Regulatory and Legal Reform

The U.S. Securities and Exchange Commission has proposed a new rule that could undermine key reforms the NAM secured in 2020—and empower activist shareholders.

The background: Shareholders in public companies generally have the right to submit proposals to corporate proxy ballots.

• These proposals, which voice shareholders’ views on business and governance topics relevant to the company, can then receive a vote by the full shareholder base.
• To qualify for inclusion on the ballot, shareholder proposals must meet certain criteria.

Submission thresholds: In 2020, the NAM supported—and the SEC finalized—new thresholds to make it more difficult for activist shareholders to place politically motivated proposals on the proxy ballot.

• These thresholds require higher degrees of ownership and shareholder support before a proposal can be submitted or resubmitted.

The new rule: The SEC’s proposal leaves the 2020 thresholds in place, but it creates other opportunities for activists and limits the tools companies can use to prevent them from hijacking the proxy ballot.

• Currently, companies can exclude shareholder proposals that have already been substantially implemented, are duplicative of other proposals on the proxy ballot or are resubmissions of previous failed proposals. Each of these abilities would be limited significantly under the proposed rule.
• For example, rather than being allowed to exclude all duplicative proposals, companies would only be permitted to exclude virtually identical proposals that address the same subject matter, seek the same objective and do so by the same means.

What we’re saying: “The NAM is concerned that the SEC’s proposed rule may prioritize the agendas of activists over the needs of long-term shareholders investing for the future,” said NAM Senior Director of Tax and Domestic Economic Policy Charles Crain.

• “We look forward to working with the SEC in the coming months to ensure that manufacturers’ shareholder engagement can continue to focus on issues critical to business growth and investor returns.”

Next steps: Comments on the proposed rule are due to the SEC by Sept. 12.