Proposed Rule2022-15348
Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8
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Published
July 27, 2022
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is proposing to update certain substantive bases for exclusion of shareholder proposals under the Commission's shareholder proposal rule. The proposed amendments would amend the substantial implementation exclusion to specify that a proposal may be excluded if the company has already implemented the essential elements of the proposal. We also propose to specify when a proposal substantially duplicates another proposal for purposes of the duplication exclusion. In addition, we propose to amend the resubmission exclusion to provide that a proposal constitutes a resubmission if it substantially duplicates another proposal. Under the proposed amendments, for purposes of both the duplication exclusion and the resubmission exclusion, a proposal would substantially duplicate another proposal if it addresses the same subject matter and seeks the same objective by the same means.
Full Text
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<title>Federal Register, Volume 87 Issue 143 (Wednesday, July 27, 2022)</title>
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[Federal Register Volume 87, Number 143 (Wednesday, July 27, 2022)]
[Proposed Rules]
[Pages 45052-45075]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-15348]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-95267; IC-34647; File No. S7-20-22]
RIN 3235-AM91
Substantial Implementation, Duplication, and Resubmission of
Shareholder Proposals Under Exchange Act Rule 14a-8
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to update certain substantive bases for exclusion of
shareholder proposals under the Commission's shareholder proposal rule.
The proposed amendments would amend the substantial implementation
exclusion to specify that a proposal may be excluded if the company has
already implemented the essential elements of the proposal. We also
propose to specify when a proposal substantially duplicates another
proposal for purposes of the duplication exclusion. In addition, we
propose to amend the resubmission exclusion to provide that a proposal
constitutes a resubmission if it substantially duplicates another
proposal. Under the proposed amendments, for purposes of both the
duplication exclusion and the resubmission exclusion, a proposal would
substantially duplicate another proposal if it addresses the same
subject matter and seeks the same objective by the same means.
DATES: Comments should be received on or before September 12, 2022.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/submitcomments.htm">https://www.sec.gov/rules/submitcomments.htm</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#b1c3c4ddd49cd2dedcdcd4dfc5c2f1c2d4d29fd6dec7"><span class="__cf_email__" data-cfemail="e496918881c9878b8989818a9097a4978187ca838b92">[email protected]</span></a>. Please include
File Number S7-20-22 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-20-22. This file number
should be included on the subject line if email is used. To help the
Commission process and review your comments more efficiently, please
use only one method of submission. The Commission will post all
comments on the Commission's website (<a href="https://www.sec.gov/rules/proposed.shtml">https://www.sec.gov/rules/proposed.shtml</a>). Comments are also available for website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549 on official business days between the hours of 10
a.m. and 3 p.m. Operating conditions may limit access to the
Commission's Public Reference Room. All comments received will be
posted without change. Persons submitting comments are cautioned that
we do not redact or edit personal identifying information from comment
submissions. You should submit only information that you wish to make
available publicly.
[[Page 45053]]
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on our website. To ensure direct electronic
receipt of such notifications, sign up through the ``Stay Connected''
option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email.
FOR FURTHER INFORMATION CONTACT: Kasey Robinson, Special Counsel,
Office of Chief Counsel, at (202) 551-3500, Division of Corporation
Finance, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing for public
comment amendments to 17 CFR 240.14a-8 (``Rule 14a-8'') under the
Securities Exchange Act of 1934 [15 U.S.C. 78a et seq.] (``Exchange
Act'').
Table of Contents
I. Introduction
II. Discussion of the Proposed Amendments
A. Rule 14a-8(i)(10)--Substantial Implementation
1. Background
2. Proposed Amendment
B. Rule 14a-8(i)(11)--Duplication
1. Background
2. Proposed Amendment
C. Rule 14a-8(i)(12)--Resubmissions
1. Background
2. Proposed Amendment
III. Economic Analysis
A. Affected Parties
B. Baseline
1. Regulatory Framework
2. Practices Related to Proposal Submissions
C. Potential Costs and Benefits
1. General Economic Considerations Relevant to Shareholder
Proposals
2. Rule 14a-8(i)(10)--Substantial Implementation
3. Rule 14a-8(i)(11)--Duplication
4. Rule 14a-8(i)(12)--Resubmissions
D. Anticipated Effects on Efficiency, Competition, and Capital
Formation
E. Reasonable Alternatives
1. Rule 14a-8(i)(10)--Substantial Implementation
2. Rule 14a-8(i)(11)--Duplication
3. Rule 14a-8(i)(12)--Resubmissions
F. Request for Comment
IV. Paperwork Reduction Act
A. Summary of the Collection of Information
B. Summary of the Proposed Amendments' Effects on the Collection
of Information
C. Incremental and Aggregate Burden and Cost Estimates for the
Proposed Amendments
V. Small Business Regulatory Enforcement Fairness Act
VI. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Rules
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
Statutory Authority and Text of Proposed Rule Amendments
I. Introduction
Exchange Act Rule 14a-8 requires companies that are subject to the
federal proxy rules \1\ to include shareholder proposals in their proxy
statements to shareholders, subject to certain procedural and
substantive requirements.\2\ The rule is intended to facilitate
shareholders' right under state law to present their own proposals at a
company's meeting of shareholders and the ability of all shareholders
to consider and vote on such proposals.\3\
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\1\ This generally includes issuers with a class of securities
registered under Section 12 of the Exchange Act and issuers that are
registered under the Investment Company Act of 1940 (``Investment
Company Act''). Foreign private issuers are exempt from the federal
proxy rules. See 17 CFR 240.3a12-3(b). In addition, debt securities
registered under Section 12(b) are exempt from the federal proxy
rules, with some exceptions. See 17 CFR 240.3a12-11(b).
\2\ 17 CFR 240.14a-8. Unless otherwise noted, references to
``shareholder proposal,'' ``shareholder proposals,'' ``proposal,''
or ``proposals'' refer to submissions made in reliance on Rule 14a-
8.
\3\ See, e.g., Procedural Requirements and Resubmission
Thresholds Under Exchange Act Rule 14a-8, Release No. 34-87458 (Nov.
5, 2019) [84 FR 66458 (Dec. 4, 2019)] (``2019 Proposing Release'')
(``The rule . . . facilitates shareholders' traditional ability
under state law to present their own proposals for consideration at
a company's annual or special meeting, and it facilitates the
ability of all shareholders to consider and vote on such
proposals.''); Alan Palmiter & Frank Partnoy, Corporations: A
Contemporary Approach 482 (1st ed. 2010) (``The shareholder proposal
rule is a federal mechanism to facilitate state-created shareholder
voting rights'').
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Under Rule 14a-8, a company must include a shareholder's proposal
in the company's proxy materials unless the proposal fails to satisfy
any of several specified substantive requirements or the proposal or
shareholder-proponent does not satisfy certain eligibility or
procedural requirements. Companies and shareholder-proponents do not
always agree on the application of these requirements. If a company
intends to exclude a shareholder proposal from its proxy materials, it
is required under Rule 14a-8(j)(1) to ``file its reasons'' for doing so
with the Commission.\4\ These notifications are generally submitted in
the form of no-action requests, with companies seeking the staff's
concurrence that they may exclude a shareholder proposal under one or
more of the procedural or substantive bases under Rule 14a-8. For many
years the staffs of the Division of Corporation Finance and the
Division of Investment Management, as applicable, have engaged through
the no-action letter process in the informal practice of expressing
whether they would recommend enforcement action to the Commission if a
company excludes a proposal from its proxy materials.\5\ The staff
offers its views in this manner to assist companies and shareholder-
proponents in complying with the federal proxy rules.\6\
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\4\ 17 CFR 240.14a-8(j)(1).
\5\ See Statement of Informal Procedures for the Rendering of
Staff Advice With Respect to Shareholder Proposals, Release No. 34-
12599 (July 7, 1976) [41 FR 29989 (July 20, 1976)] (``Statement of
Informal Procedures'').
\6\ See id. No-action letters issued under Rule 14a-8 by the
Divisions of Corporation Finance and Investment Management are
available at <a href="https://www.sec.gov/corpfin/shareholder-proposals-no-action">https://www.sec.gov/corpfin/shareholder-proposals-no-action</a> and <a href="https://www.sec.gov/investment/investment-management-no-action-letters">https://www.sec.gov/investment/investment-management-no-action-letters</a>, respectively.
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The shareholder proposal process has become a cornerstone of
engagement between shareholders and company management.\7\ Shareholder
proposals provide an important mechanism for investors to express their
views, provide feedback to companies, exercise oversight of management,
and raise important issues for the consideration of their fellow
shareholders in the company's proxy statement. Moreover, investor
support for shareholder proposal campaigns over the years has helped to
shape many current corporate practices and policies, such as annual
director elections, majority vote standards for director elections, and
proxy access rights for shareholders.\8\
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\7\ See infra note 8.
\8\ See, e.g., Emiliano M. Catan & Marcel Kahan, The Never-
Ending Quest for Shareholder Rights: Special Meetings and Written
Consent, 99 B.U. L. Rev. 743 (2019), available at <a href="https://www.bu.edu/bulawreview/files/2019/06/CATAN-KAHAN.pdf">https://www.bu.edu/bulawreview/files/2019/06/CATAN-KAHAN.pdf</a> (discussing the
impact of shareholder activists on the elimination of staggered
boards and other governance matters); Yaron Nili & Kobi Kastiel, The
Giant Shadow of Corporate Gadflies, 94 S. Cal. L. Rev. 569, 571-76
(2021), available at <a href="https://www.sec.gov/comments/s7-23-19/s72319-6733874-207512.pdf">https://www.sec.gov/comments/s7-23-19/s72319-6733874-207512.pdf</a> (discussing the influence of corporate
``gadflies'' over corporate governance practices); Kosmas
Papadopoulos, ISS Analytics, The Long View: The Role of Shareholder
Proposals in Shaping U.S. Corporate Governance (2000-2018), Harvard
Law School Forum on Corporate Governance (Feb. 6, 2019), <a href="https://corpgov.law.harvard.edu/2019/02/06/the-long-view-the-role-of-shareholder-proposals-in-shaping-u-s-corporate-governance-2000-2018/">https://corpgov.law.harvard.edu/2019/02/06/the-long-view-the-role-of-shareholder-proposals-in-shaping-u-s-corporate-governance-2000-2018/</a>
(discussing the impact of shareholder proposals on corporate
governance).
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[[Page 45054]]
Since Rule 14a-8 was adopted in 1942,\9\ the Commission has amended
the rule on numerous occasions, as necessary to improve the operation
of the shareholder proposal process and to provide its views on the
application of the rule's procedural and substantive requirements.\10\
The most recent amendments to Rule 14a-8, adopted on September 23,
2020, relate to certain procedural requirements as well as the
resubmission exclusion under Rule 14a-8(i)(12), as discussed below in
Section II.C.1.\11\
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\9\ Release No. 34-3347 (Dec. 18, 1942) [7 FR 10655 (Dec. 22,
1942)]. At the time, the rule did not set forth substantive bases
for exclusion. It provided as follows: ``In the event that a
qualified security holder of the issuer has given the management
reasonable notice that such security holder intends to present for
action at a meeting of security holders of the issuer a proposal
which is a proper subject for action by the security holders, the
management shall set forth the proposal. . . .''
\10\ See Amendments To Rules On Shareholder Proposals, Release
No. 34-40018 (May 21, 1998) [63 FR 29106 (May 28, 1998)] (``1998
Adopting Release'') (noting that the Commission would ``continue to
explore ways to improve the [shareholder proposal] process as
opportunities present themselves'').
\11\ Procedural Requirements and Resubmission Thresholds Under
Exchange Act Rule 14a-8, Release No. 34-89964 (Sept. 23, 2020) [85
FR 70240 (Nov. 4, 2020)] (``2020 Adopting Release'').
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The proposed amendments are intended to improve the shareholder
proposal process based on modern developments and the staff's
observations. The amendments we propose to each of Rule 14a-8(i)(10),
14a-8(i)(11), and 14a-8(i)(12) would facilitate shareholder suffrage
and communication between shareholders and the companies they own, as
well as among a company's shareholders, on important issues. In this
regard, the proposed amendments are intended to ``insure that public
investors receive full and accurate information about all security
holder proposals that are to, or should, be submitted to them for their
action . . . [and] have . . . the opportunity to vote'' on such
proposals.\12\ The proposed amendments also would enhance the ability
of shareholders to express diverse objectives and various ways to
achieve those objectives through the shareholder proposal process. In
addition, the proposed amendments would set forth a clearer framework
for the application of certain of the rule's substantive bases for the
exclusion of proposals and should thereby provide greater certainty and
transparency to shareholders and companies as they evaluate whether
these bases would apply to particular proposals.
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\12\ See Statement of Informal Procedures, supra note 5.
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We are proposing modifications to, and seeking public comment on,
three of the rule's substantive bases for exclusion: Rule 14a-8(i)(10),
Rule 14a-8(i)(11), and Rule 14a-8(i)(12). 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).\14\
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\13\ 17 CFR 240.14a-8(i)(7).
\14\ In the 1998 Adopting Release, supra note 10, the Commission
stated: ``The policy underlying the ordinary business exclusion
rests on two central considerations. The first relates to the
subject matter of the proposal. . . . [P]roposals relating to
[ordinary business] matters but focusing on sufficiently significant
social policy issues . . . generally would not be considered to be
excludable, because the proposals would transcend the day-to-day
business matters and raise policy issues so significant that it
would be appropriate for a shareholder vote. . . . The second
consideration relates to the degree to which the proposal seeks to
`micro-manage' the company by probing too deeply into matters of a
complex nature upon which shareholders, as a group, would not be in
a position to make an informed judgment.'' The Commission also
clarified that specific methods, time-frames, or detail do not
necessarily amount to micromanagement and are not dispositive of
excludability.
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As shown in Table 1, the bases for exclusion in Rule 14a-8(i)(10),
Rule 14a-8(i)(11), and Rule 14a-8(i)(12) collectively represent a
significant percentage of the no-action requests the staff has received
under Rule 14a-8.\15\
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\15\ Table 1 shows requests received by the Division of
Corporation Finance and the Division of Investment Management from
October 1 through June 30 of each time period shown. The percentages
in parentheses in each column of the table represent percentages of
the total number of no-action requests that assert Rule 14a-
8(i)(10), Rule 14a-8(i)(11), and Rule 14a-8(i)(12), respectively (as
noted in each respective ``Number of Requests'' row).
Table 1
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2020-2021 2019-2020 2018-2019
(Total: 266) (Total: 238) (Total: 226)
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Rule 14a-8(i)(10)--Substantial Implementation
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Number of Requests........................................... 110 90 83
Granted on (i)(10)....................................... 36 (33%) 45 (50%) 37 (45%)
Granted on Other Basis................................... 10 (9%) 8 (9%) 6 (7%)
Denied................................................... 31 (28%) 24 (27%) 21 (25%)
Withdrawn................................................ 33 (30%) 13 (14%) 19 (23%)
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Rule 14a-8(i)(11)--Duplication
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Number of Requests........................................... 12 9 16
Granted on (i)(11)....................................... 3 (25%) 4 (44%) 7 (44%)
Granted on Other Basis................................... 1 (8%) 0 6 (38%)
Denied................................................... 5 (42%) 1 (11%) 2 (13%)
Withdrawn................................................ 3 (25%) 4 (44%) 1 (6%)
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Rule 14a-8(i)(12)--Resubmissions
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Number of Requests........................................... 2 3 1
Granted on (i)(12)....................................... 1 (50%) 0 1 (100%)
Granted on Other Basis................................... 1 (50%) 1 (33%) 0
Denied................................................... 0 1 (33%) 0
Withdrawn................................................ 0 1 (33%) 0
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[[Page 45055]]
First, we propose to amend Rule 14a-8(i)(10), the substantial
implementation exclusion, which allows companies to exclude a
shareholder proposal that ``the company has already substantially
implemented.'' \16\ This standard has remained substantively unchanged
since 1983.\17\ We propose to amend this rule to specify that a
proposal may be excluded if ``the company has already implemented the
essential elements of the proposal.'' The proposed amendment would
provide a clearer standard for exclusion and promote more consistent
and predictable determinations regarding the exclusion of proposals
under the rule.
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\16\ 17 CFR 240.14a-8(i)(10).
\17\ See Amendments to Rule 14a-8 Under the Securities Exchange
Act of 1934 Relating to Proposals by Security Holders, Release No.
34-20091 (Aug. 16, 1983) [48 FR 38218 (Aug. 23, 1983)] (``1983
Adopting Release'').
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Second, we propose to amend Rule 14a-8(i)(11), the duplication
exclusion, which allows companies to exclude a shareholder proposal
that ``substantially duplicates another proposal previously submitted
to the company by another proponent that will be included in the
company's proxy materials for the same meeting.'' \18\ The duplication
exclusion has not been substantively updated by the Commission since
its adoption in 1976.\19\ The proposed amendment would specify that a
proposal ``substantially duplicates'' another proposal if it
``addresses the same subject matter and seeks the same objective by the
same means.''
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\18\ 17 CFR 240.14a-8(i)(11).
\19\ See Adoption of Amendments Relating to Proposals by
Security Holders, Release No. 34-12999 (Nov. 22, 1976) [41 FR 52994
(Dec. 3, 1976)] (``1976 Adopting Release'').
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Third, we propose to amend Rule 14a-8(i)(12), the resubmission
exclusion, which allows companies to exclude a shareholder proposal
that ``addresses substantially the same subject matter as a proposal,
or proposals, 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 did not receive at least:
<bullet> 5 percent of the votes cast if previously voted on once;
<bullet> 15 percent of the votes cast if previously voted on twice;
or
<bullet> 25 percent of the votes cast if previously voted on three
or more times.\20\
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\20\ 17 CFR 240.14a-8(i)(12).
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Although the resubmission thresholds themselves were reviewed and
amended by the Commission in 2020,\21\ the ``substantially the same
subject matter'' test has been in place since 1983.\22\ We propose to
amend the resubmission exclusion to provide that a resubmission is a
shareholder proposal that ``substantially duplicates'' a proposal
previously included in a company's proxy materials, which would replace
the current ``substantially the same subject matter'' test. This
proposed amendment would align the ``resubmission'' standard with the
``duplication'' standard under Rule 14a-8(i)(11), in consideration of
the similar objectives of these exclusions. As noted above with respect
to the proposed amendment to Rule 14a-8(i)(11), we also propose to
specify for purposes of Rule 14a-8(i)(12) that a proposal
``substantially duplicates'' another proposal if it ``addresses the
same subject matter and seeks the same objective by the same means.''
