Procedural Requirements and Resubmission Thresholds Under Exchange Act Rule 14a-8

Federal RegisterDec 4, 2019

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-87458; File No. S7-23-19]

RIN 3235-AM49

Procedural Requirements and Resubmission Thresholds Under Exchange Act Rule 14a-8

AGENCY:

Securities and Exchange Commission.

ACTION:

Proposed rule.

SUMMARY:

We are proposing to amend certain procedural requirements and the provision relating to resubmitted proposals under the shareholder-proposal rule. The proposed amendments to the procedural requirements would replace the current ownership requirements with a tiered approach that would provide three options for demonstrating an ownership stake through a combination of amount of securities owned and length of time held; require certain documentation to be provided when a proposal is submitted on behalf of a shareholder-proponent; require shareholder-proponents to state when they would be able to meet with the company in person or via teleconference to engage with the company with respect to the proposal; and provide that a person may submit no more than one proposal, directly or indirectly, for the same shareholders' meeting. The proposed amendments to the resubmission thresholds would raise the current resubmission thresholds of 3, 6, and 10 percent to 5, 15, and 25 percent, respectively; and add a new provision that would allow companies to exclude proposals under certain circumstances where shareholder support for the matter has declined.

DATES:

Comments should be received on or before February 3, 2020.

ADDRESSES:

Comments may be submitted by any of the following methods:

Electronic Comments

• Use the Commission's internet comment form (

http://www.sec.gov/rules/concept.shtml

); or

• Send an email to

rule-comments@sec.gov.

Please include File Number S7-23-19 on the subject line.

Paper Comments

• 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 S7-23-19. This file number should be included on the subject line if email is used. To help us process and review your comments more efficiently, please use only one method. We will post all comments on our website (

https://www.sec.gov/rules/proposed.shtml

). Comments also are 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 10:00 a.m. and 3:00 p.m. 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 publicly available.

We or the staff may add studies, memoranda, or other substantive items 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

www.sec.gov

to receive notifications by email.

FOR FURTHER INFORMATION CONTACT:

Matt McNair, Senior Special Counsel in the 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:

We are proposing 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

A. Background

B. Roundtable on the Proxy Process

II. Discussion of Proposed Amendments

A. Rule 14a-8(b)—Eligibility Requirements

1. Relevant History and Background of Rule 14a-8(b)

2. Public Views on Rule 14a-8(b)

3. Need for Proposed Amendments

4. Proposed Amendments

B. Proposals Submitted on Behalf of Shareholders

1. Background

2. Proposed Amendments

C. The Role of the Shareholder-Proposal Process in Shareholder Engagement

1. Background

2. Proposed Amendment

D. One-Proposal Limit

1. Background

2. Proposed Amendment

E. Rule 14a-8(i)(12)—Resubmissions

1. Relevant History and Background of Rule 14a-8(i)(12)

2. Public Views on Rule 14a-8(i)(12)

3. Need for Proposed Amendments

4. Proposed Amendments

III. General Request for Comment

IV. Economic Analysis

A. Introduction

B. Economic Baseline

1. Current Regulatory Framework

2. Affected Entities

3. Current Practices

C. Benefits and Costs and Effects on Efficiency, Competition, and Capital Formation of Proposed Rule Amendments

1. General Economic Considerations Relevant to Shareholder Proposals

2. General Economic Effects of the Proposed Amendments

3. Benefits and Costs of the Proposed Amendments

4. Effects of Proposed Amendments on Efficiency, Competition, and Capital Formation

D. Reasonable Alternatives

1. Shareholder Ownership Thresholds

2. Shareholder Resubmission Thresholds

E. Request for Comment

V. Paperwork Reduction Act

A. Summary of the Collections of Information

B. Summary of the Proposed Amendments' Effects on the Collections of Information

C. Incremental and Aggregate Burden and Cost Estimates for the Proposed Amendments

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

VII. Small Business Regulatory Enforcement Fairness Act

VIII. Statutory Authority

I. Introduction

A. Background

Under state corporate law, shareholders have the right to vote their shares to elect directors and to approve or reject major corporate transactions at shareholder meetings, and shareholders may appoint proxies to vote on their behalf at such meetings.

