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1 1 (August 3, 2021)

handle is hein.crs/goveeew0001 and id is 1 raw text is: at tmiri~ die iisI dnte det #e ~AtI~ 0 August3,2021 SEC's September 2020 Rule Toughens Resubmission of Shareholder Proposals At a publicly traded company's annual or special meeting, its shareholders typically vote to appointboard members and adopt or reject various shareholder- and management- sponsored business proposals, including executive compensation and corporate mergers. Most generally require board adoption to be implemented. Some sources report that there were 858 shareholder proposals in 2020. In 2020, the SEC adopted controversialrules that would toughen the criteria for resubmitting similar unadopted proposals at subsequent meetings. The rules have sparked opposition, including fromsome Members ofCongress. Background State-based business incorporation laws (such as those in the dominant business incorporation state of Delaware) give the states substantial authority over companies that are incorporated within a given state. Under these laws, shareholders ofpublicly traded companies generally have the right to vote their shares to elect directors, approve or reject a company's generally binding management proposals, and submit and voteon the generally non- binding shareholder proposals. Within the p arameters of the state business incorporation laws, the Securities andExchange Commission (SEC) oversees the types of information shareholder proposals contain andhow that information is disseminated under Rule 14a-8. After a shareholder s ubmits a proposal, the proposal faces three potentialoutcomes: (1) the corporation may allow it to appear on the ballot for a shareholder vote, (2) the proponent may withdraw the proposal after negotiationwith the company, or (3) the company may omt the proposal fromthe ballot after receiving a no -action letter from the SEC. While the majority of shareholder proposals are non-binding, proposals with the best chance of adoption by a fim's board of directors generally gamer a majority of votes. Public companies are largely owned by institutional investors such as mutual funds and pension funds. However, small investors, including individuals and faith - based groups (sometimes referred to as gadflies), have historically played disproportionately large roles as submitters of shareholder proposals. According to one analysis (Nili and Kastiel, 2019), a small group of five individuals accounted for close to 40% of all shareholder proposals submitted to S&P 1500 firms in 2018. Until recently, activist individual investors' proposals tended toward corporate governanceproposals involving corporateboard structures and shareholder rights. In recent years, such activist small shareholders have joinedpension funds and faith-based investment groups in proposing a p anoply of often controversial environmental, social, and governance (collectively, ESG) proposals. Amongthemare resolutions that have included disclosing political spending, climate-change-related disclosures, employee and board diversity, and dis closures on worker and humanrights policies. The 2021 proxy season reportedly set newrecords with at least 467 shareholder resolutions on ESG issues. History ofthe Resubmission Thresholds In 1948, the SEC amended Rule 14a-8 by prohibiting a shareholder proposal frombeing includedin aproxy statement for shareholder vote if a similar proposalreceived less than 3% of the votes cast at the previous annual meeting. The agency argued that amendment's goal was to relieve the management of the necessity of including proposals which have beenpreviously submitted to security holders without evoking any substantial security holder interest therein. In 1954, arguing that the ability to resubmit proposals that received 3% or more of the vote resulted in the repetition year after year of proposals which have evoked very nudest stockholder interest, the agency amended Rule 14a-8 by allowing two other resubmis sion thresholds. The amendment allowed firms to also exclude substantially the same s ubjectmatter as another proposal or proposals that have beenpreviously 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 did not receive at least: * 3% ofthe vote ifpreviously votedon once, * 6% of the vote if previously voted on twice, or * 10% of the vote if previously voted on three or more times. In 1997, the SEC proposed increasing the resubmission thresholds from3%, 6%, and 10% to 6%, 15%, and 30%, respectively. It argued that the prevailing thresholds needed to be more stringent, as a proposalthathas notachieved these levels ofsupport has been fairly tested and stands no significant chance of obtaining the level of voting support required for approval. Later, citing investor concerns, the SEC opted not to adopt the proposal. Rule 14a-8 Rulemaking, Support, and Opposition In September 2020, the SEC commissioners voted 3-2 to amend Rule 14a-8. Principally, the reform will tighten the eligibility criteria needed for investors in publicly traded companies toresubmit proposals. (A corollary reformwill .conress.ov

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