened to disrupt a system that has worked with fairness and integrity for over 50 years,” said Andy Behar, CEO of As You Sow. “Companies have gained deep insight into potential material risks to their businesses, courtesy of their shareholder engagements. Investors have had a forum to raise their concerns, assisting companies to outperform. This is an ecosystem based on mutual respect and a common goal; helping companies be as good as they can be. The new SEC rules will not stop this relationship, they will simply force shareholders to escalate to litigation and other means. This will ultimately cost companies valuable time and resources.”
But Wait, There’s More! SEC Updates Whistleblower Awards Program
Yesterday, the SEC also tackled amendments to the rules governing its whistleblower program – another controversial proposal that was initially scheduled for a few weeks ago but postponed. The final amendments were adopted 3-2 and were accompanied by guidance from the SEC’s Office of the Whistleblower about the process for determining award amounts for eligible whistleblowers. This blog from Matt Kelly of Radical Compliance gives a good overview. Here’s an excerpt:
Among the changes: a presumption toward more generous awards at the lower end of the pay scale, restrictions on people who abuse the tipster process too often, and faster disposal of would-be tips that don’t meet the awards program criteria.
And the controversial idea to cap large awards at $30 million — technically killed, although the SEC’s two Democratic commissioners still objected that the agency could use other measures to achieve that same end of whittling down large awards.
Industry Guide 3: Relocated & Amended!
A few years ago, Broc blogged about a “request for comment” on Guide 3 – the industry guide for banks and bank holding companies. That effort has now come to fruition as the SEC (unanimously!) adopted amendments on September 11th, which update & expand statistical disclosure requirements and move “Guide 3” requirements into Reg S-K. We’re posting memos in our “Financial Institutions” Practice Area.
– Liz Dunshee