Because most shareholders do not attend public company shareholder meetings in person and, instead, vote their shares by the use of proxies that are solicited before the shareholder meeting takes place, the proxy solicitation process rather than the shareholder meeting

itself has become the “forum for shareholder suffrage.”

See

Concept Release on the U.S. Proxy System, Release No. 34-62495 (Jul. 14, 2010) [75 FR 42982 (Jul. 22, 2010)], at 42984 (“Proxy Plumbing Release”).

See

Proposed Amendments to Rule 14a-8, Release No. 34-19135 (Oct. 14, 1982) [47 FR 47420 (Oct. 26, 1982)], at 47420-21 (“1982 Proposing Release”); Proxy Plumbing Release,

supra

note 1, at 42984;

Roosevelt

E. I. Du Pont de Nemours & Co.,

958 F.2d 416, 422 (D.C. Cir. 1992) (quoting 1982 Proposing Release).

Issuers with a class of securities registered under Section 12 of the Securities Exchange Act of 1934 (“Exchange Act”) and issuers that are registered under the Investment Company Act of 1940 (“Investment Company Act”) are generally required to comply with the federal proxy rules in Regulation 14A when soliciting proxies from shareholders.

These rules include the requirement that issuers publicly file and provide shareholders with a proxy statement containing certain information. Individual shareholders and other persons may also solicit proxies in support of proposals that a shareholder wishes to present for a vote at a shareholder meeting. Such solicitations must also generally comply with the federal proxy rules.

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).

Rule 14a-8 requires companies that are subject to the federal proxy rules to include shareholder proposals in their own proxy statements to shareholders, subject to certain procedural and substantive requirements.

By giving shareholder-proponents the ability to have their proposals included alongside management's in the company's proxy statement, Rule 14a-8 enables shareholder-proponents to easily present their proposals to all other shareholders, and to have proxies solicited for their proposals, at little or no expense to themselves. The rule, the concept of which was first adopted by the Commission in 1942, thus 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.

Unless otherwise noted, references to “shareholder proposal,” “shareholder proposals,” “proposal,” or “proposals” refer to submissions made in reliance on Rule 14a-8.

See, e.g.,

Securit[ies] and Exchange Commission Proxy Rules: Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the House Comm. on Interstate and Foreign Commerce,

78th Cong., 1st Sess. 17-19 (1943) (Statement of the Honorable Ganson Purcell, Chairman, Securities and Exchange Commission) (explaining the initial Commission rules requiring the inclusion of shareholder proposals in company proxy materials: “We give [a stockholder] the right in the rules to put his proposal before all of his fellow stockholders along with all other proposals . . . so that they can see then what they are and vote accordingly. . . . The rights that we are endeavoring to assure to the stockholders are those rights that he has traditionally had under State law, to appear at the meeting; to make a proposal; to speak on that proposal at appropriate length; and to have his proposal voted on.”).

However, this mechanism for shareholders to require inclusion of their proposals in companies' proxy materials is not without limits. Rule 14a-8 permits a company to exclude a shareholder proposal from its proxy statement if the proposal fails to meet any of several specified substantive requirements, or if the shareholder-proponent does not satisfy certain eligibility or procedural requirements. All of these requirements are generally designed to ensure that the ability under Rule 14a-8 for a shareholder to have a proposal included alongside management's in the company's proxy materials—and thus to draw upon company resources and to command the time and attention of other shareholders—is not excessively or inappropriately used.

The Commission has expressed recurring concern over the years that Rule 14a-8 is susceptible to misuse. In 1948, the Commission adopted three new bases for exclusion to “relieve the management of harassment in cases where [shareholder] proposals are submitted for the purpose of achieving personal ends rather than for the common good of the issuer and its security holders.”

See

Notice of Proposal to Amend Proxy Rules, Release No. 34-4114 (July 6, 1948) [13 FR 3973 (Jul. 14, 1948)], at 3974 (“1948 Proposing Release”). In 1953, the Commission amended the shareholder-proposal rule to allow companies to omit the name and address of the shareholder-proponent to “discourage the use of this rule by persons who are motivated by a desire for publicity rather than the interests of the company and its security holders.”

See

Notice of Proposed Amendments to Proxy Rules, Release No. 34-4950 (Oct. 9, 1953) [18 FR 6646 (Oct. 20, 1953)], at 6647. In amending the resubmission basis for exclusion in 1983, the Commission noted that commenters “felt that it was an appropriate response to counter the abuse of the security holder 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.”