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\21\ See 2020 Adopting Release, supra note 11.
\22\ See 1983 Adopting Release, supra note 17.
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We welcome feedback and encourage interested parties to submit
comments on any or all aspects of the proposed amendments. When
commenting, it would be most helpful if you include the reasoning
behind your position or recommendation.
II. Discussion of the Proposed Amendments
A. Rule 14a-8(i)(10)--Substantial Implementation
1. Background
Rule 14a-8(i)(10), the substantial implementation exclusion, allows
a company to exclude a shareholder proposal that ``the company has
already substantially implemented.'' \23\ The purpose of the exclusion
is to ``avoid the possibility of shareholders having to consider
matters which have already been favorably acted upon by the
management.'' \24\ During the 2021, 2020, and 2019 proxy seasons, the
staff received 110, 90, and 83 no-action requests, respectively,
asserting the substantial implementation exclusion. Of these, the staff
concurred in the exclusion of 36, 45, and 37 of the requests,
respectively, on the basis of the substantial implementation exclusion.
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\23\ 17 CFR 240.14a-8(i)(10).
\24\ Proposals by Security Holders, Release No. 34-12598 (July
7, 1976) [41 FR 29982, at 29985 (July 20, 1976)] (``1976 Proposing
Release'').
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Prior to 1983, Rule 14a-8(i)(10) did not include a concept of
``substantial implementation,'' and exclusion under the rule was
permitted only in those cases in which a proposal had been fully
effected.\25\ In 1983, however, the Commission announced an
interpretive change to permit exclusion of proposals that had been
``substantially implemented by the issuer.'' \26\ The Commission
acknowledged that the interpretive position would ``add more
subjectivity to the application of the provision'' but believed the
change was necessary as the ``previous formalistic application of this
provision defeated its purpose,'' \27\ given that the exclusion was
available only when a proposal had been fully effected--that is, when a
company had taken all of the actions requested by the proposal.\28\ In
1998 the Commission adopted the current language of Rule 14a-8(i)(10)
to reflect the interpretation it announced in 1983.\29\ The Commission
has not revised Rule 14a-8(i)(10) since that time, except to add a note
to paragraph (i)(10) to clarify the status of shareholder proposals
that seek an advisory shareholder vote on executive compensation or
that relate to the frequency of shareholder votes approving executive
compensation.\30\
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\25\ At the time, the rule text provided for exclusion where
``the proposal has been rendered moot.''
\26\ See 1983 Adopting Release, supra note 17.
\27\ Id.
\28\ See Proposed Amendments to Rule 14a-8 Under the Securities
Exchange Act of 1934 Relating to Proposals by Security Holders,
Release No. 34-19135 (Oct. 14, 1982) [47 FR 47420 (Oct. 26, 1982)],
at 47429 (``1982 Proposing Release'').
\29\ See 1998 Adopting Release, supra note 10.
\30\ See Shareholder Approval of Executive Compensation and
Golden Parachute Compensation, Release No. 34-63768 (Jan. 25, 2011)
[76 FR 6010 (Feb. 2, 2011)].
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Because of the fact-intensive nature of the rule, over the years
the staff has applied various, but similar, interpretive frameworks to
determine whether a shareholder proposal has been substantially
implemented by a company. For instance, the staff has indicated that a
``determination that the [c]ompany has substantially implemented the
proposal depends upon whether [the company's] particular policies,
practices and procedures compare favorably with the guidelines of the
proposal.'' \31\ The staff also has considered whether the company has
addressed a proposal's underlying concerns and whether the essential
objectives of a proposal have been met. When considering whether a
proposal has been substantially implemented, companies, shareholder-
proponents, and the staff sometimes divide a proposal into its elements
and evaluate which of them have been implemented. However, a proposal
may be viewed as substantially implemented even if a company has not
implemented all of the proposal's elements.\32\
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\31\ See Texaco, Inc. (Mar. 28, 1991).
\32\ See, e.g., WD-40 Co. (Sept. 27, 2016) (concurring under
Rule 14a-8(i)(10) in the company's exclusion of a proposal
requesting that the company adopt a proxy access bylaw provision and
identifying certain ``essential elements for substantial
implementation'' because the company represented that ``the board
has adopted a proxy access bylaw that addresses the proposal's
essential objective,'' even though a number of the company's
provisions differed from the proposal's terms); NVR, Inc. (Feb. 12,
2016, recons. granted Mar. 25, 2016) (concurring, on
reconsideration, under Rule 14a-8(i)(10) in the exclusion of a
proposal seeking four specific revisions to the company's existing
proxy access bylaw provision where the company amended the provision
to reduce the minimum ownership threshold from 5 percent to 3
percent and increased the permissible recall period for loaned
shares from three to five business days, but did not eliminate the
20-person limit on the number of shareholders that may aggregate
their shareholdings to form a nominating group or eliminate the
requirement for nominating shareholders to represent that they will
continue to own the shares required to meet the minimum ownership
threshold for at least one year following the meeting).
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[[Page 45056]]
We continue to believe that it is appropriate under Rule 14a-
8(i)(10) to apply a ``substantial'' implementation standard, rather
than the ``full'' implementation standard that was in place prior to
1983. We recognize, however, that there are many potential
interpretations of what a substantial implementation standard may
require, on a spectrum from minimal implementation to all but full
implementation. In view of the staff's experience with the substantial
implementation exclusion, we are concerned that the current rule may be
difficult to apply in a consistent and predictable manner.\33\
Moreover, we believe that the language of the current rule is
insufficiently focused on the specific actions requested by a
proposal--i.e., its elements--and, thus, it may not serve the original
purpose of the exclusion to avoid the consideration of proposals on
which a company already has ``favorably acted.'' \34\
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\33\ Compare Apple Inc. (Nov. 19, 2018) (concurring under Rule
14a-8(i)(10) in the exclusion of a proposal requesting that the
company establish a board committee on international policy to
oversee policies regarding matters specified in the proposal, where
the company argued that its existing board committees include
responsibility for the specified matters) and Verizon Communications
Inc. (Feb. 19, 2019) (concurring under Rule 14a-8(i)(10) in the
exclusion of a proposal requesting that the company establish a
board committee on public policy and social responsibility to
oversee policies regarding matters specified in the proposal, where
the company argued that its existing board committees include
responsibility for the specified matters) with Exxon Mobil Corp.
(Apr. 2, 2019) (not concurring in the exclusion of a proposal
requesting that the company establish a board committee on climate
change, where the company argued that the board's public issues and
contributions committee substantially implemented the proposal under
Rule 14a-8(i)(10) because its responsibilities included oversight of
climate change issues).
\34\ 1976 Proposing Release, supra note 24, at 29985.
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Additionally, some observers have expressed concerns about
variation and potential unpredictability in the operative principles
guiding the staff's interpretation of the substantial implementation
exclusion.\35\ For example, with respect to shareholder proposals
requesting a report, some have observed that the staff may find a
proposal substantially implemented based on ``voluminous but
unresponsive reporting'' that does not answer the core questions raised
by the proposal.\36\ Some shareholders also have expressed concerns
about the difficulty of ``threading the needle'' when seeking to draft
a proposal that does not ``micro-manage'' the company under Rule 14a-
8(i)(7) \37\ but still provides sufficient specificity and direction to
avoid exclusion as ``substantially implemented'' under Rule 14a-
8(i)(10) when a company had not implemented its essential elements.\38\
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\35\ See, e.g., Letter to John Coates, Acting Director, Division
of Corporation Finance, U.S. Securities and Exchange Commission,
from Sanford Lewis, Director, Shareholder Rights Group, dated
February 4, 2021, available at <a href="https://www.corpgov.net/2021/02/reform-no-action-process/">https://www.corpgov.net/2021/02/reform-no-action-process/</a> (``February 4, 2021 Letter''); Letter to
Allison Lee, Acting Chair, U.S. Securities and Exchange Commission,
from Sanford Lewis, Director, Shareholder Rights Group, Mindy
Lubber, Ceres, Lisa Woll, The Forum for Sustainable and Responsible
Investment, and Josh Zinner, Interfaith Center on Corporate
Responsibility, dated January 26, 2021, available at <a href="https://www.iccr.org/sites/default/files/resources_attachments/chair_lee_letter_0.pdf">https://www.iccr.org/sites/default/files/resources_attachments/chair_lee_letter_0.pdf</a> (``January 26, 2021 Letter'').
\36\ See, e.g., February 4, 2021 Letter, supra note 35.
\37\ See 1998 Adopting Release, supra note 10.
\38\ See Sanford Lewis, Shareholder Rights Group, SEC Resets the
Shareholder Proposal Process, Harvard Law School Forum on Corporate
Governance (Dec. 23, 2021), <a href="https://corpgov.law.harvard.edu/2021/12/23/sec-resets-the-shareholder-proposal-process/">https://corpgov.law.harvard.edu/2021/12/23/sec-resets-the-shareholder-proposal-process/</a>; January 26, 2021
Letter, supra note 35. See also Staff Legal Bulletin No. 14L,
Section B.3 (Nov. 3, 2021).
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2. Proposed Amendment
In view of these considerations, we are proposing an amendment to
Rule 14a-8(i)(10) that would maintain a ``substantial'' implementation
standard and provide a clearer framework for its application. The
proposed rule would state that a proposal may be excluded as
substantially implemented ``[i]f the company has already implemented
the essential elements of the proposal.'' Whether a proposal has been
substantially implemented necessarily involves a factual determination
to be made on a case-by-case basis. We believe that an analysis that
focuses on the specific elements of a proposal would provide a reliable
indication of whether the actions taken to implement a proposal are
sufficiently responsive to the proposal such that it has been
substantially implemented.
Determining whether a proposal could be excluded under the proposed
amendment would still require a degree of substantive analysis--a
determination of which elements of the proposal are the ``essential
elements'' and an analysis of whether those elements have been
addressed. In determining the essential elements of a proposal, we
anticipate that the degree of specificity of the proposal and of its
stated primary objectives \39\ would guide the analysis. The proposed
amendment would permit a shareholder proposal to be excluded as
substantially implemented only if the company has implemented all of
its essential elements.
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\39\ Proponents sometimes attempt to identify the primary
objectives, elements, or features of a proposal. We expect that the
more objectives, elements, or features a proponent identifies, the
less essential the staff would view each of them.
---------------------------------------------------------------------------
Under the proposed amendment, a proposal need not be rendered
entirely moot, or be fully implemented in exactly the way a proponent
desires, in order to be excluded. A company may be permitted to exclude
a proposal it has not implemented precisely as requested if the
differences between the proposal and the company's actions are not
essential to the proposal. Where a proposal contains more than one
element, every element of the proposal need not be implemented,
although each essential element would need to be implemented. In
instances where a proposal contains only one essential element, that
essential element would need to be implemented in order to exclude the
shareholder proposal under the proposed amendment.
For example, the staff historically has concurred in the exclusion,
under Rule 14a-8(i)(10), of proposals seeking the adoption of a proxy
access provision that allows an unlimited number of shareholders who
collectively have owned 3 percent of the company's outstanding common
stock for 3 years to nominate up to 25 percent of the company's
directors, where the company had adopted a proxy access bylaw allowing
a shareholder or group of up to 20 shareholders owning 3 percent of its
common stock continuously for 3 years to nominate up to 20 percent of
the board.\40\ Under the proposed amendment, because the ability of an
unlimited number of shareholders to aggregate their shareholdings to
form a nominating group generally would be an essential element of the
proposal, exclusion would not be appropriate.
---------------------------------------------------------------------------
\40\ See, e.g., Oracle Corp. (Aug. 11, 2016).
---------------------------------------------------------------------------
As another example, where a proposal calls for a company to issue a
report about a particular topic, a company's
[[Page 45057]]
existing reports or disclosures about that topic may not implement the
essential elements of the proposal, especially if the plain language of
the proposal explains how the company's existing reports or disclosures
are insufficient. Additionally, where a proposal requests a report from
the company's board of directors (such as disclosure regarding the
board's assessment of a topic, or the board's process in approaching a
topic), the staff may determine that the company has not implemented an
essential element of the proposal if the report comes from management
rather than the board, if the proposal demonstrates a clear emphasis on
reporting directly from the board.
We believe that the proposed amendment would facilitate shareholder
suffrage, provide a more objective and specific framework for the
substantial implementation exclusion, assist the staff in more
efficiently reviewing and responding to no-action requests, and benefit
shareholders and companies by promoting more consistent and predictable
determinations. By providing greater certainty and transparency with
respect to the standard to be applied under the rule, the proposed
amendment would aid shareholder-proponents, in drafting their
proposals, and companies, in determining whether a proposal may be
excludable under the rule.
Request for Comment
1. Should we amend the standard for exclusion under Rule 14a-
8(i)(10), as proposed, to provide that a proposal may be excluded if
``the company has already implemented the essential elements of the
proposal''?
2. Would the proposed amendment benefit shareholder-proponents and
companies by promoting more consistent and predictable determinations
regarding application of the substantial implementation exclusion? What
potential costs should we consider?
3. Under the proposed amendment, the analytical framework would
focus on a proposal's essential elements. The determination of which
elements of a proposal are essential under that framework would be
guided by the degree of specificity of the proposal and of its stated
primary objectives. Is this an appropriate standard to identify a
proposal's essential elements? Are there other potential approaches we
should consider?
B. Rule 14a-8(i)(11)--Duplication
1. Background
Rule 14a-8(i)(11), the duplication exclusion, provides that a
shareholder proposal may be excluded if it ``substantially duplicates
another proposal previously submitted to the company by another
proponent that will be included in the company's proxy materials for
the same meeting.'' \41\ During the 2021, 2020, and 2019 proxy seasons,
the staff received 12, 9, and 16 no-action requests, respectively,
asserting the duplication exclusion. Of these, the staff concurred in
the exclusion of 3, 4, and 7 of the requests, respectively, on the
basis of the duplication exclusion.
---------------------------------------------------------------------------
\41\ 17 CFR 240.14a-8(i)(11).
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As the Commission explained when it formally adopted the
duplication exclusion in 1976, ``[t]he purpose of the provision is to
eliminate the possibility of shareholders having to consider two or
more substantially identical proposals submitted to an issuer by
proponents acting independently of each other.'' \42\ Aside from minor
stylistic revisions to the provision in 1998,\43\ the Commission has
not updated the provision since its adoption.
---------------------------------------------------------------------------
\42\ See 1976 Adopting Release, supra note 19. Prior to the
Commission's formal adoption of the duplication exclusion in 1976,
the exclusion ``existed . . . on an informal basis.'' Id.
\43\ See 1998 Adopting Release, supra note 10.
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Historically, in evaluating whether proposals are substantially
duplicative under Rule 14a-8(i)(11), the staff has considered whether
the proposals share the same ``principal thrust'' or ``principal
focus.'' \44\ Proposals that differ as to terms and/or scope may
nevertheless be deemed substantially duplicative if the principal
thrust or focus is the same. The staff's experience with Rule 14a-
8(i)(11) through the no-action letter process has demonstrated that
this analytical framework can be difficult to apply in a consistent and
predictable manner because, as with the ``substantial implementation''
standard under current Rule 14a-8(i)(10), there are numerous potential
approaches to evaluating whether a proposal is ``substantially''
duplicative as well as to discerning a proposal's principal thrust or
focus. The current Rule 14a-8(i)(11) framework can necessitate fact-
intensive, case-by-case judgments in determining a proposal's principal
thrust or focus, and delineating the principal thrust or focus too
broadly or too narrowly can lead to under- or over-inclusion of
shareholder proposals, respectively.
---------------------------------------------------------------------------
\44\ See, e.g., Pacific Gas & Electric Co. (Feb. 1, 1993) (staff
response letter noting that exclusion under Rule 14a-8(i)(11) was
not appropriate because the second proposal's ``principal thrust''
differed from the first proposal's ``principal focus'').
---------------------------------------------------------------------------
We also note that, because Rule 14a-8(i)(11) permits exclusion only
of the later-received proposal, it operates to the advantage of the
first shareholder to submit a proposal that is substantially
duplicative of another proposal submitted for the same meeting. Thus,
the rule may create an incentive to submit a proposal quickly. As a
result, the rule enables a shareholder who is first to submit a
proposal for a company's meeting to preempt the consideration of later-
received proposals, even though a later proposal (if it had been voted
on) may have received more shareholder support. Accordingly, we are
concerned that the current duplication standard may unduly constrain
shareholder suffrage by limiting shareholder-proponents' ability to
engage with the companies whose securities they own and with other
shareholders by presenting for consideration competing approaches to
addressing important issues.
2. Proposed Amendment
We are proposing an amendment to Rule 14a-8(i)(11) providing that a
proposal ``substantially duplicates'' another proposal if it
``addresses the same subject matter and seeks the same objective by the
same means.''
For example, consider the following two proposals: (1) a proposal
requesting that the company publish in newspapers a detailed statement
of each of its direct or indirect political contributions or attempts
to influence legislation; and (2) a proposal requesting a report to
shareholders on the company's process for identifying and prioritizing
legislative and regulatory public policy advocacy activities. In
considering the application of the duplication exclusion to these
proposals, the staff previously had concurred that the proposals were
substantially duplicative when analyzing the principal thrust or focus
of the proposals.\45\ Under the proposed amendment, however, these
proposals would not be deemed substantially duplicative because,
although they both address the subject matter of the company's
political and lobbying expenditures, they seek different objectives by
different means.
---------------------------------------------------------------------------
\45\ See Pfizer Inc. (Feb. 17, 2012).
---------------------------------------------------------------------------
We believe the proposed amendment would provide a clearer standard
for exclusion that would assist the staff in more efficiently reviewing
and responding to no-action requests and would benefit shareholder-
proponents
[[Page 45058]]
and companies by promoting more predictable and consistent
determinations regarding the exclusion of proposals. By providing
greater certainty and transparency with respect to the standards to be
applied under the rule, the proposed amendment would aid shareholder-
proponents, in drafting their proposals, and companies, in determining
whether a proposal may be excludable under the rule. Moreover, the
proposed amendment would promote more consistent outcomes when
comparing a given proposal against proposals submitted for the same
shareholder meeting for purposes of Rule 14a-8(i)(11).\46\
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\46\ As discussed in Section II.C below, we are proposing a
similar amendment to Rule 14a-8(i)(12) in consideration of the
similar objectives of these exclusions.
