Tag: Rule 14a-8
Fifth Circuit dismisses NCPPR appeal of Corp Fin’s Rule 14a-8 no-action relief
You might recall that, in 2023, the National Center for Public Policy Research submitted a shareholder proposal to The Kroger Co., which operates supermarkets, regarding the omission of consideration of “viewpoint” and “ideology” from its equal employment opportunity policy. Kroger sought to exclude the proposal as “ordinary business” under Rule 14a-8(i)(7), and Corp Fin concurred. After Corp Fin and the SEC refused reconsideration of the decision, NCPPR petitioned the Fifth Circuit for review. The SEC moved to dismiss the appeal. But after the NCPPR filed its appeal, Kroger filed its proxy materials with the SEC and included the NCPPR proposal in the proxy materials to be submitted for a shareholder vote. The proposal received less than two percent of the vote. Now, a three-judge panel of the Fifth Circuit has issued its opinion, dismissing the case for lack of jurisdiction; Judge Edith Jones dissented.
SEC’s Fall 2023 Reg-Flex Agenda is out—climate disclosure rules delayed again
The SEC’s Fall 2023 Reg-Flex Agenda—according to the preamble, compiled as of August 22, 2023, reflecting “only the priorities of the Chair”—has now been posted. And it’s Groundhog Day again. All of the Corp Fin agenda items made an appearance before on the last agenda and, in most cases, several agendas before that. Do I hear a sigh of relief? Of course, the new agenda is a bit shorter than the Spring 2023 agenda, given the absence of regulations that have since been adopted, including cybersecurity risk governance (see this PubCo post) and modernization of beneficial ownership reporting (see this PubCo post). At first glance, the biggest surprise—if it’s on the mark, that is—is that the target date for final action on the SEC’s controversial climate disclosure proposal has been pushed out until April 2024. Keep in mind that it is only a target date, and the SEC sometimes acts well in advance of the target. For example, the cybersecurity proposal had a target date on the last agenda of October 2023, but final rules were adopted much earlier in July. I confess that my hunch was that we would see final rules before the end of this year, but adoption this year looks increasingly unlikely (especially given that the posted agenda for this week’s open meeting does not include climate). Not surprisingly, there’s nothing on the agenda about a reproposal of the likely-to-be vacated (?) share repurchase rules, although, at the date that the agenda was compiled, the possibility of vacatur was not yet known. (See this PubCo post.) Describing the new agenda, SEC Chair Gary Gensler observed that “[w]e are blessed with the largest, most sophisticated, and most innovative capital markets in the world. But we cannot take this for granted. Even a gold medalist must keep training. That’s why we’re updating our rules for the technology and business models of the 2020s. We’re updating our rules to promote the efficiency, integrity, and resiliency of the markets. We do so with an eye toward investors and issuers alike, to ensure the markets work for them and not the other way around.”
New Corp Fin intake system for no-action requests related to shareholder proposals
Corp Fin has announced a new intake system for requests from companies for no-action positions from the staff regarding companies’ intentions to exclude shareholder proposals under Rule 14a-8. In the announcement, Corp Fin indicates that Rule 14a-8 submissions and related correspondence must now be submitted using Corp Fin’s online shareholder proposal form, available at https://www.sec.gov/forms/shareholder-proposal, and that emailed materials will no longer be accepted. The announcement—and the form itself—emphasize that staff responses to these requests are only “informal, non-binding staff views” regarding exclusion of shareholder proposals.
SEC posts Spring 2023 Reg-Flex Agenda—not much new but lots left to do
The SEC’s Spring 2023 Reg-Flex Agenda—according to the preamble, compiled as of April 10, 2023, reflecting “only the priorities of the Chair”—has now been posted. Here is the short-term agenda, which shows most Corp Fin agenda items targeted for action by October 2023, potentially making the next four months an especially frenetic period, with only a few proposal-stage items targeted for April 2024. And here is the long-term (maybe never) agenda. Describing the new agenda, SEC Chair Gary Gensler observed that “[t]echnology, markets, and business models constantly change. Thus, the nature of the SEC’s work must evolve as the markets we oversee evolve. In every generation since President Franklin Roosevelt’s, our Commission has updated its ruleset to meet the challenges of a new hour. Consistent with our legal mandate, guided by economic analysis, and informed by public comment, this agenda reflects the latest step in that long tradition.”
The short-term agenda includes a half dozen or so potential proposals that were on the Fall 2022 agenda, but didn’t quite make it out of the starting gate, such as plans for disclosure regarding corporate board diversity and human capital. Similarly, issues related to the private markets are still awaiting proposals. The question of why and how to address the decline in the number of public companies has, in the recent past, been a point of contention among the commissioners: is excessive regulation of public companies a deterrent to going public or has deregulation of the private markets juiced their appeal, but sacrificed investor protection in the bargain? That debate may play out in the coming months with two new proposals targeted for October this year: a plan to amend the definition of “holders of record” and a proposal to amend Reg D, including updates to the accredited investor definition. And the behemoth proposal regarding climate change disclosure—identified on the last agenda as targeted for final action but not considered for adoption on the schedule as planned—reappears on the current calendar with a later target date. Will that new target be met? Notably, political spending disclosure is, once again, not identified on the agenda. That’s because Section 633 of the Appropriations Act once again prohibits the SEC from using any of the funds appropriated “to finalize, issue, or implement any rule, regulation, or order regarding the disclosure of political contributions, contributions to tax exempt organizations, or dues paid to trade associations.”