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)], at 38221 (“1983 Adopting Release”). In addressing the personal-grievance basis for exclusion in 1982, the Commission noted that “[t]here has been an increase in the number of proposals used to harass issuers into giving the proponent some particular benefit or to accomplish objectives particular to the proponent.”

See

1982 Proposing Release,

supra

note 2, at 47427.

A proposal may be excluded if the rule's procedural requirements are not satisfied. These rules set forth the level of share ownership necessary to be eligible to submit a proposal, the number of proposals that a shareholder may submit for a particular shareholders' meeting, the proposal's permitted length and the deadline for submitting proposals.

The substantive requirements permit a company to exclude a proposal if the proposal would violate applicable law; would violate the proxy rules; relates to a proponent's personal grievance or personal interest; is not significantly related to the company's business; is not capable of being implemented by the company; deals with matters relating to the company's ordinary business operations; or has already been substantially implemented, among other grounds. Proponents and companies do not always agree on the application of these exclusions. Accordingly, if a company intends to exclude a shareholder proposal from its proxy materials on these grounds or any other ground, it is required under Rule 14a-8(j) to “file its reasons” for doing so with the Commission. These notifications are generally submitted in the form of a no-action request 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. The staff of the Divisions of Corporation Finance and Investment Management, as a convenience to both companies and shareholder-proponents, has for many years engaged in the informal practice of expressing whether the staff would recommend enforcement action to the Commission if a company excludes a proposal from its proxy materials. This is done to provide guidance as to the staff's views and to assist both companies and shareholder-proponents in complying with the federal proxy rules.

We are proposing modifications to, and seeking public comment on, two of the rule's procedural requirements and one of its substantive requirements.

The first proposed amendment is to Rule 14a-8(b), which establishes the eligibility requirements a shareholder-proponent must satisfy to have a proposal included in a company's proxy statement. Under the current rule, to be eligible to submit a proposal, a shareholder-proponent must have continuously held at least $2,000 in market value or 1 percent of the company's securities entitled to be voted on the proposal at the meeting for at least one year by the date the proposal is submitted.

The $2,000 ownership threshold was last substantively reviewed and updated by the Commission in 1998.

17 CFR 240.14a-8(b)(1).

See

Amendments To Rules On Shareholder Proposals, Release No. 34-40018 (May 21, 1998) [63

FR 29106 (May 28, 1998)] (“1998 Adopting Release”).

The second proposed amendment is to Rule 14a-8(c), which provides that each shareholder may submit no more than one proposal to a company for a particular shareholders' meeting.

17 CFR 240.14a-8(c).

The third proposed amendment is to Rule 14a-8(i)(12), which allows companies to exclude a shareholder proposal that “deals with substantially the same subject matter as another proposal or proposals that has or have been previously included in the company's proxy materials within the preceding 5 calendar years” if the matter was voted on at least once in the last three years and did not 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.

17 CFR 240.14a-8(i)(12).

These resubmission thresholds have been in place since 1954

and, like the ownership thresholds in Rule 14a-8(b), were last substantively reviewed by the Commission in 1998.

See

Adoption of Amendments to Proxy Rules, Release No. 34-4979 (Jan. 6, 1954) [19 FR 246 (Jan. 14, 1954)] (“1954 Adopting Release”).

See

1998 Adopting Release,

supra

note 8. The Commission sought public comment on the ownership and resubmission requirements in 2007 in connection with a proposed rule on proxy access, but these requirements have not been substantively revisited since 1998.

See

Shareholder Proposals, Release No. 34-56160 (Jul. 27, 2007) [72 FR 43488 (Aug. 3, 2007)] (“2007 Proxy Access Proposing Release”).

B. Roundtable on the Proxy Process

On November 15, 2018, the Commission's staff held a roundtable on the proxy process (“Proxy Process Roundtable”), which included a panel discussion on Rule 14a-8 and the shareholder-proposal process. The shareholder-proposal panelists expressed their views on the application of Rule 14a-8 and shared their experiences with shareholder proposals and the related benefits and costs involved for companies and shareholders. Among the topics addressed were ownership and resubmission thresholds under Rule 14a-8(b) and Rule 14a-8(i)(12), respectively, and the extent to which these thresholds are in need of updating.