---------------------------------------------------------------------------
As discussed above, we recognize that Rule 14a-8(i)(11) operates to
the advantage of the first shareholder to submit a proposal. By
providing for exclusion only where a proposal ``addresses the same
subject matter and seeks the same objective by the same means,'' the
proposed amendment would reduce incentives for proponents to submit a
proposal quickly, reduce incentives for proponents to attempt to
preempt other proposals those proponents do not agree with, and
facilitate the consideration at the same shareholder meeting of
multiple shareholder proposals that present different means to address
a particular issue. In other words, the proposed amendment would enable
the consideration by a company's shareholders of later-received
proposals that may be similar to and/or address the same subject matter
as an earlier-received proposal but which seek different objectives or
offer different means of addressing the same matter.
At the same time, we are aware of the possibility that the proposed
amendment could result in the inclusion in a company's proxy materials
of multiple shareholder proposals dealing with the same or similar
issue. This outcome could cause shareholder confusion and may lead to
conflicting or inconsistent results and implementation challenges for
companies if shareholders approve multiple similar, although not
duplicative, proposals. Although we believe that the benefits of the
proposed amendment would justify these potential impacts, we seek
comment on the possible implications for companies and shareholders.
Request for Comment
4. Should we amend the standard for exclusion under Rule 14a-
8(i)(11), as proposed, to specify that a proposal ``substantially
duplicates'' another proposal if it ``addresses the same subject matter
and seeks the same objective by the same means''?
5. Would the proposed amendment benefit shareholder-proponents and
companies by promoting more consistent and predictable determinations
regarding application of the duplication exclusion? What potential
costs should we consider?
6. Would the proposed amendment result in shareholder confusion or
the inclusion and adoption of multiple contradictory proposals dealing
with the same or similar issue? If so, what would be the implications
for shareholders and companies? How would companies deal with any
resulting implementation challenges? Are there potential measures we
could consider to mitigate these impacts? For example, should we adopt
a numerical limit on the number of shareholder proposals that address
the same subject matter to be included in the proxy statement? If so,
what numerical limit would be appropriate, how should such a limit be
imposed, and what would be the anticipated costs of such an approach?
7. We anticipate that the proposed amendment would reduce the
first-in-time advantage for the first shareholder to submit a proposal
on a given topic. What is the impact of the first-in-time advantage on
the ability of different shareholders to submit proposals addressing
the same topic?
8. Aside from a first-in-time standard, are there alternative
objective standards that should be applied to determine which
proposal(s) to exclude when a company has received proposals that are
substantially duplicative under Rule 14a-8(i)(11), such as the number
of shares owned or the number of co-proponents?
C. Rule 14a-8(i)(12)--Resubmissions
1. Background
Rule 14a-8(i)(12), the resubmission exclusion, provides that a
shareholder proposal may be excluded from a company's proxy materials
if it ``addresses substantially the same subject matter as a proposal,
or proposals, 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.\47\ During the 2021,
2020, and 2019 proxy seasons, the staff received 2, 3, and 1 no-action
requests, respectively, asserting the resubmission exclusion.\48\ Of
these, the staff concurred in the exclusion of 1, 0, and 1 of the
requests, respectively, on the basis of the resubmission exclusion.
---------------------------------------------------------------------------
\47\ 17 CFR 240.14a-8(i)(12).
\48\ From October 15, 2021 through May 10, 2022, the staff
received 11 no-action requests asserting the resubmission exclusion,
which represents an increase in requests compared to the 2020 and
2021 proxy seasons. This increase is likely due to the higher
resubmission thresholds under Rule 14a-8(i)(12) adopted in the 2020
Adopting Release, supra note 11, as discussed below.
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Since 1948, the Commission has not required a company to include a
shareholder proposal in its proxy statement if ``substantially the same
proposal'' previously had been submitted for a shareholder vote and did
not receive a specified minimum percentage of votes upon its most
recent submission.\49\ The Commission explained that the purpose of the
provision was ``to relieve the management of the necessity of including
proposals which have been previously submitted to security holders
without evoking any substantial security holder interest therein.''
\50\ For many years following adoption of the provision, the staff
interpreted the phrase ``substantially the same proposal'' to mean one
that is virtually identical (in form as well as substance) to a
proposal previously included in the issuer's proxy materials.\51\
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\49\ See Adoption of Amendments to Proxy Rules, Release No. 34-
4185 (Nov. 5, 1948) [13 FR 6678 (Nov. 13, 1948)].
\50\ See Notice of Proposal to Amend Proxy Rules, Release No.
34-4114 (July 6, 1948) [13 FR 3973 (July 14, 1948)].
\51\ See 1982 Proposing Release, supra note 28.
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Some commentators had asserted that the provision failed to
accomplish its stated purpose because proponents were able to evade
exclusion of their proposals by simply recasting the form of the
proposal, expanding its coverage, or by otherwise changing its language
in a manner that precluded one from saying that the proposal is
virtually identical to a prior proposal.\52\ In view of these concerns,
in 1976 the Commission proposed to revise the standard for exclusion of
a proposal under the provision from ``substantially the same proposal''
to ``substantially the same subject matter.'' \53\ Some commenters had
urged the Commission not to adopt the proposed amendment, arguing that:
(1) abuses of the existing provision had been rare and did not justify
the type of radical revision
[[Page 45059]]
proposed; (2) the new standard would be almost impossible to administer
because of the subjective determinations that it would require; and (3)
it would unduly constrain shareholder suffrage because of its possible
``umbrella'' effect (i.e., it could be used to omit proposals that had
only a vague relation to the subject matter of a prior proposal that
received little shareholder support).\54\ After considering public
comment, the Commission determined not to adopt the proposed revision,
noting that ``the potential drawbacks of the new provision appear to
outweigh the prospective benefits.'' \55\
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\52\ Id.; see also 1976 Proposing Release, supra note 24.
\53\ See 1976 Proposing Release, supra note 24.
\54\ See id.; 1976 Adopting Release, supra note 19.
\55\ See 1976 Adopting Release, supra note 19.
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In 1982, the Commission again proposed the same revision considered
in 1976 \56\ and, in 1983, adopted the proposed revision, noting that
``this change is necessary to signal a clean break from the strict
interpretive position applied to the existing provision.'' \57\ As
amended, the provision permitted the exclusion of proposals dealing
with ``substantially the same subject matter'' as proposals submitted
in prior years that received support below specified vote thresholds.
---------------------------------------------------------------------------
\56\ See 1982 Proposing Release, supra note 28.
\57\ See 1983 Adopting Release, supra note 17, at 38221.
---------------------------------------------------------------------------
Commenters supporting the 1983 amendment viewed it as an
appropriate response to counter the abuse of the shareholder proposal
process by ``certain proponents who make minor changes in proposals
each year so that they can keep raising the same issue despite the fact
that other shareholders have indicated by their votes that they are not
interested in that issue.'' \58\ Commenters who opposed the change
argued that the revision was too broad and that it could be used to
exclude proposals that had only a vague relation to an earlier
proposal. Noting these concerns, the Commission explained that, while
``interpretation of the new provision will continue to involve
difficult subjective judgments, . . . those judgments will be based
upon a consideration of the substantive concerns raised by a proposal
rather than the specific language or actions proposed to deal with
those concerns'' such that ``an improperly broad interpretation of the
. . . rule will be avoided.'' \59\
---------------------------------------------------------------------------
\58\ See id.
\59\ See id.
---------------------------------------------------------------------------
The ``substantially the same subject matter'' test has been in
place since 1983. However, the Commission has revisited the minimum
vote thresholds necessary for resubmission under the provision from
time to time \60\ and increased the resubmission thresholds in 2020
(the ``2020 amendments'').\61\ Prior to the 2020 amendments, Rule 14a-
8(i)(12) required a proposal to receive at least: (i) 3 percent of the
vote if previously voted on once; (ii) 6 percent of the vote if
previously voted on twice; or (iii) 10 percent of the vote if
previously voted on three or more times. The 2020 amendments increased
the levels of support a shareholder proposal must receive to be
eligible for resubmission at the same company's future shareholders'
meetings from 3, 6, and 10 percent to 5, 15, and 25 percent,
respectively. We continue to assess the impact of these amendments.
---------------------------------------------------------------------------
\60\ See Adoption of Amendments to Proxy Rules, Release No. 34-
4979 (Jan. 6, 1954) [19 FR 246 (Jan. 14, 1954)]; 1983 Adopting
Release, supra note 17; Proposals of Security Holders, Release No.
34-22625 (Nov. 14, 1985) [50 FR 48180 (Nov. 22, 1985)]; 1998
Adopting Release, supra note 10.
\61\ See 2020 Adopting Release, supra note 11 (the ``2020
amendments'').
---------------------------------------------------------------------------
While the Commission did not otherwise propose changes to the
wording of the rule in connection with the 2020 amendments, it did
request comment on whether it should change the Rule 14a-8(i)(12)
standard or its application, such as reverting to the pre-1983
``substantially the same proposal'' standard. The six commenters who
responded to the request for comment were largely supportive of
narrowing the standard for exclusion if the Commission raised the
resubmission thresholds.\62\ For example, one commenter suggested that,
if the 2020 amendments raised the resubmission thresholds, the
Commission should consider whether to ``narrow the definition of
`Resubmissions' '' because ``the higher resubmission thresholds could
expand the ability of a shareholder to preempt future proposals by
submitting (intentionally or not) an unpopular idea that `addresses
substantially the same subject matter' as an idea that many
shareholders support.'' \63\ Similarly, another commenter noted that a
revised standard focusing not on the `` `substantive concerns' '' of
similar proposals but rather on the `` `specific language or actions
proposed to deal with those concerns' '' would be helpful in order to
``allow different approaches to the same or a similar issue to be
voiced and provided as options for shareholders to support.'' \64\ The
Commission did not adopt any changes to the applicable standard in
response to these comments on the proposing release for the 2020
amendments.
---------------------------------------------------------------------------
\62\ See letters from Council of Institutional Investors dated
January 30, 2020; James McRitchie dated February 2, 2020; Local
Authority Pension Fund Forum dated February 3, 2020; New York City
Comptroller dated February 3, 2020; New York State Comptroller dated
February 3, 2020; Stewart Investors dated January 30, 2020.
\63\ See letter from Council of Institutional Investors dated
January 30, 2020.
\64\ See letter from Local Authority Pension Fund Forum dated
February 3, 2020.
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When considering whether proposals deal with ``substantially the
same subject matter,'' the staff has followed the standard the
Commission articulated in 1983: whether the proposals share the same
``substantive concerns'' rather than the ``specific language or actions
proposed to deal with those concerns.'' This determination of a
proposal's ``substantive concerns'' can necessitate fact-intensive,
case-by-case judgments in applying Rule 14a-8(i)(12) through the no-
action letter process. In this regard, as with the ``substantial
duplication'' test under Rule 14a-8(i)(11), delineating the
``substantive concerns'' of a proposal either too broadly or too
narrowly may result in the under- or over-inclusion of proposals,
respectively. Additionally, the staff has observed that proposals that
address the same subject matter but call for different actions may
receive significantly different shareholder votes, which could suggest
that shareholders view such proposals as raising different issues.
We are concerned that the ``substantially the same subject matter''
test under Rule 14a-8(i)(12) may not accomplish its stated purpose
because focusing on whether proposals share the same ``substantive
concerns'' rather than ``the specific language or actions proposed to
deal with those concerns'' may not, as the Commission initially had
believed, avoid an ``improperly broad interpretation'' of the
provision. In this regard, we share the concerns previously expressed
by commentators that the ``substantially the same subject matter''
standard unduly constrains shareholder suffrage because of its
potential ``umbrella'' effect--i.e., that it could be used to exclude
proposals that have only a vague relation, or are not sufficiently
similar, to earlier proposals that failed to receive the necessary
shareholder support. As a result, the current standard could discourage
experimentation with new ideas, as it limits proponents' ability to
modify their proposals to address a similar subject matter in
subsequent years to build broader shareholder support, and also
restricts other shareholders from presenting different or newer
approaches to addressing the same issue.
[[Page 45060]]
2. Proposed Amendment
To address these concerns, we are proposing to revise the standard
of what constitutes a resubmission under Rule 14a-8(i)(12) from a
proposal that ``addresses substantially the same subject matter'' as a
prior proposal to a proposal that ``substantially duplicates'' a prior
proposal--the same standard that applies under current Rule 14a-
8(i)(11), the duplication exclusion. The proposed amendments also would
provide that, for purposes of Rule 14a-8(i)(12), a proposal
``substantially duplicates'' another proposal if it ``addresses the
same subject matter and seeks the same objective by the same means.''
Under the proposed approach, in order to be excludable under the
resubmission exclusion, a proposal must not only address the same
subject matter as a prior proposal but also must seek the same
objective by the same means. In other words, the standard for exclusion
would focus on the specific objectives and means sought by a proposal
with respect to a given subject matter (i.e., the specific actions
proposed to deal with a proposal's ``substantive concerns''). We
anticipate that this approach may provide a more accurate indication of
whether shareholders have already provided their views on a particular
issue and the proposed means to address it.
To take an example, the staff previously had viewed the following
proposals as addressing the same subject matter for purposes of the
resubmission exclusion: (1) a proposal requesting that the board adopt
a policy prohibiting the vesting of equity-based awards for senior
executives due to a voluntary resignation to enter government service
(a ``government service golden parachute''); and (2) a proposal
requesting that the board prepare a report to shareholders regarding
the vesting of such government service golden parachutes that
identifies eligible senior executives and the estimated dollar value of
each senior executive's government service golden parachute.\65\ Under
the proposed amendment to Rule 14a-8(i)(12), although these proposals
concern the same subject matter (namely, government service golden
parachutes for senior executives), exclusion would not be warranted
because they do not seek the same objectives by the same means.
---------------------------------------------------------------------------
\65\ See The Goldman Sachs Group, Inc. (Jan. 10, 2017).
---------------------------------------------------------------------------
We note that, under the proposed revision to Rule 14a-8(i)(12), the
previous proposal(s) and the current proposal need not be identical to
warrant exclusion. In this regard, we do not propose to revert to the
pre-1983 standard of ``substantially the same proposal'' for the same
reason that prompted the Commission to abandon this standard in 1983--
namely, the concern that proponents could alter a few words from a
previously submitted proposal to evade exclusion of their
proposals.\66\ However, we seek public comment on whether it would be
appropriate to return to the ``substantially the same proposal'' pre-
1983 standard.
---------------------------------------------------------------------------
\66\ See 1983 Adopting Release, supra note 17.
---------------------------------------------------------------------------
We believe that the proposed amendments would alleviate the
potential ``umbrella'' effect of the resubmission exclusion by enabling
proponents to make adjustments to their proposals to build broader
support and also allow other proponents to put forth their own
proposals offering different ways to address the same issue.
Consequently, the proposed amendments would align more closely with the
purpose of the exclusion, which is to avoid the continued consideration
of ``proposals that have generated little interest when previously
presented to the security holders,'' \67\ by recognizing that proposals
that address the same subject matter, or share the same substantive
concerns, do not necessarily garner equivalent levels of shareholder
interest and support. In this way, we anticipate that the proposed
revisions would strike a more appropriate balance between effecting the
purpose of the exclusion and preserving the ability of shareholders to
engage with a company and other shareholders through the shareholder
proposal process.
---------------------------------------------------------------------------
\67\ See 1982 Proposing Release, supra note 28, at 47429.
---------------------------------------------------------------------------
Although we recognize that the resubmission exclusion, as proposed
to be amended, would continue to require a degree of fact-intensive
judgment, we believe it would provide a clearer standard for exclusion,
assist the staff in more efficiently reviewing and responding to no-
action requests, and benefit shareholders and companies by promoting
more consistent and predictable determinations regarding the exclusion
of proposals. By providing greater certainty and transparency with
respect to the standards to be applied under the rule, the proposed
amendment would aid shareholder-proponents, in drafting their
proposals, and companies, in determining whether a proposal may be
excludable under the rule. Moreover, the proposed amendments would
promote more consistent outcomes when comparing a given proposal
against proposals submitted for the same shareholder meeting, for
purposes of Rule 14a-8(i)(11), and against proposals considered at
prior meetings, for purposes of Rule 14a-8(i)(12), in consideration of
the similar objectives of these exclusions.
Request for Comment
9. Should we amend the resubmission exclusion, as proposed, to
provide that a resubmission is a proposal that ``substantially
duplicates'' a prior proposal, the same standard as under the
duplication exclusion in Rule 14a-8(i)(11)? Should we amend the rule,
as proposed, to specify that a proposal ``substantially duplicates''
another proposal if it ``addresses the same subject matter and seeks
the same objective by the same means''? Should we instead maintain the
current standard? Should we consider a different standard, such as the
Commission's pre-1983 ``substantially the same proposal'' standard? Are
there other approaches we should consider?
10. Would the proposed amendment benefit shareholder-proponents and
companies by promoting more consistent and predictable determinations
regarding application of the resubmission exclusion? What potential
costs should we consider?
11. The proposed amendment seeks to strike a balance between the
purpose of the resubmission exclusion to limit the consideration of
proposals that do not garner significant shareholder support and the
ability of shareholder-proponents to engage with a company and other
shareholders through the shareholder proposal process, including by
mitigating the potential ``umbrella'' effect of the resubmission
exclusion. Are there other considerations we should take into account?
12. The proposed amendment would apply the same standard for
exclusion when comparing a given proposal against proposals submitted
for the same shareholder meeting, for purposes of the duplication
exclusion in Rule 14a-8(i)(11), and against proposals considered at
prior meetings, for purposes of the resubmission exclusion in Rule 14a-
8(i)(12). Is this approach appropriate?
III. Economic Analysis
As discussed above, we are proposing modifications to three of the
substantive bases for the exclusion of shareholder proposals under Rule
14a-8. We are mindful of the costs and benefits of these proposed
amendments. The discussion below addresses the
[[Page 45061]]
potential economic effects of the proposed amendments, including the
likely benefits and costs, as well as the effects on efficiency,
competition, and capital formation.\68\ We analyze the expected
economic effects of the proposed amendments relative to the current
baseline, which consists of both the current regulatory framework and
the current practices relating to shareholder proposal submissions.
Overall, we expect the proposed amendments to benefit companies and
shareholder-proponents by providing standards that are easier to apply
and result in determinations that are more predictable and consistent.
