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Oct 12, 2022

Shareholder Rights Group responds to critics of proposed 14a-8 changes

Sanford Lewis says SEC’s proposed changes ‘clearer than current rules of decision’

The Shareholder Rights Group has responded to critics of SEC plans to update the grounds on which companies may be allowed to exclude shareholder proposals.

The commission in July proposed amendments to Rule 14a-8, which provides several bases on which companies can apply for no-action relief if they omit a proposal from their proxy statement. The proposed amendments would revise three of these bases for exclusion.

The proposed changes would revise the following grounds for exclusion:

  • Substantial implementation – if approved, the changes would specify that a proposal may be excluded if the company has already implemented the ‘essential elements’ of the proposal
  • Duplication – the amendments would specify that a proposal ‘substantially duplicates’ another proposal previously submitted for the same AGM if it addresses the same subject matter and seeks the same objective by the same means
  • Resubmission – the amendments would provide that a proposal constitutes a resubmission if it substantially duplicates another proposal that was previously submitted for the same company’s previous shareholder meetings.

The move follows the SEC’s division of corporation finance last fall updating guidance on its process for deciding whether to give no-action relief under Rule 14a-8, in which it rescinded three staff legal bulletins introduced during the Trump administration.

This was seen as making it less likely that it would grant such relief and thereby mean that a wider number and array of ESG proposals would get onto proxy statements. Industry professionals say that expectation has come true. According to Proxy Impact, As You Sow and the Sustainable Investments Institute, in the six months to the end of June a record-breaking 282 votes were taken on ESG shareholder proposals.

The proposals have sparked debate, with commenters both supportive and critical of the planned changes. For example, Nasdaq wrote that the initiative is ‘a step backwards in the commission’s efforts to modernize the shareholder proposal process, and appears to be part of a broader trend to narrow the bases for excluding shareholder proposals.’

On the other hand, groups that file ESG-related shareholder proposals are broadly supportive of the planned changes. Sanford Lewis, director of the Shareholder Rights Group, in an initial comment letter welcomed the agency’s action as including ‘overdue changes that would reduce costs and uncertainties to proponents and issuers alike.’

The Shareholder Rights Group is an association of proponents of shareholder proposals that includes Arjuna Capital, As You Sow, Boston Trust Walden, Mercy Investment Services and Trillium Asset Management.


In a follow-up comment letter, Lewis notes that critics of the SEC’s proposal have argued it may lead to a greater number of proposals on proxy statements – including proposals involving minor or trivial change to a company’s activities or from previously submitted measures. They have also argued that more time is needed to measure the impact of the agency’s 2020 amendments to Rule 14a-8 that changed the resubmission and ownership thresholds required for a shareholder to be eligible to submit a proposal.

In response, Lewis argues that the new proposed changes ‘are clearer than the current rules of decision and therefore will provide a more efficient, accountable and objective set of principles for resolving no-action requests. We view the proposed amendments as good government reforms, removing subjectivity from staff decision-making and increasing the efficiency of shareholder proposal-related activities by investors and issuers alike.’

Lewis writes that proponents in general have little motivation to submit proposals that would make little

difference to a company or are the same as other measures appearing on a proxy statement. The SEC’s plan would not encourage or lead to an increase in the number of such proposals, he says.

‘[But] the proposed amendments also would provide the commission and [SEC officials] with sufficient latitude to exclude any ‘trivial’ proposals that do not provide meaningful choices for investor deliberation, and proposals that present only trivial differences from company actions could be evaluated and potentially excluded as micromanagement pursuant to Rule 14a-8(i)(7), including the clear principles for assessing micromanagement as set forth in Staff Legal Bulletin 14 L,’ Lewis argues.

In addition, he says the proposed clarifications of how shareholders can avoid their proposals being omitted on the grounds of the technical bases at issue ‘are appropriate and necessary given the escalating demand of investment sector entities for ESG-related information.’

The demand for this information has intensified following allegations of ESG greenwashing and by the SEC’s proposed ESG fund regulations, Lewis writes. As a result, he says, funds will face greater need to have ‘the data necessary to support ESG determinations regarding the adequacy of disclosure or performance from investee companies. The proposed rules will support the capacity and efficiency of investors exercising their rights to file and vote upon shareholder proposals to support these needs.’