July 14, 2022

SEC Proposes Amendments to Rule 14a-8

Yesterday, the SEC also proposed amendments to Rule 14a-8, the shareholder proposal rule. The proposed amendments were not as far-reaching as I had suspected, addressing just three of the 13 substantive bases for excluding shareholder proposals under Rule 14a-8(i).

Under Rule 14a-8(i)(10), a company can exclude a shareholder proposal that “the company has already substantially implemented.” The proposed amendments would introduce a new test for assessing whether a company can exclude a proposal on this basis: whether or not “the company has already implemented the essential elements of the proposal.”

Under Rule 14a-8(i)(11), a company can exclude a proposal that substantially duplicates another proposal that will appear on the company’s proxy card. The SEC’s proposing release explains that, in assessing whether a proposal substantially duplicates another, the Staff historically has looked at whether a new proposal shares the same “principal focus” as an earlier submitted proposal. The proposed new test will assess whether potentially duplicative proposals address the same subject matter and seek the same objective by the same means.

Under Rule 14a-8(i)(12), a company may exclude from its materials a shareholder proposal that addresses “substantially the same subject matter as a proposal . . . previously included in the company’s proxy materials within the preceding five calendar years” if the matter was voted on at least once in the last three years and received support below specified vote thresholds on the most recent vote. The proposed amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings under the same test specified in Rule 14a-8(i)(11).

Unlike the proxy voting advice rulemaking, the Commission proposal does not seek to revisit the amendments to the procedural requirements of Rule 14a-8 that were adopted back in September 2020.

While the proposals do not seek to delve into some of the more controversial and thorny bases for exclusion, the proposing release does note:

In addition, while we do not propose to amend Rule 14a-8(i)(7),13 the ordinary business exclusion, at this time, we reaffirm the standards the Commission articulated in 1998 for determining whether a proposal relates to ordinary business for purposes of Rule 14a-8(i)(7).

Comments are due 30 days after publication in the Federal Register or September 12, 2022, whichever is later.

– Dave Lynn