To the extent that companies and shareholder-proponents modify their
behavior in response to the proposed amendments, additional economic
effects could include changes in the volume and characteristics of
shareholder proposals submitted and included in companies' proxy
statements.
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\68\ Section 3(f) of the Exchange Act [17 U.S.C. 78c(f)] and
Section 2(c) of the Investment Company Act [15 U.S.C. 80a-2(c)]
require the Commission, when engaging in rulemaking where it is
required to consider or determine whether an action is necessary or
appropriate in (or, with respect to the Investment Company Act,
consistent with) the public interest, to consider, in addition to
the protection of investors, whether the action will promote
efficiency, competition, and capital formation. Further, Section
23(a)(2) of the Exchange Act [17 U.S.C. 78w(a)(2)] requires the
Commission, when making rules under the Exchange Act, to consider
the impact that the rules would have on competition, and prohibits
the Commission from adopting any rule that would impose a burden on
competition not necessary or appropriate in furtherance of the
purposes of the Exchange Act.
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Where possible, we have attempted to quantify the benefits, costs,
and effects on efficiency, competition, and capital formation expected
to result from the proposed amendments. In many cases, however, we are
unable to quantify the economic effects because we lack information
necessary to provide reasonable estimates. For example, we do not have
data that would allow us to assess the extent to which companies and
shareholder-proponents may change their behavior in response to the
proposed amendments. We further note that even in cases where we have
some data regarding certain economic effects, the quantification of
these effects is particularly challenging due to the number of
assumptions that we would need to make to estimate the benefits and
costs of the proposed amendments. Where we are unable to quantify the
economic effects of the proposed amendments, we provide a qualitative
assessment of the potential effects and encourage commenters to provide
data and information that would help quantify the benefits, costs, and
potential impacts of the proposed amendments on efficiency,
competition, and capital formation.
A. Affected Parties
The proposed amendments would affect all companies subject to the
federal proxy rules that receive shareholder proposals, the proponents
of these proposals, and non-proponent shareholders of these
companies.\69\ Companies that have a class of equity securities
registered under Section 12 of the Exchange Act are subject to the
federal proxy rules, including Rule 14a-8.\70\ In addition, all
management companies are subject to the federal proxy rules.\71\
Finally, there are certain companies that voluntarily file proxy
materials that could be affected to the extent that they receive
shareholder proposals.
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\69\ The proposed amendments could also have indirect effects on
providers of administrative and advisory services related to proxy
solicitation and shareholder voting.
\70\ Foreign private issuers are exempt from the federal proxy
rules under Exchange Act Rule 3a12-3(b). See supra note 1.
\71\ 17 CFR 270.20a-1 (``Rule 20a-1'') under the Investment
Company Act [15 U.S.C. 80a-20(a)] requires management companies to
comply with regulations adopted pursuant to Section 14(a) of the
Exchange Act that would be applicable to a proxy solicitation if it
were made in respect of a security registered pursuant to Section 12
of the Exchange Act. ``Management company'' means any investment
company other than a face-amount certificate company or a unit
investment trust. See 15 U.S.C. 80a-4.
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As of December 31, 2021, we estimate that there were 5,862
companies that had a class of securities registered under Section 12 of
the Exchange Act (including 97 Business Development Companies
(``BDCs'')).\72\ This estimate represents an upper bound of the number
of potentially affected companies because some of these companies may
not file proxy materials or receive a shareholder proposal in a given
year. Out of the 5,862 potentially affected companies mentioned above,
4,588 (78 percent) filed proxy materials with the Commission during
calendar year 2021.\73\ In addition, as of December 31, 2021, there
were 33 companies that voluntarily filed proxy materials.\74\
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\72\ We estimate the number of companies with a class of
securities registered under Section 12 of the Exchange Act by
reviewing all filers, by unique Central Index Key (CIK), of Forms
10-K and amendments filed during calendar year 2021.
\73\ The proxy materials we consider in our analysis are
materials filed via EDGAR under submission types DEF 14A, DEF 14C,
DEFA14A, DEFC14A, DEFM14A, DEFM14C, DEFR14A, DEFR14C, DFAN14A, PRE
14A, PRE 14C, PREC14A, PREM14A, PREM14C, PRER14A, and PRER14C.
\74\ We identify companies that voluntarily file proxy materials
as companies reporting pursuant to Section 15(d) of the Exchange Act
but not registered under Section 12(b) or Section 12(g) of the
Exchange Act and foreign private issuers that filed any proxy
materials during calendar year 2021 with the Commission. See supra
note 73 for details on the proxy materials we consider for this
analysis.
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As of December 31, 2021, there were 2,034 management companies \75\
that were subject to the federal proxy rules, of which 625 (31 percent)
reported to have submitted matters for their security holders' vote
during the reporting period.\76\ However, we estimate that 944 unique
entities associated with management companies \77\ filed proxy
materials with the Commission during calendar year 2021 on 569 unique
forms.\78\
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\75\ We estimate the number of unique management companies by
reviewing all Forms N-CEN of companies active through December 2021
received by the Commission as of March 15, 2022. These 2,034
management companies were associated with the following funds: (i)
11,780 open-end funds, out of which 2,398 were Exchange Traded Funds
(``ETFs'') registered as open-end funds or open-end funds that had
an ETF share class; (ii) 651 closed-end funds; and (iii) 14 variable
annuity separate accounts registered as management investment
companies. Open-end funds are series of trusts registered on Form N-
1A. Closed-end funds are trusts registered on Form N-2. Variable
annuity separate accounts registered as management companies are
trusts registered on Form N-3.
\76\ We estimate the number of unique management companies that
submitted matters for their security holders' vote by reviewing Item
B.10 in all Forms N-CEN of management companies active through
December 2021 received by the Commission as of March 15, 2022. These
625 management companies were associated with the following funds:
(i) 2,481 open-end funds, out of which 278 were ETFs registered as
open-end funds or open-end funds that had an ETF share class; (ii)
436 closed-end funds; and (iii) no variable annuity separate
accounts.
\77\ We estimate the number of unique entities associated with
management companies by reviewing unique CIKs associated with
materials filed via EDGAR under submission types DEF 14A, DEF 14C,
DEFA14A, DEFC14A, DEFM14A, DEFM14C, DEFR14A, DEFR14C, DFAN14A, N-14,
PRE 14A, PRE 14C, PREC14A, PREM14A, PREM14C, PRER14A, and PRER14C.
Form N-14 can be a registration statement and/or proxy statement. We
manually review all Forms N-14 filed during calendar year 2021 with
the Commission and we exclude from our estimates Forms N-14 that are
exclusively registration statements. Because management companies
could comprise funds and proxy materials could be filed with the
Commission at the management company, fund family, a combination of
funds or fund families, or individual fund level, the number of
entities associated with management companies that filed proxy
materials during calendar year 2021 exceeds that number of
management companies that submitted matters for their security
holders' vote. See supra note 76.
\78\ We estimate the number of unique proxy filings by reviewing
the unique accession numbers of proxy materials filed by entities
associated with management companies. Because multiple entities of
management companies, as identified by unique CIK, could appear on
the same proxy form, the number of proxy forms is lower than the
number of unique entities estimated above. See supra note 77.
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Proponents of shareholder proposals also could be affected by the
proposed rule amendments. We estimate that there were approximately 176
proponents--66 individual proponents
[[Page 45062]]
and 110 institutional proponents--that submitted a shareholder proposal
to be included in a company's proxy statement as a lead proponent
during calendar year 2021.\79\ Because many proponents may not submit a
shareholder proposal every year, our estimate based solely on 2021
submissions could be undercounting the number of proponents that could
be affected by the proposed amendments. For example, there were
approximately 586 unique lead proponents--272 individual proponents and
314 institutional proponents--that submitted a shareholder proposal to
be included in a company's proxy statement for annual and special
meetings from 2017 through 2021.\80\ Non-proponent shareholders of
companies also could be indirectly affected by the proposed rule
amendments. According to a recent study based on the 2019 Survey of
Consumer Finances, approximately 68 million households owned publicly
traded stock directly or indirectly (through other investment
instruments).\81\ Moreover, based on an academic study using U.S.
retail shareholder voting data from Broadridge covering nearly all
regular and special meetings during the three years 2015 to 2017, there
were approximately 46 million retail accounts that directly held shares
of U.S. public companies.\82\ Our analysis of institutional investor
data also shows that there were 6,968 unique institutional investors
during 2021.\83\
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\79\ Data is retrieved from the FactSet SharkRepellent Proxy
Proposal dataset, infra note 96. This data allows for the unique
identification of a sole lead proponent of each proposal, but not
the unique identification of all co-proponents across proposals. We
estimate based on information provided in FactSet's ``proposal
notes,'' that approximately 11 percent of proposals in 2021 were
submitted by multiple proponents and among the proposals that were
submitted by multiple proponents, the average (median) number of
proponents was 2.7 (3). As a result, our estimated number of
proponents should be interpreted as a lower bound on the total
number of unique shareholder-proponents.
\80\ See id.
\81\ See Neil Bhutta et al., Changes in U.S. Family Finances
from 2016 to 2019: Evidence from the Survey of Consumer Finances,
106 Fed. Res. Bull. 1, 18-19 (2020), available at <a href="https://www.federalreserve.gov/publications/files/scf20.pdf">https://www.federalreserve.gov/publications/files/scf20.pdf</a> (reporting that
52.6 percent of the 128.6 million families represented owned stock
in publicly-traded companies). Indirect holdings of publicly-traded
stock are those in pooled investment funds, retirement accounts, and
other managed assets. The same study estimates that approximately 19
million households (15 percent) held publicly traded stock directly
in 2019. This is a triennial survey, and the latest data available
as of this time is from the 2019 survey.
\82\ See Alon Brav et al., Retail shareholder participation in
the proxy process: Monitoring, engagement, and voting, 144 J. of
Fin. Econ. 492, 497 (2022). The number of retail accounts is an
approximation of the number of retail investors because each retail
investor can hold multiple accounts and multiple retail investors
can hold a single account. Further, this data only covers a subset
of all retail accounts.
\83\ Data is retrieved from the Thomson/Refinitiv Institutional
(13F) Holdings dataset. Unique institutional investors are composed
of filers with a unique Manager Number that filed a Form 13F at
least for one quarter during calendar year 2021 with the Commission.
The estimated number of institutional investors is a lower bound of
the actual number of institutional investors because only
institutional investment managers that exercise discretion over $100
million or more in Section 13(f) securities on the last trading day
of any month of any calendar year must file Form 13F with the
Commission. See 17 CFR 240.13f-1.
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B. Baseline
The baseline against which the costs, benefits, and the impact on
efficiency, competition, and capital formation of the proposed
amendments are measured consists of the current regulatory framework,
including the current staff no-action positions with respect to Rule
14a-8 and the current practices of companies and shareholders related
to shareholder proposals.
1. Regulatory Framework
State laws, company bylaws and other governing documents, and the
federal securities laws jointly govern the shareholder proposal
process. Rule 14a-8 sets forth procedural and substantive bases upon
which a company may exclude a shareholder proposal from its proxy
statement.\84\ Under Rule 14a-8(i)(10), the substantial implementation
exclusion, companies may exclude a shareholder proposal that ``the
company has already substantially implemented.'' \85\ Under Rule 14a-
8(i)(11), the duplication exclusion, companies may exclude a
shareholder proposal that ``substantially duplicates another proposal
previously submitted to the company by another proponent that will be
included in the company's proxy materials for the same meeting.'' \86\
Under Rule 14a-8(i)(12), the resubmission exclusion, companies may
exclude a shareholder proposal that ``addresses substantially the same
subject matter as a proposal, or proposals, 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 did
not receive: (i) 5 percent of the vote if previously voted on once;
(ii) 15 percent of the vote if previously voted on twice; or (iii) 25
percent of the vote if previously voted on three or more times.\87\
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\84\ See supra note 2.
\85\ See supra note 16.
\86\ See supra note 18.
\87\ See supra note 20. Rule 14a-8(i)(12) was amended in 2020
and these resubmission thresholds only apply to proposals submitted
for meetings beginning in 2022. See 2020 Adopting Release, supra
note 11. Prior to the 2020 amendments, Rule 14a-8(i)(12) required a
proposal to receive at least: (i) 3 percent of the vote if
previously voted on once; (ii) 6 percent of the vote if previously
voted on twice; or (iii) 10 percent of the vote if previously voted
on three or more times. See id.
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When a company intends to exclude a shareholder proposal from its
proxy materials, it must advise the Commission staff of its intention
to do so and will generally submit a no-action request seeking the
staff's concurrence that it would not recommend enforcement action to
the Commission if the company excludes the proposal under one or more
of the bases for exclusion in Rule 14a-8.\88\ Generally, if the staff
grants a no-action request, a company will not include the shareholder
proposal in its proxy statement.\89\ In some instances, a company may
negotiate with a proposal's proponent for the withdrawal of the
proposal during or after the no-action process. In any event, the
staff's no-action position is not legally binding and the matter
ultimately may be resolved by a federal district court.\90\
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\88\ See 17 CFR 240.14a-8(j)(1). A shareholder proposal may be
omitted without submitting a no-action request. In particular, a
company may give notice to the Commission that it will exclude the
proposal without submitting a no-action request, perhaps if it
intends to seek a determination by a court. However, this practice
is rare and virtually all proposal exclusion notifications come in
the form of no-action requests.
\89\ Rarely, a shareholder proposal may be included in a
company's proxy and voted on despite Commission staff having granted
a company's no-action request regarding exclusion of the proposal.
This was the case for four proposals (approximately 0.1 percent)
submitted for annual meetings held from 2017 through 2021. See infra
note 97.
\90\ See generally Thomas Lee Hazen, Treatise on the Law of
Securities Regulation, Sec. 10:27 (7th ed. 2016). See also supra
note 88.
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As new and developing issues arise with respect to companies and
shareholders, shareholder proposals may demonstrate different trends,
and the staff's review under the substantive bases for exclusion of
Rule 14a-8 may adjust in response to such trends. As a result,
companies and shareholders may find it difficult to apply past staff
no-action positions to predict whether a proposal should be included in
a company's proxy statement. For example, several commenters have
expressed concerns around the variation and potential unpredictability
of staff positions regarding the substantial implementation
exclusion.\91\ More broadly, stock price movements
[[Page 45063]]
following the issuance of staff no-action letter responses suggest that
staff responses resolve some uncertainty about whether a proposal will
be included in a company's proxy statement.\92\ Yet, even after the
staff's position is disclosed, uncertainty could remain as to whether a
court would agree with the staff's interpretation of an exclusion under
Rule 14a-8.\93\ Uncertainty regarding the applicability of any
individual basis for exclusion to any particular proposal may
contribute to companies' common practice of asserting multiple bases
for exclusion in their no-action requests under Rule 14a-8.\94\
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\91\ See supra note 35.
\92\ See, e.g., John G. Matsusaka et al., Can Shareholder
Proposals Hurt Shareholders? Evidence from Securities and Exchange
Commission No-Action-Letter Decisions. 64 J. of L. and Econ. 107
(2021) (finding a statistically significant mean cumulative abnormal
return, the difference between the actual return and the expected
return, ranging between 0.11 percent and 0.58 percent following an
issuance of a staff no-action letter concurring in a company's
exclusion of a shareholder proposal under Rule 14a-8). Because
proposal details and a company's request to exclude it are publicly
available on the Commission's website in advance of the staff no-
action response, we would not expect to see any price reactions if
staff no-action responses were fully predictable.
\93\ In some past instances, courts have disagreed with the
staff's interpretation of bases for exclusion under Rule 14a-8. See,
e.g., Trinity Wall Street v. Wal-Mart Stores, Inc., 792 F.3d 323 (3d
Cir. 2015).
\94\ Using data from the 2021, 2020 and 2019 proxy seasons, we
estimate that in approximately half (one third) of no-action
requests asserting the substantial implementation or duplication
(resubmission) basis for exclusion, companies asserted at least one
other basis under Rule 14a-8.
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2. Practices Related to Proposal Submissions
In this section, we describe practices around shareholder proposal
submissions to understand the baseline against which we compare the
effects of the proposed amendments, informing the analysis of the
potential effects of the proposed amendments to Rule 14a-8 in later
sections. We note that the current practices around shareholder
proposals are likely to differ from prior years because the 2020
amendments to Rule 14a-8, which relate to certain procedural
requirements and the resubmission exclusion under Rule 14a-8(i)(12),
became effective for proposals submitted for annual or special meetings
to be held on or after January 1, 2022.\95\ We expect the 2020
amendments to affect the number of proposals submitted and included in
companies' proxy statements in 2022 and the subsequent seasons relative
to prior years. In addition, as the characteristics of shareholder
proposals vary across years, so do the outcomes of the staff's no-
action positions based on the limited subset of proposals that the
staff reviews through the no-action letter process. Further, Commission
and staff interpretations of the procedural and substantive bases for
exclusion under Rule 14a-8 have varied over time, as discussed above in
Sections II.A.1, II.B.1, and II.C.1. As a result, the percentage of
proposals submitted but not included in companies' proxy statements can
vary considerably from one proxy season to the next, limiting our
ability to draw conclusions regarding the current practices related to
shareholder proposal exclusions based on data from an individual proxy
season.
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\95\ The 2020 amendments to Rule 14a-8, which apply to
shareholder proposals submitted for annual and special meetings held
on or after January 1, 2022, included changes to the ownership
requirements to be eligible to submit a proposal, increases in the
resubmission voting thresholds, and certain other procedural
requirement changes. See 2020 Adopting Release, supra note 11. These
amendments also included a transition period that allows
shareholders meeting specified conditions to rely on prior ownership
thresholds to demonstrate eligibility to submit a proposal for an
annual or special meeting to be held prior to January 1, 2023. See
id. at 70263.
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Our data \96\ on shareholder proposals contains proposals that were
either (i) included in companies' proxy statements and voted on by
shareholders; (ii) omitted from companies' proxy statements through the
staff no-action process; or (iii) submitted by the proponents but
withdrawn prior to a vote, where the information about the proposal is
publicly available.\97\ Throughout the analysis, we disaggregate
statistics by company size, proponent types, and proposal topics to
understand how the practices related to shareholder proposals have
varied across these categories.
