United States: SEC Proposes Amendments to Shareholder Proposal Rule

By: Jon-Luc Dupuy and Keri Riemer

On 13 July 2022, the Securities and Exchange Commission (“SEC”) proposed new amendments to Rule 14a-8 under the Securities Exchange Act of 1934 (the “Shareholder Proposal Rule”).

The Shareholder Proposal Rule requires companies subject to the federal proxy rules to include shareholder proposals in their proxy statements, subject to certain procedural and substantive requirements. Currently, the Shareholder Proposal Rule provides 13 substantive bases on which companies may exclude shareholder proposals from their proxy materials. The new proposal, if adopted, would amend three of those bases:

• The “Substantial Implementation Exclusion,” which allows exclusion if the company has “already substantially implemented the proposal,” would be amended to clarify that exclusion requires “substantial implementation” of the essential elements of the proposal.
• The “Duplication Exclusion,” which allows exclusion if the proposal “substantially duplicates” another proposal already submitted by another shareholder that will be included in the company’s proxy materials for the same meeting, would be amended to clarify that a proposal “substantially duplicates” another if it “addresses the same subject matter and seeks the same objective by the same means.”
• The “Resubmission Exclusion,” which allows exclusion if the proposal addresses “substantially the same subject matter” as a proposal already included in the company’s proxy materials within the last 5 calendar years if (i) the matter was voted on at least once in the last three years (i.e., a “resubmission”) and (ii) did not receive sufficient shareholder support, would be amended to specify that a “resubmission” is one that “substantially duplicates” (as defined in the Duplication Exclusion) a proposal previously included in a company’s proxy materials.

SEC Chair Gensler stated that the proposed amendments would “provide a clearer framework for the application of this rule, which market participants have sought.”

Comments must be received by 12 September 2022 or 30 days after the date of publication in the Federal Register, whichever is later.

Ben Lukas, a summer associate in the K&L Gates Boston office, assisted in drafting this blog post.