The Senate quietly let a deadline lapse for killing a 2020 SEC rule curbing shareholder proposals, despite scrubbing several other Trump-era rules through the Congressional Review Act (CRA).
Hopes now turn to the SEC for reversing the industry-friendly amendments in Release No. 34-89964, Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, which raised the threshold for shareholders to both submit and resubmit proposals at a company’s annual meeting. The rules are deeply unpopular with Democratic lawmakers, financial reform advocates, and institutional investors.
The CRA enables lawmakers to scrap a recently issued regulation through a simple majority vote in both the House and Senate. After Congress invalidates a rule under the CRA, an agency is barred from issuing a substantially similar one. Sen. Sherrod Brown of Ohio, who chairs the Senate Banking Committee, introduced the CRA resolution targeting Release No. 34-89964 in late March, with Del. Michael San Nicolas of Guam sponsoring the resolution in the House.
The Senate has wielded the CRA to roll back a Trump Environmental Protection Agency rule that eased limits on methane emissions; the Office of the Comptroller of the Currency’s (OCC) “true lender” rules; and an Equal Employment Opportunity Commission (EEOC) regulation surrounding the procedure for settling discrimination charges. But the window for acting on the additional CRA resolutions with the filibuster-proof procedural advantages closed in late May, sparing the SEC rules and several other regulations issued toward the end of the Donald Trump Administration.
Institutional investors, state securities regulators, asset managers, unions others had unsuccessfully urged lawmakers to move forward with the CRA resolution vote on the SEC rules. (See Asset Managers, Unions Urge Congress to Kill Trump-Era Shareholder Proposal Rules in the April 26, 2021, edition of Accounting and Compliance Alert.)
That means the SEC, under new Chair Gary Gensler, is now likely the best hope for critics still looking to undo the SEC’s 2020 amendments. Rachel Curley, a Democracy advocate for Public Citizen’s Congress Watch, in an email to Accounting and Compliance Alert wrote that, with the CRA resolution no longer viable, “we hope to see the SEC move to roll back these misguided Trump-era rules so that shareholder proposal process remains one where investors can easily raise critical issues with their companies.”
Gensler earlier this month announced plans to revisit another set of Chamber-of-Commerce-supported proxy system rules in Release No. 34-89372, Exemptions from the Proxy Rules for Proxy Voting Advice, which imposed a new regulatory framework on proxy advisory firms. The SEC’s Division of Corporation Finance (CorpFin) said it would not enforce the rules. (See SEC Seeks Pause in Proxy Firm Suit as it Revisits 2020 Rules in the April 26, 2021, edition of Accounting and Compliance Alert.)
The shareholder proposal rules in Release No. 34-89964 fulfilled a longstanding goal of business groups, who argued that the changes rebalanced a system that had allowed politically-motived investors with little meaningful stakes in companies to inundate management with shareholder proposals, often aimed at furthering social goals that had little to do with the companies’ bottom line.
Those groups have long complained of rules that allowed an investor to put forth a proposal if they have owned at least $2,000, or 1 percent, of a public company’s voting shares for at least one year.
Release No. 34-89964 scrapped that 1 percent threshold. In its place, it created a new regime in which a shareholder with $2,000 of a company’s securities must hold them for three years to be eligible, falling to two years for a shareholder with $15,000 of a company’s securities, and one year for $25,000.
The rules also squeeze the resubmission thresholds under Rule 14a-8(i)(12). Previously, a company could exclude a proposal from its proxy statement for a vote at the annual meeting if it failed to receive the support of 3 percent of shareholders if voted on once in the last five years, 6 percent if voted on twice in the last five years, and 10 percent if voted on three or more times in the last five years. Release No. 34-87458 steps up that vote requirement to 5 percent, 15 percent, and 25 percent, respectively, among other changes. (See Divided SEC Makes it More Difficult for Shareholders to Bring Proposals for Vote at Annual Meetings in the September 24, 2020, edition of ACA.)
This article originally appeared in the June 9, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.
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