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\96\ Unless stated otherwise, all data in this section is
retrieved from the FactSet SharkRepellent Proxy Proposal dataset
(accessed on June 4, 2022). Dataset coverage includes over 4,000
U.S.-incorporated public companies and some foreign-incorporated
companies. FactSet extracts and processes proxy data from regulatory
filings and press releases, as well as through web-monitoring and in
rare instances, direct engagement with companies and shareholder-
proponents. We exclude from our analysis shareholder proposals that
are not subject to Rule 14a-8, such as proposals related to proxy
contests and other proposals appearing in dissident shareholders'
proxy material, proposals that were raised from the floor of the
annual or special meetings and were not submitted to appear in the
companies' proxy statements, and proposals submitted for a vote at
meetings of foreign companies that are not subject to federal proxy
rules.
\97\ Our data is comprehensive with respect to shareholder
proposals that appear in companies' proxy statements and those for
which the company submitted a no-action request to Commission staff.
However, proposal submissions counts in our analysis represent a
lower bound on all shareholder proposal submissions because this
data may not include all shareholder proposals that were withdrawn
by proponents. In particular, if a submitted but withdrawn proposal
did not appear in a proxy statement, a press release, or a company's
no-action request, it may not be included in the data we use for the
analysis in this section.
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We find that 392 shareholder proposals were submitted to be
included in companies' proxy statements for meetings held from January
1, 2022 through May 20, 2022, a decrease of approximately 10 percent
relative to proposals submitted for meetings held in the same period in
2021.\98\ Of these 392 submissions, the majority of proposals (80
percent) were included in companies' proxy statements and voted on,
while 11 percent were omitted following a no-action letter issued by
the Commission staff and 9 percent were withdrawn by the proponent
prior to the applicable meeting.\99\ The majority (85 percent) of
proposals were submitted for annual and special meetings of S&P 500
companies. Further, the majority of proposals submitted were related to
governance issues (53 percent), followed by those on social (33
percent) and environmental (13 percent) issues.\100\ We also estimate
that 42 percent of proposals were submitted by individual proponents
while 49 percent were submitted by institutional proponents.\101\
Lastly, the average
[[Page 45064]]
shareholder support for voted proposals during this period was 30
percent of the total number of votes cast and the median shareholder
support was 32 percent, with approximately 10 percent of proposals
receiving majority support.
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\98\ Using data from previous proxy seasons, we estimate that
proposals submitted for meetings held from January 1, 2022 through
May 20, 2022 will account for approximately 60 percent of all
proposals that will be submitted during the 2022 proxy season. We
also note that some effects of the 2020 amendments on the number of
proposals submitted and included in companies' proxy statements may
not yet be realized. See supra note 95.
\99\ See supra note 97, which discusses the potential
underestimation of the volume of withdrawn proposals in our
analysis. In this analysis, we classify a shareholder proposal that
was included in a company's proxy statement but was not voted on in
the annual or special meeting as a withdrawn proposal.
\100\ We grouped proposals into governance, social, and
environmental categories based on FactSet's proposal subcategory
definitions. The governance group is mostly comprised of shareholder
proposals related to shareholder rights and takeover defenses, board
structure and independence, and executive compensation. Social
proposals include, among others, proposals related to political
contributions and lobbying disclosure, labor and health issues,
human rights, and board diversity. Environmental proposals include,
among others, proposals related to sustainability, greenhouse gas
emissions, climate change, community/environmental impact, and
renewable energy.
\101\ Throughout our analysis, ``individual'' proponents are
comprised of retail investors. ``Institutional'' proponents are
comprised of asset managers, unions, pension funds, religious
organizations, nonprofit organizations, and other organizations. The
data is missing lead proponents' identity for 36 (9 percent) of
shareholder proposals over this period which is presumably because
companies are not required to disclose the identity of the proponent
in proxy statements. See 17 CFR 240.14a-8(l).
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Changes to the resubmission voting thresholds decreased the
fraction of proposals voted on in 2021 that were eligible to be
resubmitted for meetings held in 2022. We find that overall, 76 percent
of voted proposals that did not receive majority support were eligible
for a resubmission in 2022, a decrease from 89 percent of proposals
that were eligible in the prior year. Governance and social proposals
were more likely to be eligible for resubmission (77 percent of voted
proposals that did not receive majority support) than environmental
proposals (61 percent of voted proposals that did not receive majority
support). We also find that proposals submitted by individual investors
were more likely to be eligible for resubmission (81 percent) than
those submitted by institutions (74 percent). Of the 392 shareholder
proposals submitted to be included in companies' proxy statements for
meetings held from January 1, 2022 through May 20, 2022, 258 (66
percent) were a first submission, 55 (14 percent) were a second
submission, and the remaining 79 (20 percent) were a third or
subsequent submission.\102\
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\102\ We categorize a proposal as a first submission if it has
not been voted on in the preceding three calendar years. A proposal
is categorized as a second (third or subsequent) submission if it
has been voted on within the preceding three calendar years and it
has been voted on once (two or more times) in the past five calendar
years. Conducting any systematic analysis on proposal resubmissions
across multiple years requires employing a methodology for
determining whether multiple proposals deal with ``substantially the
same subject matter.'' For this analysis, we relied on FactSet's
standardized proposal descriptions and the text of the proposal. In
particular, we classified a proposal as a resubmission if the prior
proposal had the same FactSet-assigned description and the text of
the prior proposal was not substantially dissimilar or if the prior
proposal had a different FactSet-assigned description but the text
of the prior proposal was almost identical. Textual similarity was
computed via a probabilistic string-matching algorithm. Prior
research on shareholder proposals similarly has used shareholder
proposal descriptions to identify proposals as resubmissions. See
Brandon Whitehill, Clearing the Bar, Shareholder Proposals and
Resubmission Thresholds, Council of Institutional Investors (Nov.
2018), available at <a href="https://docs.wixstatic.com/ugd/72d47f_092014c240614a1b9454629039d1c649.pdf">https://docs.wixstatic.com/ugd/72d47f_092014c240614a1b9454629039d1c649.pdf</a>. It is important to note
that our methodology for classifying a proposal as a resubmission of
a previously submitted proposal may not always align with what the
staff or the courts might view as a proposal on ``substantially the
same subject matter.'' While using a different textual comparison
methodology may result in a change in the number and characteristics
of proposals classified as resubmissions in our analysis, we have no
reason to believe that it would yield materially different
qualitative conclusions regarding proposal resubmissions over the
five-year period we consider.
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We also note that from October 15, 2021 through May 10, 2022,\103\
the staff received 87 no-action requests asserting the substantial
implementation exclusion (37 percent of all no-action requests over
this period) and concurred in the exclusion of 11 percent of these
requests on the basis of the substantial implementation exclusion. In
the same period, the staff received 22 no-action requests asserting the
duplication exclusion (9 percent of all no-action requests over this
period) and concurred in the exclusion of 18 percent of these requests
on the basis of the duplication exclusion. Lastly, the staff received
11 no-action requests asserting the resubmission exclusion (5 percent
of all no-action requests over this period) and concurred in the
exclusion of 45 percent of these requests on the basis of the
resubmission exclusion.
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\103\ Using data from previous proxy seasons, we estimate that
no-action requests received up to May 10, 2022 will account for
approximately 90 percent of all no-action requests the staff will
receive for the 2022 proxy season.
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Because the 2022 proxy season is ongoing and, as a result, the
information on current practices related to shareholder proposals is
incomplete, we supplement the analysis above with information about
shareholder proposals submitted for annual and special meetings held
from 2017 through 2021.\104\ We combine statistics on shareholder
proposals submitted over a period of five years because the number and
characteristics of shareholder proposal submissions can vary from one
year to the next. A total of 3,560 proposals were submitted for
inclusion in companies' proxy materials for annual and special meetings
held from 2017 through 2021, an average of approximately 712 proposals
submitted each year (see Table 2 \105\). Of the submissions, the
majority of proposals (66 percent) were included in companies' proxy
statements and voted on, while 20 percent were omitted following a no-
action letter issued by the Commission staff, and 14 percent were
withdrawn by the proponent prior to the applicable meeting.\106\
Shareholder proposal activity in this five-year period was concentrated
among the S&P 500 companies, with each company in the S&P 500 index
receiving on average a single shareholder proposal each year.\107\ The
majority of proposals submitted were related to governance issues (54
percent), followed by those on social (31 percent) and environmental
(11 percent) issues.\108\ Lastly, slightly less than half of proposals
(46 percent) were submitted by individual proponents,\109\ but these
proposals were more likely to be omitted and less likely to be
withdrawn than those submitted by institutional proponents.\110\
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\104\ FactSet data includes seven shareholder proposals
submitted for six annual meetings during the 2017-2021 period that
were cancelled. We exclude from our analysis two proposals from two
cancelled meetings because identical proposals were included in
proxy statements for rescheduled annual meetings to avoid double-
counting the same proposal. We classify the remaining five proposals
as withdrawn because they were not resubmitted for the companies'
subsequent annual meetings.
\105\ The percentages in parentheses in each column of the table
represent percentages of the total number of proposals in the first
row of each column.
\106\ See supra note 97.
\107\ We note that the volume of shareholder proposal submission
is not uniform across companies. Approximately half of S&P 500
companies received no shareholder proposals over the five-year
period, while five percent received more than four proposals on
average per year. We also estimate that approximately two percent of
shareholder proposals were submitted to management companies.
\108\ See supra note 100 for a description of how we grouped
proposals into governance, social, and environmental categories.
There are 130 (four percent) shareholder proposals submitted over
the 2017-2021 period that we classify as neither governance, social,
or environmental. These proposals include proposals related to
returning capital to shareholder (in the form of dividends or share
repurchases), asset divestitures, fund-specific issues, and other
miscellaneous issues. Because our data includes shareholder
proposals that are categorized as neither governance, social, nor
environmental, the percentages in the Proposal Topic rows of Table 2
do not sum up to 100 percent.
\109\ See supra note 101 for a description of how we categorized
proponent types. The data is missing lead proponents' identity for
238 (7 percent) of shareholder proposals over the 2017-2021 period.
Because proponent identity is missing for some proposals in our
data, the percentages in the Proponent Type rows of Table 2 do not
sum up to 100 percent.
\110\ We note that the higher withdrawal likelihood for
proposals submitted by institutional shareholder-proponents could be
due to these shareholders having more direct channels of
communication and engagement and influence with companies than
individual investors. See, e.g., Eugene Soltes et al., What Else do
Shareholders Want? Shareholder Proposals Contested by Firm
Management (Harv. Bus. Sch., Working Paper, July 14, 2017), <a href="https://ssrn.com/abstract=2771114">https://ssrn.com/abstract=2771114</a> (finding that the amount of shareholder
ownership of shares is positively associated with the probability
that a proposal is withdrawn, which is consistent with the idea that
large shareholders ``are more influential and are more likely to
have dialogue with managers that would facilitate implementation of
their proposal prior to a shareholder vote'') (``Soltes et al.
(2017)'').
[[Page 45065]]
Table 2--Shareholder Proposal Submissions by Status, 2017-2021
----------------------------------------------------------------------------------------------------------------
Proposal status Voted on Omitted Withdrawn Total
----------------------------------------------------------------------------------------------------------------
Number.......................................... 2,362 696 502 3,560
Company Size:
S&P 500..................................... 1,762 (75%) 543 (78%) 378 (75%) 2,683 (75%)
All Other................................... 600 (25%) 153 (22%) 124 (25%) 877 (25%)
Proposal Topic:
Governance.................................. 1,440 (61%) 362 (52%) 133 (26%) 1,935 (54%)
Social...................................... 669 (28%) 200 (29%) 240 (48%) 1,109 (31%)
Environmental............................... 208 (9%) 73 (10%) 105 (21%) 386 (11%)
Proponent Type:
Institution................................. 1,058 (45%) 251 (36%) 373 (75%) 1,682 (47%)
Individual.................................. 1,090 (46%) 435 (63%) 115 (23%) 1,640 (46%)
----------------------------------------------------------------------------------------------------------------
Source: FactSet SharkRepellent Proxy Proposals.
The counts of omitted proposals in Table 2 above represent
proposals excluded from companies' proxy statements following a no-
action letter issued by the Commission staff under any of the
procedural or substantive bases in Rule 14a-8. Only a subset of these
omitted proposals were excluded due to the substantial implementation,
duplication, or resubmission exclusions. Based on data in Table 1
above, companies asserted the substantial implementation, duplication,
and resubmission exclusion in approximately 39 percent, five percent,
and one percent, respectively, of the no-action requests during the
2021, 2020, and 2019 proxy seasons. The staff concurred in the
exclusion in 42 percent, 38 percent, and 33 percent of these no-action
requests on the basis of the substantial implementation, duplication,
and resubmission exclusion, respectively. We also note that there was
variation across the 2021, 2020, and 2019 proxy seasons with respect to
companies' likelihood of asserting the substantial implementation,
duplication, and resubmission exclusions and the staff's likelihood of
concurring in those exclusions. For example, relative to the prior two
seasons, during the 2021 proxy season, companies were more likely to
assert the substantial implementation exclusion, but the staff
concurred in a lower number of these requests.\111\
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\111\ During the 2021 proxy season, approximately 41 percent of
no-action requests asserted the substantial implementation
exclusion, as compared to 38 percent and 37 percent in the 2020 and
the 2019 seasons, respectively. The staff concurred in approximately
33 percent of no-action requests that asserted the substantial
implementation exclusion on the basis of the substantial
implementation during the 2021 proxy season, as compared to 50
percent and 45 percent during the 2020 and the 2019 seasons,
respectively.
---------------------------------------------------------------------------
Table 3 summarizes data on voting support across proposal topics
and proponent types. The average (median) shareholder support for voted
proposals over the five-year sample period was 33 (32) percent of the
total number of votes cast, with approximately 15 percent of proposals
receiving majority support. Voting support varied across proposal
topics and proponent types. In particular, governance proposals
received higher shareholder support on average and were more likely to
be supported by the majority of voting shareholders than social and
environmental proposals. In addition, proposals submitted by individual
proponents received higher shareholder support on average and were more
likely to be supported by the majority of voting shareholders than
proposals submitted by institutional proponents.\112\
---------------------------------------------------------------------------
\112\ Differences in the types of proposals submitted by
individual and institutional shareholder-proponents could be driving
the differences in the voting support across these two groups. For
example, we find that individual shareholder-proponents submitted
the majority (70 percent) of voted governance proposals over the
five-year period, while institutional shareholder-proponents
submitted the majority (80 percent) of voted social and
environmental proposals.
Table 3--Shareholder Proposal Voting Support, 2017-2021
----------------------------------------------------------------------------------------------------------------
Votes cast in favor Proposals with
-------------------------------- majority
Average (%) Median (%) support (%)
----------------------------------------------------------------------------------------------------------------
All Proposals.................................................. 33 32 15
Proposal Topic:
Governance................................................. 36 34 18
Social..................................................... 27 27 8
Environmental.............................................. 31 29 14
Proponent Type:
Institution................................................ 31 29 14
Individual................................................. 35 35 16
----------------------------------------------------------------------------------------------------------------
Source: FactSet SharkRepellent Proxy Proposals.
Out of the 3,560 shareholder proposals in our data, 2,091 (59
percent) were a first submission, 578 (16 percent) were a second
submission, and the remaining 891 (25 percent) were a third or
subsequent submission (see Table 4 \113\ below).\114\ While companies
in the S&P 500 index received 75 percent of all shareholder proposals,
they received a higher than proportional percentage of proposals that
were resubmitted, receiving 78 and 91 percent of all
[[Page 45066]]
second and third or subsequent submissions, respectively. Proposals
related to governance issues accounted for 56 percent of initial and
second submissions, but a lower percentage (49 percent) of third or
subsequent submissions. Proposals related to environmental and social
issues accounted for a higher than proportional percentage of third or
subsequent submissions. First and second submissions were close to
evenly split across individual and institutional proponents, but third
or subsequent submissions were more likely to have been submitted by
institutional proponents.
---------------------------------------------------------------------------
\113\ The percentages in parentheses in each column of the table
represent percentages of the total number of proposals in the first
row of each column.
\114\ See supra note 102 for a description of our methodology
regarding resubmitted proposals.
Table 4--Shareholder Proposals by Number of Submissions, 2017-2021
----------------------------------------------------------------------------------------------------------------
Third or
Submission No. First Second subsequent Total
----------------------------------------------------------------------------------------------------------------
Number.......................................... 2,091 578 891 3,560
Company Size:
S&P 500..................................... 1,423 (68%) 453 (78%) 807 (91%) 2,683 (75%)
All Other................................... 668 (32%) 125 (22%) 84 (9%) 877 (25%)
Proposal Topic:
Governance.................................. 1,180 (56%) 322 (56%) 433 (49%) 1,935 (54%)
Social...................................... 606 (29%) 187 (32%) 316 (35%) 1,109 (31%)
Environmental............................... 187 (9%) 59 (10%) 14 (16%) 386 (11%)
Proponent Type:
Institution................................. 987 (47%) 267 (46%) 428 (48%) 1,682 (47%)
Individual.................................. 989 (47%) 270 (47%) 381 (43%) 1,640 (46%)
----------------------------------------------------------------------------------------------------------------
Source: FactSet SharkRepellent Proxy Proposals.
We next analyze whether shareholder-proponents choose to resubmit
proposals that are eligible to be resubmitted for subsequent meetings
(see Table 5 below).\115\ For this analysis, we consider all proposals
that were voted on during 2017-2020,\116\ but received less than
majority support because passing proposals are more likely to be
implemented \117\ by companies, resulting in reduced incentives for
shareholder-proponents to resubmit the proposal.\118\ There were 1,641
of these shareholder proposals.\119\ While the vast majority (90
percent) of voted shareholder proposals during 2017-2020 were eligible
to be resubmitted in the following year, less than half (48 percent) of
eligible proposals were actually resubmitted. We find that shareholder
proposals submitted to companies in the S&P 500 index were more likely
to be resubmitted than those submitted to companies outside of the S&P
500 index. Despite being the most likely to be eligible for
resubmission among the three proposal topics groups, governance
proposals were least likely to be resubmitted. We also find that
shareholders' propensity to resubmit previously voted proposals was
correlated with the voting support the proposal has previously
received. In particular, comparing between shareholder proposals that
received above and below 20 percent voting support and were eligible to
be resubmitted in the following year, proposals with prior support
above 20 percent were 25 percent more likely to be resubmitted than
proposals with prior support below 20 percent. Lastly, because
shareholder-proponents were relatively unlikely to resubmit proposals
that received voting support below the specified vote thresholds in
Rule 14a-8(i)(12), companies attempted to exclude proposals asserting
the resubmission exclusion in only a few instances over this period
(see Table 1 above).\120\
---------------------------------------------------------------------------
\115\ Under Rule 14a-8(i)(12), a future proposal addressing
``substantially the same subject matter'' as a voted proposal is
considered a resubmission if it is submitted for a meeting during
the three years following the most recent vote. However, when
estimating the likelihood that a proposal is resubmitted, we
restrict the analysis above to proposals resubmitted in the
subsequent year to avoid introducing a truncation bias in our
analysis because we do not observe whether more recent proposals are
resubmitted in each of the subsequent three years. As a result,
estimates in Table 5 may underestimate the percentage of eligible
proposals that may eventually be resubmitted.