SEC crams much into packed Fall 2022 agenda
The SEC’s Fall 2022 Reg-Flex Agenda—according to the preamble, compiled as of October 6, 2022, reflecting “only the priorities of the Chair”—has just been posted, and it looks like the SEC will have another frenetic year ahead dealing with new and pending proposals—and so will we. Describing the new agenda, SEC Chair Gary Gensler said that it “reflects the need to modernize our ruleset, moving deliberately to update our rules in light of ever-changing technologies and business models in the securities markets. Our ability to meet our mission depends on having an up-to-date rulebook—consistent with our mandate from Congress, guided by economic analysis, and shaped by public input.” Here are the short-term and long-term lists, which show all Corp Fin agenda items scheduled for action by either April or October 2023, with the first four months looking especially jam-packed. There’s no dispute that the agenda is laden with major proposals, and many of these proposals—climate disclosure, cybersecurity, SPACs, share buybacks—are apparently at the final rule stage. Implementing all of these proposals, if adopted, would likely represent a challenge for many companies; whether overwhelmingly so remains to be seen.
More prescriptive proposals, less support for 2022 proxy season
This proxy season, companies saw more shareholder proposals than in the past, a change that has been widely attributed to actions by the SEC and its Division of Corporation Finance that had the effect of making exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies. As discussed in this article in the WSJ, investors are taking the opportunity to press for more changes at companies. Nevertheless, the prescriptive nature of many of the proposals, especially climate-related proposals, has prompted many shareholders, including major asset managers, to vote against these proposals. Will next season reflect lessons learned by shareholder proponents from this proxy season?
SEC adopts amendments to the shareholder proposal rules (UPDATED)
[This post revises and updates my earlier post primarily to reflect the contents of the adopting release.]
At an open meeting last week, the SEC voted (once again, three to two) to adopt highly controversial amendments to the requirements for submission of shareholder proposals in Rule 14a-8. According to the adopting release, the final amendments are intended to “modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders.” The final amendments modify the eligibility criteria for submission of proposals, as well as the resubmission thresholds; provide that a person may submit only one proposal per meeting, whether as a shareholder or acting as a representative; prohibit aggregation of holdings for purposes of satisfying the ownership thresholds; facilitate engagement with the proponent; and update other procedural requirements. Notably, the submission threshold has not been amended since 1998, and the resubmission threshold since 1954. The rulemaking generated an energetic—some might say heated—discussion among the Commissioners in the course of the long meeting, as well as substantial pushback through the public comment process, discussed in more detail in this PubCo post and this PubCo post.
SEC adopts amendments to the shareholder proposal rules
At an open meeting this morning, the SEC voted (once again, three to two) to adopt two highly controversial proposals: amendments modifying the criteria for eligibility and resubmission of shareholder proposals in Rule 14a-8, and amendments to the SEC rules implementing the whistleblower program. The shareholder proposal press release indicates that the change to the submission threshold, which has not been amended since 1998, “appropriately takes into consideration the interests of not only the shareholder who submits a proposal, but also the other shareholders who bear the costs associated with reviewing, considering and voting on such proposals in the company’s proxy statement.” Similarly, the changes to the resubmission threshold, which has not been amended since 1954, “relieve companies and their shareholders of the obligation to consider, and spend resources on, matters that had previously been voted on and rejected by a substantial majority of shareholders without sufficient indication that a proposal could gain traction among the broader shareholder base in the near future.” The changes to the whistleblower program, according to the whistleblower press release, “are designed to provide greater clarity to whistleblowers and increase the program’s efficiency and transparency.” In both cases, the rulemakings generated an energetic—some might say heated—discussion among the Commissioners in the course of the long meeting, as well as substantial pushback through the public comment process.
Proposed amendments to shareholder proposal rules—bruised but unbowed?
The SEC may have postponed until next week the open meeting originally scheduled for yesterday to consider adoption of revisions to the shareholder proposal rules, but Reuters has the inside scoop on the outcome of at least one controversial provision: according to Reuters, say farewell to the “momentum” provision. The expected deletion of the provision, Reuters observed, “marks a critical reprieve for supporters of social and environmental motions, which can take years on the ballot to gain traction.” Reuters reports that investors have continued to press the SEC in letters and meetings with SEC staff, hoping to put the kibosh on the proposed amendments altogether. They appear to be having some impact. Will the SEC move ahead in the face of this strong opposition?
SEC proposes to “modernize” shareholder proposal rules
Last week, the SEC voted to issue a new rule proposal intended to “modernize” the shareholder proposal rules, with Commissioners Robert Jackson and Allison Lee dissenting. Generally, the proposal would modify the criteria for eligibility and resubmission of shareholder proposals; provide that a person may submit only one proposal per meeting, whether as a shareholder or acting as a representative; and facilitate engagement with the proponent. As anticipated, at the meeting, the commissioners expressed strong views on these issues, with Chair Jay Clayton observing that a “system in which five individuals accounted for 78% of all the proposals submitted by individual shareholders” needs some work, and Commissioner Jackson characterizing the proposal as swatting “a gadfly with a sledgehammer.” The proposal is subject to a 60-day comment period.
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