\116\ We restrict our sample to proposals submitted for 2017-
2020 meetings and analyze whether they were resubmitted in the
following year using data from 2018-2021 meetings for two reasons.
First, because resubmission thresholds were amended in 2020, we have
to apply different thresholds to determine proposal eligibility for
proposals submitted to meetings before and after 2022. See supra
note 87. Second, because the 2022 proxy season is ongoing, we have
limited data on proposals voted on during 2021 and resubmitted for
2022 meetings. We include a separate analysis of eligibility and
resubmission likelihood for 2021 shareholder proposals in Section
III.B.2.b below.
\117\ See 2020 Adopting Release, supra note 11, at 70286 n. 451.
\118\ Using shareholder proposals voted on during 2017-2020
annual and special meetings, we find that only 13 percent of
proposals garnering majority support were resubmitted in the
following year.
\119\ We estimate that 2,869 shareholder proposals were
submitted for annual and special meetings held from 2017 through
2020, 1,897 (66 percent of submitted proposals) were voted on, and
256 (13 percent of voted proposals) received majority support.
\120\ We estimate that of all of the proposals that were voted
on during the 2017-2020 period and resubmitted in the following
year, only 4 percent were excludable because their prior voting
support was below the voting thresholds specified in Rule 14a-
8(i)(12).
Table 5--Proposals Eligible for Resubmission and Resubmitted, 2017-2020
----------------------------------------------------------------------------------------------------------------
% Resubmitted
Number % Eligible if eligible
----------------------------------------------------------------------------------------------------------------
Total.......................................................... 1,641 90 48
Company Size:
S&P 500.................................................... 1,286 90 52
All Other.................................................. 355 92 31
Proposal Topic:
Governance................................................. 936 94 43
Social..................................................... 518 86 58
[[Page 45067]]
Environmental.............................................. 155 88 47
Proponent Type:
Institution................................................ 790 89 48
Individual................................................. 732 92 46
----------------------------------------------------------------------------------------------------------------
Source: FactSet SharkRepellent Proxy Proposals.
C. Potential Costs and Benefits
Below we discuss the potential economic effects of the proposed
amendments. Section III.C.1 discusses economic considerations relevant
to shareholder proposals generally, while the remaining three sections
discuss the economic effects related to the proposed amendments to Rule
14a-8(i)(10), Rule 14a-8(i)(11), and Rule 14a-8(i)(12), respectively.
1. General Economic Considerations Relevant to Shareholder Proposals
In this section, we describe the general economic considerations
related to the shareholder proposal process. The value of including a
shareholder proposal in a company's proxy statement for shareholder
consideration and vote at a meeting depends fundamentally on the
tradeoff between the potential for improving a company's future
performance and the costs associated with the submission and
consideration of a shareholder proposal borne by the company and its
non-proponent shareholders.\121\ A shareholder proposal could improve a
company's performance because it could motivate a value-enhancing
corporate policy change,\122\ limit insiders' entrenchment,\123\ and
provide management with information about the views of
shareholders.\124\ The value of shareholder proposals is limited by the
extent to which shareholders participate in the voting process and the
extent to which management implements proposals with broad shareholder
support. In this regard, we note that shareholder proposals typically
are non-binding on the company, even if they are approved by a
shareholder vote. Our economic analysis does not speak to whether any
particular shareholder proposal is value-enhancing, whether the
proposed amendments would result in the inclusion of value-enhancing
proposals, or whether the proposed amendments would have a
disproportionate effect on proposals that are more or less value-
enhancing.
---------------------------------------------------------------------------
\121\ There is an extensive academic literature on the value of
shareholder activism, including activism through shareholder
proposals. See, e.g., Matthew R. Denes et al., Thirty Years of
Shareholder Activism: A Survey of Empirical Research, 44 J. Corp.
Fin. 405 (2017); for a review. See also 2019 Proposing Release,
supra note 3, and 2020 Adopting Release, supra note 11, for an
extensive discussion of the general economic considerations related
to shareholder proposals and a description of academic literature
related to the value of shareholder proposals.
\122\ See, e.g., Vicente Cu[ntilde]at et al., The Vote Is Cast:
The Effect of Corporate Governance on Shareholder Value, 67 J. Fin.
1943 (2012); Caroline Flammer, Does Corporate Social Responsibility
Lead to Superior Financial Performance? A Regression Discontinuity
Approach, 61 Mgmt. Sci. 2549 (2015). Yet, we note that there might
be cross-sectional variation in the valuation effects of shareholder
proposals and several recent academic papers have identified
settings in which shareholder proposals have the potential to reduce
value. For example, one paper found that passing shareholder
proposals submitted by the most active individual sponsors result in
negative abnormal returns and trigger sales by mutual funds that
voted against these proposals. See Nickolay Gantchev & Mariassunta
Giannetti, The costs and benefits of shareholder democracy: Gadflies
and low-cost activism, 34 Rev. Fin. Stud. 5629 (2021). Another paper
found a negative market reaction to shareholder proposals submitted
by labor unions in years that a new labor contract must be
negotiated. See John G. Matsusaka et al., Opportunistic Proposals by
Union Shareholders, 32 Rev. Fin. Stud. 3215 (2019).
\123\ See, e.g., Chen Lin et al., Managerial entrenchment and
information production, 55 J. Fin. & Quantitative Analysis 2500
(2020); Laurent Bach & Daniel Metzger, How Do Shareholder Proposals
Create Value? (Working Paper, Mar. 1, 2017), available at <a href="https://ssrn.com/abstract=2247084">https://ssrn.com/abstract=2247084</a>.
\124\ See, e.g., J. Robert Brown, Jr., Corporate Governance,
Shareholder Proposals, and Engagement Between Managers and Owners
(Univ. of Denv. Sturm Coll. of L., Working Paper No. 17-15, 2017),
available at <a href="https://ssrn.com/abstract=2957998">https://ssrn.com/abstract=2957998</a>.
---------------------------------------------------------------------------
There are significant methodological and empirical challenges to
measuring the value of including a shareholder proposal in a company's
proxy statement and thus any potential benefits that may result from
the inclusion of additional shareholder proposals in the proxy
statement. For example, it is often difficult to isolate the effect of
a singular shareholder proposal on a company's stock price from the
effects of other items that are contemporaneously considered and voted
on at a shareholder meeting or from the effects of direct engagement
between shareholders and management. In addition, stock price changes
following a proposal submission or vote may capture various effects
such as signaling effects (e.g., the submission of a proposal may
signal that the targeted company is underperforming or that the initial
negotiations between the proponent and company failed), market
expectations regarding the voting outcome, and market expectations
regarding the probability of implementation of a proposal.
Nevertheless, academic literature has attempted to measure the value of
shareholder proposals and how this value varies with proposal topic and
proponent type by studying the stock price reaction around
announcements associated with shareholder proposals.\125\
---------------------------------------------------------------------------
\125\ In the 2019 Proposing Release, the Commission summarized
the findings of empirical literature that examines whether proposals
are economically beneficial by studying short-run abnormal stock
returns around key events related to shareholder proposals. See 2019
Proposing Release, supra note 3, at 66495. The main events related
to shareholder proposals studies in academic literature comprise the
initial press announcement of submission of a shareholder proposal,
the proxy mailing date, and the date of the shareholder meeting. See
2020 Adopting Release, supra note 11, at 70285, for a description of
limitations associated with using short-term market reactions to
measure the benefits of shareholder proposals.
---------------------------------------------------------------------------
At the same time, companies may bear both direct costs and
opportunity costs associated with the submission of a shareholder
proposal, and these costs may be passed on to shareholders.\126\
[[Page 45068]]
Several commenters to the 2020 amendments noted that no-action
correspondence represents the most substantial cost companies incur
related to shareholder proposals.\127\ Shareholders other than the
shareholder-proponent may also bear costs associated with their own
consideration of a shareholder proposal.\128\ Finally, shareholder-
proponents bear costs associated with preparing a shareholder proposal,
submitting a proposal to be included in a company's proxy statement
and, as applicable, engaging with management following proposal
submission.\129\
---------------------------------------------------------------------------
\126\ In particular, to the extent applicable, companies incur
costs to: (i) review the proposal and address issues raised in the
proposal; (ii) engage in discussions with the shareholder-
proponent(s); (iii) print and distribute proxy materials, and
tabulate votes on the proposal; (iv) communicate with proxy advisory
firms and shareholders (e.g., proxy solicitation costs); (v) if they
intend to exclude the proposal, file a notice with the Commission;
and (vi) prepare a rebuttal to the submission to the Commission. See
2020 Adopting Release, supra note 11, at 70272-70275, for a detailed
discussion of the costs to companies. We recognize that there is
variation in the costs associated with responding to shareholder
proposals and that some costs that companies incur are mandatory,
while others are discretionary. As a result, the 2020 Adopting
Release used a range of estimates, $20,000-$150,000, as a measure of
the direct costs to companies associated with addressing a singular
shareholder proposal. See 2020 Adopting Release, supra note 11, at
70274. We also note that the cost of addressing a resubmission may
be lower than the cost of addressing a first-time proposal. See 2019
Proposing Release, supra note 3, at 66496. Lastly, the costs
associated with the submission of a shareholder proposal may include
opportunity costs and thus may be larger than the estimates used in
the 2020 Adopting Release. See 2020 Adopting Release, supra note 11,
at 70266 n.295.
\127\ See 2020 Adopting Release, supra note 11, at 70272-70273
n. 332, 339.
\128\ See 2020 Adopting Release, supra note 11, at 70276-70277,
for a detailed discussion of the costs to non-proponent
shareholders. Although these costs may be difficult to quantify,
many institutional investors retain proxy advisory firms to perform
a variety of services to reduce the burdens associated with proxy
voting decisions, including voting decisions on shareholder
proposals. We have limited data on fees charged by proxy voting
advisory firms but note that one such proxy advisory firm, ISS,
reports a fee ranging from $5,000 to above $1,000,000 per client on
Form ADV. However, we note that this fee covers a broad range of
services provided by ISS (e.g., voting services, governance
research, ratings provision, etc.) and includes proxy voting advice
services related to board elections and management proposals. See
2020 Adopting Release, supra note 11, at 70277 n.369, for a detailed
discussion of the costs to non-proponent shareholders. In addition
to costs associated with obtaining proxy voting advice for
institutional investors, retail shareholders may incur direct costs
and both retail and institutional non-proponent shareholders may
incur opportunity costs related to shareholder proposals. However,
we do not have data that would allow us to reliably estimate these
costs.
\129\ Under Rule 14a-8(b)(iii), shareholder-proponents are
required to submit a written statement stating their availability to
discuss their proposal with the company. As a result, in addition to
the costs associated with proposal preparation, shareholder-
proponents may incur some costs associated with: (i) disclosing the
times the proponents will be available to communicate with
management as well as preparing to communicate and communicating
with management and (ii) the opportunity costs associated with
setting aside and spending time to communicate with management
instead of engaging in other activities. We do not have data that
would allow us to reliably estimate these costs.
---------------------------------------------------------------------------
2. Rule 14a-8(i)(10)--Substantial Implementation
As discussed in Section II.A.2, we are proposing to amend Rule 14a-
8(i)(10) to state that a proposal may be excluded as substantially
implemented ``[i]f the company has already implemented the essential
elements of the proposal.'' The proposed amendment's modification to
the definition of ``substantial implementation'' to focus on the
``essential elements'' of a proposal would set forth a more objective
and more specific standard for excluding proposals than the existing
rule language. By providing the staff with a more objective and
specific framework for analyzing the exclusion when reviewing and
responding to no-action requests, we believe that the amended standard
should result in no-action positions that are more predictable and
consistent than under the current rule. Increased transparency and
reduced uncertainty around the application of Rule 14a-8(i)(10) would
benefit companies by facilitating more informed decision-making when
considering whether to exclude a proposal.\130\ In particular,
companies may be better able to weigh the costs and benefits of seeking
a no-action letter, especially in instances in which the staff is
unlikely to agree with the application of the exclusion because a
company has implemented some but not all of the essential elements of
an earlier proposal. As we noted above, costs to companies associated
with no-action requests can be significant.\131\ In turn, to the extent
that companies seek no-action letters less frequently as a result of
the proposed amendment, because they conclude that seeking such letters
would not be successful, they may incur lower costs related to
shareholder proposal submissions. The proposed amendment could have a
greater effect on larger companies because a larger company is more
likely to receive a shareholder proposal and is also more likely on
average to submit a no-action request than a smaller company. On the
other hand, costs related to shareholder proposals may be a relatively
smaller percentage of the total cost of operations for larger companies
than for smaller companies.
---------------------------------------------------------------------------
\130\ We recognize that some uncertainty regarding the
application of the substantial implementation exclusion may remain
because the determination of whether elements of a proposal are
essential may vary across proposals.
\131\ Table 2 above shows that during the five-year period,
2017-2021, companies in the S&P 500 index received 75 percent of
submitted shareholder proposals. See also Soltes et al. (2017),
supra note 110 (finding that companies that submit no-action
requests proposals tend to be larger and receive more proposals on
average).
---------------------------------------------------------------------------
The reduced uncertainty around proposal excludability could also
benefit shareholder-proponents by facilitating more informed decision-
making when considering whether to submit a proposal. In particular,
the ability to better predict the staff's no-action positions may allow
shareholder-proponents to avoid submitting proposals when the essential
elements have already been implemented by a company and that would be
unlikely to be permitted to go to a shareholder vote. In addition, the
increased transparency and reduced uncertainty of the application of
the proposed amendment coupled with companies potentially seeking no-
action letters less frequently may lead shareholder-proponents to
benefit from having to spend less time and fewer resources to reply to
companies' no-action requests.
We expect that the proposed amendment will result in more
consistent determinations under Rule 14a-8(i)(10) across proposals and
over time. Current exclusion determinations can vary, which may
contribute to the variability in the number of shareholder proposals
included in companies' proxy statements.\132\ Consequently, we expect
the increased consistency of exclusion determinations resulting from
the proposed amendment to reduce the variability in the number of
shareholder proposals included in companies' proxy statements.
---------------------------------------------------------------------------
\132\ See supra Section III.B.2.
---------------------------------------------------------------------------
Whether the proposed amendment has an effect on the number of
proposals submitted and included in companies' proxy statements in any
given proxy season going forward depends on a number of factors,
including whether and how companies and shareholder-proponents change
their behavior as a result of the proposed amendment. While we do not
have data that would allow us to assess the extent to which companies
and shareholder-proponents may change their behavior in response to the
proposed amendment to Rule 14a-8(i)(10), we qualitatively describe
below how potential changes in behavior may impact the number of
proposals submitted and included in companies' proxy statements. In
particular, companies could modify their behavior around proposal
implementation or shareholder-proponents could modify their behavior
around proposal submission in response to this proposed amendment. For
example, companies might take into account that implementing the
essential elements of a prior proposal could preclude a subsequent
proposal with the same essential elements from being considered in a
future meeting, while implementation of some of the elements of a
proposal but not all of the essential elements could result in
recurring future votes on a proposal that contains essential elements
that were not implemented. However, we recognize that companies (and
shareholder-proponents) may continue to encounter some uncertainty when
seeking to determine whether the essential
[[Page 45069]]
elements of a prior proposal have been implemented. To the extent that
companies become more likely to implement all of the essential elements
of a proposal, the number of proposals included in companies' proxy
materials could decrease.
Conversely, knowing that a proposal containing essential elements
that the company had not already implemented is unlikely to be
excludable under the amended standard, shareholder-proponents could
draft a proposal to focus on these essential elements and in turn,
increase the likelihood of this proposal appearing in a company's proxy
statement. Such changes in shareholder-proponent behavior could result
in an increase shareholder proposals submitted and included in
companies' proxy statements.
Because we cannot reliably predict whether and the extent to which
companies and shareholder-proponents may change their behavior in
response to the proposed amendment to Rule 14a-8(i)(10), the effect of
the proposed amendment on the number of shareholder proposals and the
distribution of shareholder proposal types is unclear. Lastly, for
reasons explained above in Section III.C.1, we cannot reliably predict
whether any potential change in the number of shareholder proposals
submitted or included in companies proxy statements will result in net
benefits or costs to companies and shareholders.
3. Rule 14a-8(i)(11)--Duplication
As discussed in Section II.B.2, we are proposing to amend Rule 14a-
8(i)(11) to indicate that a proposal ``substantially duplicates''
another proposal that will be included in the company's proxy materials
for the same meeting if it ``addresses the same subject matter and
seeks the same objective by the same means.'' We expect that the
proposed amendment would provide the staff a more objective and
specific framework for applying the duplication exclusion when
reviewing and responding to no-action requests than the existing rule
language, thereby reducing uncertainties with respect to the
application of the exclusion and promoting more predictable and
consistent determinations.\133\
---------------------------------------------------------------------------
\133\ We recognize that some uncertainty regarding the
application of the duplication exclusion may remain because the
determination of whether the objectives or means of two or more
proposals are the same may vary across proposal characteristics.
---------------------------------------------------------------------------
We expect the benefits to companies and their non-proponent
shareholders would be qualitatively similar to those described in
Section III.C.2 above with respect to Rule 14a-8(i)(10) because greater
predictability and certainty about the application of Rule 14a-8(i)(11)
could facilitate more informed decision-making around the submission of
a no-action request. For example, companies may be better able to weigh
the costs and benefits of seeking a no-action letter, especially in
instances where the staff is unlikely to agree with the application of
the exclusion because a proposal that the company is seeking to exclude
has a different subject matter or different objectives or means as
those in another proposal that is to be included in the proxy
statement, and is thus, not ``substantially duplicative.'' We note,
however, that quantitatively these benefits could be less pronounced
than those described in Section III.B.2 with respect to Rule 14a-
8(i)(10) since companies have been less likely to assert Rule 14a-
8(i)(11) as the basis for exclusion than Rule 14a-8(i)(10).\134\ Also,
for the same reasons as those described in Section III.B.2, this
proposed amendment may have a differential effect on larger and smaller
companies. The extent to which greater predictability and certainty
around determinations under the proposed amendment to Rule 14a-8(i)(11)
could benefit shareholder-proponents in drafting proposals would be
limited because proponents are unlikely to observe the content of other
proposals that are concurrently submitted for inclusion in the same
proxy statement during their own proposal preparation.\135\
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\134\ During the 2021, 2020, and 2019 proxy seasons, the staff
received 12, 9, and 16 no-action requests, respectively, asserting
the duplication exclusion. Companies asserted the duplication
exclusion in approximately five percent of no-action requests
submitted over these three proxy seasons. As of May 10, 2022, the
staff has received 22 no-action requests asserting the duplication
exclusion, accounting for approximately nine percent of no-action
requests submitted up until that point during the 2022 proxy season.
\135\ We expect that the likelihood that proponents observe
concurrently submitted proposals has been further reduced with the
2020 amendments to Rule 14a-8(c), which limited the ability of a
single representative to submit multiple shareholder proposals on
behalf of multiple shareholders to the same meeting. See 2020
Adopting Release, supra note 11.
---------------------------------------------------------------------------
Similarly to the discussion of the proposed Rule 14a-8(i)(10)
amendments above, we expect the proposed amendment to Rule 14a-8(i)(11)
to reduce the variability in the number of shareholder proposals
included in companies' proxy statements from one proxy season to the
next, but we cannot reliably predict how the number of shareholder
proposals submitted or included in companies' proxy statements might
change. In particular the number of shareholder proposals could change
to the extent that shareholder-proponents could modify their behavior
in response to this proposed amendment. For example, a shareholder-
proponent potentially could draft a proposal to be more particular
regarding its objectives or means so as to minimize the likelihood of
those objectives or means being deemed the same objectives or means as
those in another proposal that potentially could be submitted on the
same subject matter for the same shareholder meeting. However, the
possibility of such changes in proponent behavior likely would be
mitigated by proponents' consideration of the micromanagement exclusion
under Rule 14a-8(i)(7), among other considerations.\136\ While this
potential change in proponent behavior could result in more shareholder
proposals included in companies' proxy statements, we do not have data
that would allow us to assess the likelihood of proponent behavior
changes or quantify the potential increase in the number of proposals.
---------------------------------------------------------------------------
\136\ See supra note 14.
---------------------------------------------------------------------------
If the number of shareholder proposals included in companies' proxy
statements increases, the likelihood of multiple shareholder proposals
dealing with the same or similar subject matter but having different
objectives and/or means appearing in the same proxy statement could
increase. This change could lead to shareholder confusion or the need
for shareholders to spend additional time and resources to review and
compare the similar, but not duplicative, proposals.\137\ In addition,
companies may face implementation challenges and costs if shareholders
approve multiple similar, but not duplicative, proposals. However, if
shareholder consideration of similar, but not duplicative, proposals
leads to greater support for and improved likelihood of implementation
of a proposal that aligns more closely with the objectives of
shareholders, then shareholders could benefit.
---------------------------------------------------------------------------
\137\ Institutional investors may choose to rely on proxy
advisory firms to analyze similar, but not duplicative, proposals
and determine whether they should vote on these proposals in a
similar way. See supra note 128.
---------------------------------------------------------------------------
4. Rule 14a-8(i)(12)--Resubmissions
As discussed in Section II.C.2, we are proposing to amend Rule 14a-
8(i)(12) to revise the standard for what constitutes a resubmission
from a proposal that ``addresses substantially the same subject
matter'' as a prior proposal to a proposal that ``substantially
duplicates'' a prior proposal, defined the same way that phrase is
defined in the proposed
[[Page 45070]]
amendment to Rule 14a-8(i)(11).\138\ As with the proposed amendments to
Rule 14a-8(i)(10) and Rule 14a-8(i)(11) described above, we expect that
the proposed amendment would provide the staff with a more objective
and specific framework for applying the resubmission exclusion when
reviewing and responding to no-action requests than the existing rule
language, thereby reducing uncertainties with respect to the
application of the exclusion and promoting more predictable and
consistent determinations.
---------------------------------------------------------------------------
\138\ See supra Section III.C.3.
---------------------------------------------------------------------------
We expect the benefits to companies and their non-proponent
shareholders to be qualitatively similar to those described in Section
III.C.2 and Section III.C.3 above because greater predictability and
certainty about the application of Rule 14a-8(i)(12) could facilitate
more informed decision-making around the submission of a no-action
request. The proposed amendments could also benefit shareholder-
proponents by facilitating more informed decision-making when preparing
a shareholder proposal for submission. In particular, the ability to
better predict the staff's no-action positions may allow shareholder-
proponents to avoid spending time and resources on submitting a
proposal that substantially duplicates a prior proposal that has failed
to meet the rule's specified vote thresholds and that likely would be
excluded from a company's proxy statement. However, we do not expect
these benefits to companies and their shareholder-proponents to be
large because very few proposals are currently excluded from companies'
proxy statements on the basis of Rule 14a-8(i)(12).\139\
---------------------------------------------------------------------------
\139\ During the 2021, 2020, and 2019 proxy seasons, the staff
received 2, 3, and 1 no-action requests, respectively, asserting the
resubmission exclusion. Companies asserted the resubmission
exclusion in less than one percent of no-action requests submitted
over these three proxy seasons. As of May 10, 2022, the staff has
received 11 no-action requests asserting the resubmission exclusion,
accounting for approximately five percent of no-action requests
submitted up until that point during the 2022 proxy season.
---------------------------------------------------------------------------
Similarly to the discussion above of the proposed amendments to
Rule 14a-8(i)(10) and Rule 14a-8(i)(11), we cannot reliably predict the
extent to which shareholder-proponents might modify their behavior in
response to this proposed amendment, and we cannot quantify how the
number of proposals submitted and included in companies' proxy
statements could change as a result. However, we note that potential
changes in shareholder-proponents' behavior could increase the number
of proposals submitted and included in companies' proxy statements.
Currently, shareholder-proponents may refrain from submitting a
shareholder proposal dealing with substantially the same subject matter
as an earlier proposal if the earlier proposal failed to garner
sufficient levels of support to satisfy the resubmission thresholds
because they may recognize that such a proposal is likely to be
excluded from the company's proxy statement under Rule 14a-
8(i)(12).\140\ This appears to have led to a relatively low number of
no-action requests seeking to rely on the resubmission exclusion.\141\
Under the proposed amendment, a proponent could change the objective or
the means of a previously submitted proposal about the same subject
matter so as to allow for it to be considered an initial submission
instead of a resubmission. Shareholder-proponents might be more likely
to do this in instances where circumstances at the company have changed
from one year to the next and, due to those circumstances, where a
similar but not duplicative proposal may garner significantly more
votes than a prior proposal. At the same time, by reducing the
potential for the ``umbrella'' effect of the resubmission exclusion,
the proposed amendment could result in the inclusion of multiple
proposals submitted by differing proponents offering different
objectives or means to address the same issue.\142\
---------------------------------------------------------------------------
\140\ See supra note 120.
\141\ See supra note 139.
\142\ See supra note 54 and the accompanying text.
---------------------------------------------------------------------------
The proposed amendment to the resubmission exclusion could result
in benefits to shareholder-proponents to the extent that that there is
an increase in the number of proposals included in companies' proxy
statements and shareholder-proponents submit only those proposals that
are net beneficial to them. The increase in the number of submitted
proposals could also result in benefits to companies and their non-
proponent shareholders if these additional proposals lead to value-
enhancing changes. To the extent that the proposed amendment would
facilitate proponents experimenting and making adjustments to
previously submitted proposals to build broader support, the amendment
could also lead to proposals that align more closely with the
objectives of shareholders to be put to a shareholder vote. Voting
outcome data for these additional proposals could further inform
management about shareholder views, allowing it to consider actions
that are of greater importance across larger swaths of the shareholder
base and potentially leading to improved efficiency in the management-
shareholder engagement process. On the other hand, the potential
increase in the number of submitted shareholder proposals could
translate to increased costs to companies associated with the
consideration of proposals, engagement with shareholder-proponents, or
proposal inclusion in the proxy statement and increased costs to non-
proponent shareholders associated with their own consideration of
shareholder proposals.\143\ Further, the potential increase in the
number of submitted proposals could result in additional costs to
companies and their non-proponent shareholders if these additional
proposals lead to changes that reduce companies' future performance.
---------------------------------------------------------------------------
\143\ See supra note 126.
---------------------------------------------------------------------------
Lastly, because voting outcomes and shareholder-proponents'
propensity to resubmit previously voted-on proposals varies across
proposal topics and proponent types, this amendment may impact certain
proposal categories and certain proponent types more than others. In
particular, subject to specific facts and circumstances, the proposed
amendment may have a greater effect on environmental proposals and
proposals submitted by institutional proponents because these types of
proposals are less likely to be eligible for resubmission following the
2020 amendments to the voting thresholds in Rule 14a-8(i)(12) than
governance and social proposals and proposals submitted by individual
proponents, respectively.\144\
---------------------------------------------------------------------------
\144\ See supra notes 100 and 101 for a description of how we
grouped proposals into governance, social, and environmental
categories, and proponent types.
---------------------------------------------------------------------------
D. Anticipated Effects on Efficiency, Competition, and Capital
Formation
By making exclusion determinations more certain and predictable and
enabling companies and shareholder-proponents to make more informed
decisions around the submission of a no-action request and submission
of a proposal, respectively, we expect the proposed amendments to
improve efficiency. Specifically, the proposed amendments could allow
companies to avoid inefficiently using time and resources to attempt to
exclude a shareholder proposal from proxy statements in instances in
which the proposed amendments would not permit exclusion. Similarly,
the proposed amendments could allow shareholder-proponents to avoid
inefficiently using time and resources to prepare a proposal submission
that
[[Page 45071]]
likely will be excluded from a company's proxy statement.
The proposed amendments could lead to additional effects on
efficiency and capital formation as a result of the potential changes
in companies' and shareholder-proponents' behavior leading to a change
in the number and characteristics of proposals included in companies'
proxy statements. For example, the proposed amendments could further
improve efficiency and increase capital formation if additional
included shareholder proposals result in value-enhancing policy changes
or provide additional information to management about shareholder
views.\145\ On the other hand, companies may bear costs associated with
considering and addressing additional proposals, leading to a potential
reduction in efficiency and capital formation.\146\
---------------------------------------------------------------------------
\145\ See supra notes 122-124 and the accompanying text.
\146\ See supra note 126.
---------------------------------------------------------------------------
Because the potential costs and benefits of the proposed amendments
may be greater for certain companies, the proposed amendments could
result in competitive effects. For example, the proposed amendment
could have a greater effect on U.S. public companies relative to those
that are not subject to the federal proxy rules, namely foreign
companies and U.S. private companies. Further, the proposed amendments
could have a greater effect on larger public companies relative to
smaller public companies because larger public companies are more
likely to receive shareholder proposals. These competition effects
could, for instance, arise through the capital formation channel
described above. However, because the proposed amendments could result
in greater benefits but also greater costs to certain companies, we
cannot reliably predict whether and how the competitive position of
these companies may change as a result of the proposed amendments.
E. Reasonable Alternatives
1. Rule 14a-8(i)(10)--Substantial Implementation
We considered a number of alternative approaches to amending Rule
14a-8(i)(10). First, we considered proposing a change to the rule that
would require a proposal to be fully implemented in exactly the way a
proponent describes it in the proposal for it to be excludable from a
company's proxy statement. The benefit of this approach is that it
would be a standard that is more predictable in application because it
would not require a determination of which elements of the proposal are
essential. We expect that this alternative could lead to greater
consistency and predictability of determinations under Rule 14a-
8(i)(10). Further, because a full implementation standard would be more
straightforward for companies and proponents to understand and apply,
it may be more likely to result in a lower number of no-action requests
than under the proposed amendments. However, this alternative could
result in more shareholder proposals appearing in a company's proxy
statement relative to the proposed amendment even if the differences
between a shareholder-proponent's preferred policies and the policies
that the company has already implemented are only minimal. The full
implementation alternative would be likely to result in relatively
greater costs associated with companies' addressing and non-proponent
shareholders' consideration of these additional proposals.
We also considered various other formulations of what would be
considered ``substantially implemented,'' such as if the company has
already:
(1) Effected substantially all of what the proposal requests;
(2) Addressed substantially all of the underlying concerns of the
proposal; or
(3) Implemented the essential objectives of the proposal.
All three of these alternatives may require a more fact-intensive
analysis (e.g., delineating ``what the proposal requests'' or its
``underlying concerns'' or ``essential objectives'' and determining
whether the company has ``substantially'' addressed them) compared to
the proposed amendment. Further, in the second and third alternatives,
the analysis may not be sufficiently focused on the specific elements
of the proposal, which may not serve the purpose of the exclusion to
avoid the consideration of proposals on which a company has already
``favorably acted.'' We expect that all three alternative standards
would be difficult to apply in a consistent and predictable manner. As
a result, companies and shareholders would potentially experience
greater uncertainty with respect to the application of the substantial
implementation exclusion under such alternatives relative to the
proposed amendment.
2. Rule 14a-8(i)(11)--Duplication
As an additional change to the proposed amendment to Rule 14a-
8(i)(11), we considered changing the existing first-in-time standard to
instead provide for the exclusion of the duplicative proposal that has
fewer co-proponents. As with the first-in-time standard, this
alternative would provide an objective criterion for exclusion of a
proposal. By focusing on the number of co-proponents, this alternative
would place an emphasis on the potential breadth of shareholder support
a proposal might receive. However, we find little evidence in the data
that the number of co-proponents is positively associated with the
level of support for a proposal.\147\ Further, this alternative
approach would not provide a methodology for determining which proposal
should be excluded in cases in which duplicative proposals have the
same number of co-filers. We also considered changing the existing
first-in-time standard to instead provide for the exclusion of the
duplicative proposal that has fewer number of shares held by a
proponent or co-proponents. However, a proponent's ownership or the
aggregate ownership of co-proponents may not be correlated with the
eventual level of shareholder support a proposal may receive.\148\
Lastly, we expect that the potential benefits associated with changing
the first-in-time standard to one of the alternatives described above,
beyond those of the proposed amendment, would be minimal because the
proposed amendment alone may reduce the incentives for proponents to
submit a proposal quickly or reduce the incentives for proponents to
attempt to preempt other proposals those proponents do not agree with
and in turn, address the concerns associated with the first-in-time
standard of the duplication exclusion.
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\147\ Using shareholder proposals that were voted on in meetings
held in 2017-2021 and controlling for proposal topic, we find a
positive but not statistically significant correlation between the
numbers of co-proponents and the voting support a proposal received.
\148\ See 2019 Proposing Release, supra note 3, at 66488 n. 188.
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3. Rule 14a-8(i)(12)--Resubmissions
As an alternative to the proposed amendment to Rule 14a-8(i)(12),
we considered returning to the pre-1983 standard defining a
resubmission as ``substantially the same proposal'' and interpreting
that to mean a proposal that is virtually identical (in form as well as
substance) to a proposal previously included in the company's proxy
materials. This alternative may be easier to apply relative to the
proposed amendments because it would not involve a determination about
the objectives and means of a proposal. We would expect that such an
alternative
[[Page 45072]]
could to lead to a greater consistency and predictability of
determinations under Rule 14a-8(i)(12) and potentially result in fewer
no-action requests. However, as discussed in Section II.C, reverting to
the pre-1983 standard would re-introduce the concern previously
acknowledged by the Commission that a shareholder-proponent could make
some minor changes to a previously submitted proposal so as to not have
the proposal excluded. In turn, this alternative could result in the
inclusion of proposals in companies' proxy statements that have little
potential for obtaining broader or majority support in the near term,
which could result in greater costs for companies and their
shareholders.
F. Request for Comment
We request comment on all aspects of our economic analysis,
including the potential costs and benefits of the proposed amendments
and alternatives thereto, and whether the amendments, if adopted, would
promote efficiency, competition, and capital formation. Commenters are
requested to provide empirical data, estimation methodologies, and
other factual support for their views, in particular, on costs and
benefits estimates. In addition, we request comments on our selection
of data sources, empirical methodology, and the assumptions we have
made throughout the analysis. In addition, we request comment on the
following:
1. Are there any entities that would be affected by the proposed
amendments that are not discussed in the economic analysis? In which
ways are those entities affected by the proposed amendments? Please
provide an estimate of the number of any additional affected entities.
2. Are there any costs or benefits of the proposed amendments that
are not discussed in the economic analysis? If so, please describe the
types of costs and benefits and provide a dollar estimate of these
costs and benefits.
3. We have provided a qualitative analysis of the costs and
benefits of the proposed amendments. What would be the quantitative
impact of the proposed amendments? Please provide data about or dollar
estimates of the costs and benefits as they relate to proponents,
companies, and non-proponent shareholders.
4. What would be the effects of the proposed amendments, including
any effects on efficiency, competition, and capital formation? Would
the proposed amendments be beneficial or detrimental to proponents,
companies, and the companies' non-proponent shareholders, and why in
each case?
5. Could the proposed amendments to Rule 14a-8(i)(10), Rule 14a-
8(i)(11), or Rule 14a-8(i)(12) allow companies to make more informed
decisions around inclusion or exclusion of proposals and the submission
of no-action requests? Would companies submit fewer no-action requests
to the Commission's staff as a result of the proposed amendments? Could
there be a cost savings to companies associated with companies no
longer attempting to exclude proposals that are unlikely to be
excludable under Rule 14a-8(i)(10), Rule 14a-8(i)(11), or Rule 14a-
8(i)(12)?
6. Could the proposed amendments to Rule 14a-8(i)(10), Rule 14a-
8(i)(11), or Rule 14a-8(i)(12) allow shareholder-proponents to make
more informed decisions around submitting proposals? Would shareholder-
proponents submit different proposals in terms of subject matter and/or
quantity as a result? Could the proposed amendments benefit
shareholder-proponents by allowing them to avoid submitting proposals
that are likely to be excludable under Rule 14a-8(i)(10), Rule 14a-
8(i)(11), or Rule 14a-8(i)(12)?
7. How might companies and shareholder-proponents change their
behavior in response to the proposed amendments to Rule 14a-8(i)(10),
Rule 14a-8(i)(11), or Rule 14a-8(i)(12)? How might these changes in
behavior affect the number and characteristics of proposals submitted
and included in companies' proxy statements? How might these changes in
behavior impact the distribution of proposal topics submitted and
included in companies' proxy statements? Would these changes result in
benefits or costs to companies, proponents, and non-proponent
shareholders?
8. We described in Section III.E above a number of alternative
approaches or additional changes to the proposed amendments that we
considered. Are there any costs or benefits to these alternatives that
are not discussed in the economic analysis? If so, please describe the
types of costs and benefits and provide a dollar estimate of these
costs and benefits.
9. Are there additional alternatives to the proposed amendments
that we should consider? If so, please describe the types of costs and
benefits of these additional alternatives and provide a dollar estimate
of these costs and benefits.
IV. Paperwork Reduction Act
A. Summary of the Collection of Information
Certain provisions of our rules and schedules that would be
affected by the proposed amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\149\ We are submitting the proposed
amendments to the Office of Management and Budget (``OMB'') for review
in accordance with the PRA.\150\ The hours and costs associated with
preparing, filing, and sending the schedules, including preparing
documentation required by the shareholder-proposal process, constitute
paperwork burdens imposed by the collection of information. An agency
may not conduct or sponsor, and a person is not required to comply
with, a collection of information requirement unless it displays a
currently valid OMB control number. Compliance with the information
collection is mandatory. Responses to the information collection are
not kept confidential, and there is no mandatory retention period for
the information disclosed. The title for the affected collection of
information is:
---------------------------------------------------------------------------
\149\ 44 U.S.C. 3501 et seq.
\150\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------
``Regulation 14A (Commission Rules 14a-1 through 14a-21 and
Schedule 14A)'' (OMB Control No. 3235-0059).
We adopted the existing regulations and schedule pursuant to the
Exchange Act. The regulations and schedule set forth the disclosure and
other requirements for proxy statements filed by issuers and other
soliciting parties. A detailed description of the proposed amendments,
including the need for the information and its proposed use, as well as
a description of the likely respondents, can be found in Section II
above, and a discussion of the expected economic effects of the
proposed amendments can be found in Section III above.
B. Summary of the Proposed Amendments' Effects on the Collection of
Information
As discussed in Section II above, the proposed amendments are
intended to provide a clearer framework for the application of three of
the substantive bases for the exclusion of shareholder proposals under
Rule 14a-8. The proposed amendments to Rule 14a-8(i)(10), 14a-8(i)(11),
and 14a-8(i)(12) would provide greater certainty and transparency to
shareholders and companies as they evaluate whether these bases would
apply to particular proposals.
[[Page 45073]]
C. Incremental and Aggregate Burden and Cost Estimates for the Proposed
Amendments
The paperwork burden estimate for Regulation 14A includes the
burdens imposed by our rules that may be incurred by all parties
involved in the proxy process leading up to and associated with the
filing of a Schedule 14A. The current number of estimated responses for
the collection of information for Regulation 14A is 6,369 annual
responses, reflecting 777,590 internal burden hours and a professional
cost burden of $103,678,712.\151\ The total burden estimate for
Regulation 14A reflects, among other things, the collection-of-
information burden associated with Rule 14a-8, which includes both the
time that a shareholder-proponent spends to prepare its proposals for
inclusion in a company's proxy statement, as well as the time that the
company spends to prepare its proxy statement to include and respond to
such proposals. We recognize that the burdens on a particular proponent
or company would likely vary based on a number of factors, including
the propensity of a particular shareholder-proponent to submit
proposals, or the number of shareholder proposals received by a
particular company, which may be related to its line of business or
industry or other factors.
---------------------------------------------------------------------------
\151\ These numbers reflect the Commission's current OMB PRA
filing inventory. The OMB PRA filing inventory represents a three-
year average. Averages may not align with the actual number of
filings in any given year.
---------------------------------------------------------------------------
The proposed amendments to Rule 14a-8 would revise the text of Rule
14a-8 to provide clearer standards for exclusion, and promote more
consistent and predictable determinations regarding the exclusion of
proposals under the rule. The proposed amendments are not expected to
affect the number of annual responses under the Regulation 14A
information collection, as the obligation to prepare and file proxy
statements would remain irrespective of the proposed amendments. The
proposed amendments could either increase the burden associated with
particular filings (for example, by leading to the inclusion of more
shareholder proposals in companies' proxy statements) or reduce the
burden (for example, by providing a clearer basis for exclusion of a
shareholder proposal). While the effects of the proposed amendments on
the burden hours and professional costs are difficult to predict, as
they would depend on a number of interrelated and potentially
offsetting factors, we expect that the overall burdens associated with
Regulation 14A would not change significantly. Thus we are estimating
no change in paperwork burden in connection with the proposed
amendments, although we solicit comment on this and other aspects of
our PRA analysis below.
Request for Comment
Pursuant to 44 U.S.C. 3506(c)(2)(B), we request comment in order
to:
<bullet> Evaluate whether the proposed collections of information
are necessary for the proper performance of the functions of the
Commission, including whether the information would have practical
utility;
<bullet> Evaluate the accuracy and assumptions and estimates of the
burden of the proposed collection of information;
<bullet> Determine whether there are ways to enhance the quality,
utility, and clarity of the information to be collected;
<bullet> Evaluate whether there are ways to minimize the burden of
the collection of information on those who respond, including through
the use of automated collection techniques or other forms of
information technology; and
<bullet> Evaluate whether the proposed amendments would have any
effects on any other collection of information not previously
identified in this section.
Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct their comments to the Office of
Management and Budget, Attention: Desk Officer for the U.S. Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy to, Vanessa A. Countryman,
Secretary, U.S. Securities and Exchange Commission, 100 F Street NE,
Washington, DC 20549-1090, with reference to File No. S7-20-22.
Requests for materials submitted to OMB by the Commission with regard
to the collection of information should be in writing, refer to File
No. S7-20-22 and be submitted to the U.S. Securities and Exchange
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC
20549-2736. OMB is required to make a decision concerning the
collection of information between 30 and 60 days after publication of
this proposed rule. Consequently, a comment to OMB is best assured of
having its full effect if the OMB receives it within 30 days of
publication.
V. Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996 (``SBREFA''),\152\ the Commission must advise OMB as to
whether the proposed amendments constitute a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in:
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\152\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------
<bullet> An annual effect on the U.S. economy of $100 million or
more (either in the form of an increase or a decrease);
<bullet> A major increase in costs or prices for consumers or
individual industries; or
<bullet> Significant adverse effects on competition, investment, or
innovation.
We request comment on whether the proposed amendments would be a
``major rule'' for purposes of SBREFA. In particular, we request
comment on the potential effect of the proposed amendments on the U.S.
economy on an annual basis; any potential increase in costs or prices
for consumers or individual industries; and any potential effect on
competition, investment, or innovation. Commenters are requested to
provide empirical data and other factual support for their views to the
extent possible.
VI. Initial Regulatory Flexibility Act Analysis
The Regulatory Flexibility Act (``RFA'') \153\ requires an agency,
when issuing a rulemaking proposal, to prepare and make available for
public comment an Initial Regulatory Flexibility Analysis (``IRFA'')
that describes the impact of the proposed rule on small entities.\154\
This IRFA has been prepared in accordance with the RFA and relates to
the proposed amendments to Rule 14a-8(i)(10), Rule 14a-8(i)(11), and
Rule 14a-8(i)(12) under the Exchange Act described in Section II above.
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\153\ 5 U.S.C. 601 et seq.
\154\ 5 U.S.C. 603(a).
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A. Reasons for, and Objectives of, the Proposed Action
Rule 14a-8 provides an important mechanism for shareholders to
express their views, provide feedback to companies, and raise important
issues for the consideration of their fellow shareholders by the
inclusion of shareholder proposals in the company's proxy statement.
The proposed amendments are intended to facilitate shareholder suffrage
and communication between shareholders and the companies in which they
invest, as well as among a company's
[[Page 45074]]
shareholders, through the shareholder proposal process. In particular,
they are intended to enhance the ability of shareholders to express
diverse objectives, consider various ways to address issues, and
provide greater certainty and transparency to shareholders and
companies as to the application of certain of the substantive standards
for the exclusion of proposals under Rule 14a-8. The reasons for, and
objectives of, the proposed amendments are discussed in more detail in
Section II above. We discuss the economic impact and potential
alternatives to the proposed amendments in Section III, and the
estimated compliance costs and burdens of the amendments under the PRA
in Section IV above.
B. Legal Basis
We are proposing amendments to the rules under the authority set
forth in Sections 3(b), 14, and 23(a) of the Exchange Act, as amended,
and Sections 20(a), 30, and 38 of the Investment Company Act, as
amended.
C. Small Entities Subject to the Proposed Rules
The proposed amendments would affect some small entities that are
either: (i) shareholder-proponents that submit Rule 14a-8 proposals, or
(ii) issuers subject to the federal proxy rules that receive Rule 14a-8
proposals. The RFA defines ``small entity'' to mean ``small business,''
``small organization'' or ``small governmental jurisdiction.'' \155\
The definition of ``small entity'' does not include individuals. For
purposes of the RFA, under our rules, an issuer of securities or a
person, other than an investment company, is a ``small business'' or
``small organization'' if it had total assets of $5 million or less on
the last day of its most recent fiscal year.\156\ We estimate that
there are approximately 772 issuers that are subject to the federal
proxy rules, other than investment companies, that may be considered
small entities.\157\ An investment company, including a business
development company, is considered to be a ``small business'' if it,
together with other investment companies in the same group of related
investment companies, has net assets of $50 million or less as of the
end of its most recent fiscal year.\158\ We estimate that, as of
December 2021, there were approximately 80 investment companies that
are subject to the federal proxy rules that may be considered small
entities.\159\ We are unable to estimate the number of potential
shareholder-proponents that may be considered small entities; \160\
therefore, we request comment on the number of these small entities.
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\155\ 5 U.S.C. 601(6).
\156\ 17 CFR 240.0-10(a).
\157\ This estimate is based on staff analysis of issuers
potentially subject to the final amendments, excluding co-
registrants, BDCs, and issuers of asset-backed securities, with
EDGAR filings on Form 10-K, or amendments thereto, or any proxy
filing as described in note 73, supra, filed during the calendar
year of Jan. 1, 2021 to Dec. 31, 2021. This analysis is based on
data from XBRL filings, S&P Compustat, Ives Group Audit Analytics,
and manual review of filings submitted to the Commission.
\158\ 17 CFR 270.0-10.
\159\ This estimate is derived from an analysis of data obtained
from Morningstar Direct as well as data filed with the Commission
(Forms N-Q and N-CSR) for or during the last quarter of 2021.
\160\ For the purposes of our Economic Analysis, we have
estimated that there were approximately 176 proponents that
submitted a proposal to be included in a company's proxy statement
as a lead proponent during calendar year 2021. See supra Section
III.A. Out of these 176 proponents, 66 were individuals, and 110
were non-individuals. Thus, no more than 110 of these unique
proponents would be considered small entities. However, this data
allows for the identification of a sole lead proponent of each
proposal, but not all of a proposal's proponents, and, as a result,
it should be interpreted as a lower bound on the total number of
unique proponents.
---------------------------------------------------------------------------
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
If adopted, the proposed amendments would apply to small entities
to the same extent as other entities, irrespective of size. Therefore,
we generally expect the nature of any benefits and costs associated
with the proposed amendments to be similar for large and small
entities. However, as noted in Section III.C above, the proposed
amendments could have a greater effect on larger entities because
larger entities are more likely to receive shareholder proposals and
submit no-action requests than smaller entities. Accordingly, we refer
to the discussion of the proposed amendments' economic impact,
including the estimated costs and benefits, on all affected parties,
including small entities, in Section III.C above. Consistent with that
discussion, we anticipate that the economic benefits and costs likely
could vary among small entities based on a number of factors, such as
the propensity of a particular shareholder-proponent to submit
proposals, or the number of shareholder proposals received by a
particular issuer, which may be related to its line of business or
industry or other factors, which makes it difficult to project the
economic impact on small entities with precision. While the proposals
themselves do not impose any new reporting, recordkeeping or compliance
requirements, they could affect the costs associated with preparing a
proxy statement or a shareholder proposal depending on the particular
facts and circumstances. As explained in Section III, in many cases we
are unable to quantify these costs because we lack information
necessary to make reasonable estimates. As a general matter, however,
we recognize that the costs of the proposed amendments borne by the
affected entities could have a proportionally greater effect on small
entities, as these costs may be a relatively greater percentage of the
total cost of operations for smaller entities than larger entities, and
thus small entities may be less able to bear such costs relative to
larger entities. The proposed amendments could create varying
competitive effects for companies based on company size. As noted in
Section III.D above, the proposed amendments could have a greater
competitive effect on larger public companies relative to smaller
public companies because larger public companies are more likely to
receive shareholder proposals. However, because the proposed amendments
could result in both greater benefits and greater costs to certain
companies, we cannot reliably predict whether and how the competitive
position of smaller public companies may change as a result of the
proposed amendments.
Compliance with the proposed amendments may require the use of
professional skills, including legal skills. We request comment on how
the proposed disclosure amendments would affect small entities,
including the type of professional skills necessary for compliance with
the proposed amendments.
E. Duplicative, Overlapping, or Conflicting Federal Rules
We believe that the proposed amendments would not duplicate,
overlap, or conflict with other federal rules.
F. Significant Alternatives
The RFA directs us to consider significant alternatives that would
accomplish our stated objectives, while minimizing any significant
adverse impact on small entities. In connection with the proposed
amendments, we considered the following alternatives:
<bullet> Establishing different compliance or reporting
requirements that take into account the resources available to small
entities;
<bullet> Clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities;
<bullet> Using performance rather than design standards; and
[[Page 45075]]
<bullet> Exempting small entities from all or part of the
requirements.
The Rule 14a-8 shareholder proposal process is used regularly by
issuers and shareholder-proponents of all sizes, and the rule generally
does not impose different standards or requirements based on the size
of the issuer or shareholder-proponent. We do not believe that
establishing different compliance or reporting obligations in
conjunction with the proposed amendments or exempting small entities
from all or part of the requirements is necessary. We believe the
proposed amendments are equally appropriate for issuers and
shareholder-proponents of all sizes seeking to engage with one another
through the Rule 14a-8 process, and we see no reason why a shareholder-
proponent of a company that is a small entity should be required to
comply with differing standards regarding submission of a shareholder
proposal to the company than a shareholder-proponent of a company that
is a larger entity. In this regard, we anticipate that the proposed
amendments would result in more predictable and consistent
determinations regarding the application of Rule 14a-8(i)(10), Rule
14a-8(i)(11), and Rule 14a-8(i)(12) across proposals and over time,
which would benefit both issuers and shareholder-proponents of all
sizes. We do not believe that imposing different standards or
requirements based on the size of the issuer or shareholder-proponent
is necessary, and may result in additional costs associated with
ascertaining whether a particular issuer or shareholder-proponent may
avail itself of such different standards. For these reasons, we are not
proposing differing compliance or reporting requirements or timetables,
or an exception, for small entities. However, we seek comment on
whether and how the proposed amendments could be modified to provide
differing compliance or reporting requirements or timetables for small
entities and whether such separate requirements would be appropriate.
The proposed amendments are intended to provide a clearer framework
for the application of certain of the rule's substantive bases for the
exclusion of proposals that is applicable to, and equally appropriate
for, issuers and shareholder-proponents of all sizes. We believe that
the proposed amendments are clear and that further clarification,
consolidation, or simplification of the compliance requirements for
small entities is not necessary, although we solicit comment on how the
proposed amendments could be revised to reduce the burden on small
entities.
Rule 14a-8 historically, and the proposed amendments generally, use
design standards rather than performance standards in order to promote
uniform requirements for all issuers and shareholder-proponents in
connection with the submission of shareholder proposals. We solicit
comment as to whether there are aspects of the proposed amendments for
which performance standards would be appropriate.
G. Request for Comment
We encourage the submission of comments with respect to any aspect
of this IRFA. In particular, we request comments regarding:
<bullet> How the proposed amendments can achieve their objective
while lowering the burden on small entities;
<bullet> The number of small entities, including shareholder-
proponents, that may be affected by the proposed amendments;
<bullet> The existence or nature of the potential impact of the
proposed amendments on small entities and whether the proposed
amendments would have any effects that have not been discussed in the
analysis;
<bullet> How to quantify the impact of the proposed amendments; and
<bullet> Whether there are any federal rules that duplicate,
overlap, or conflict with the proposed amendments.
Commenters are asked to describe the nature of any impact and
provide empirical data supporting the extent of the impact. Comments
will be considered in the preparation of the Final Regulatory
Flexibility Analysis, if the proposed amendments are adopted, and will
be placed in the same public file as comments on the proposed
amendments themselves.
Statutory Authority and Text of Proposed Rule Amendments
We are proposing the rule amendments contained in this document
under the authority set forth in Sections 3(b), 14, and 23(a) of the
Exchange Act, as amended, and Sections 20(a), 30, and 38 of the
Investment Company Act, as amended.
List of Subjects in 17 CFR Part 240
Reporting and recordkeeping requirements; Securities.
In accordance with the foregoing, we are proposing to amend title
17, chapter II of the Code of Federal Regulations as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
0
1. The general authority citation for part 240 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *
0
2. Amend Sec. 240.14a-8 by revising the text of paragraphs (i)(10)
through (12) to read as follows:
Sec. 240.14a-8 Shareholder proposals.
* * * * *
(i) * * *
(10) Substantially implemented: If the company has already
implemented the essential elements of the proposal;
* * * * *
(11) Duplication: If the proposal substantially duplicates (i.e.,
addresses the same subject matter and seeks the same objective by the
same means as) another proposal previously submitted to the company by
another proponent that will be included in the company's proxy
materials for the same meeting;
(12) Resubmissions: If the proposal substantially duplicates (i.e.,
addresses the same subject matter and seeks the same objective by the
same means as) a proposal, or proposals, previously included in the
company's proxy materials within the preceding five calendar years if
the most recent vote occurred within the preceding three calendar years
and the most recent vote was:
(i) Less than 5 percent of the votes cast if previously voted on
once;
(ii) Less than 15 percent of the votes cast if previously voted on
twice; or
(iii) Less than 25 percent of the votes cast if previously voted on
three or more times.
* * * * *
By the Commission.
Dated: July 13, 2022.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2022-15348 Filed 7-26-22; 8:45 am]
BILLING CODE 8011-01-P
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