Panelists from the issuer community recommended revising the ownership and/or resubmission thresholds,

while the panelists who have submitted shareholder proposals generally opposed revisions to these rules.

Among those favoring changes to these thresholds, several cited the costs to companies and their shareholders as a primary basis for raising ownership and/or resubmission thresholds.

Among those who support the current thresholds, one panelist stated that Rule 14a-8 already appropriately balances the costs and benefits of the shareholder-proposal process,

and another panelist suggested that Rule 14a-8 is currently a cost-effective mechanism that facilitates private ordering.

See

Transcript of the Roundtable on the Proxy Process (Nov. 15, 2018) (“Roundtable Transcript”),

available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf,

comments of Ning Chiu, Counsel, Capital Markets Group, Davis Polk & Wardwell LLP; Maria Ghazal, Senior Vice President, Business Roundtable; Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce Center for Capital Markets Competitiveness; and Dannette Smith, Secretary to the Board of Directors and Senior Deputy General Counsel, UnitedHealth Group.

See

Roundtable Transcript,

supra

note 13, comments of Michael Garland, Assistant Comptroller, Corporate Governance and Responsible Investment, Office of the Comptroller, New York City; Jonas Kron, Senior Vice President and Director of Shareholder Advocacy, Trillium Asset Management; Aeisha Mastagni, Portfolio Manager, Corporate Governance Unit, California State Teachers' Retirement System; James McRitchie, Publisher,

CorpGov.net;

and Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations.

See

Roundtable Transcript,

supra

note 13, comments of Ning Chiu, Counsel, Capital Markets Group, Davis Polk & Wardwell LLP, at 127; Tom Quaadman, Executive Vice President, U.S. Chamber of Commerce Center for Capital Markets Competitiveness, at 136; and Dannette Smith, Secretary to the Board of Directors and Senior Deputy General Counsel, UnitedHealth Group, at 148-49.

See

Roundtable Transcript,

supra

note 13, comments of Aeisha Mastagni, Portfolio Manager, Corporate Governance Unit, California State Teachers' Retirement System, at 134.

See

Roundtable Transcript,

supra

note 13, comments of Jonas Kron, Senior Vice President and Director of Shareholder Advocacy, Trillium Asset Management, at 124.

In connection with the Proxy Process Roundtable, the staff invited members of the public to provide their views on the proxy process via written comments.

We received many comment letters addressing Rule 14a-8. Some of these commenters recommended raising the ownership and/or resubmission thresholds,

while others were supportive of the current thresholds.

Several commenters expressed concern about the costs associated with

management's consideration of a proposal and/or its inclusion in the proxy statement.

Two commenters cited an estimate indicating an average cost to companies of $87,000 per shareholder proposal,

another commenter estimated its cost at more than $100,000 per proposal,

and another commenter cited a cost of approximately $150,000 per proposal.

Other commenters suggested the costs to companies are low and noted that most companies receive few, if any, shareholder proposals.

Some commenters expressed concern that a large number of proposals are submitted by a small number of individuals who own nominal stakes in the companies to which they submit proposals.

One commenter disagreed with this concern because proposals submitted by these individuals between 2004 and 2017 received an average level of support of 40 percent and, in the commenter's opinion, this level of support “indicates these filers provide a valuable service to fellow shareholders by promoting good corporate governance.”

Comment letters related to the Proxy Process Roundtable are available at

https://www.sec.gov/comments/4-725/4-725.htm.

See

letters in response to the Proxy Process Roundtable from Advent Capital Management, LLC dated July 29, 2019; American Securities Association dated June 7, 2019; Braemar Hotels & Resorts Inc. dated January 4, 2019; Business Roundtable dated June 3, 2019; U.S. Chamber of Commerce Center for Capital Markets Competitiveness dated November 12, 2018 and December 20, 2018; Center on Executive Compensation dated August 1, 2018; Chevron Corporation dated August 20, 2019; Exxon Mobil Corporation dated July 26, 2019; Group 1 Automotive, Inc. dated January 11, 2019; Institute for Policy Innovation dated October 11, 2018; Investment Company Institute dated March 15, 2019; National Association of Manufacturers dated October 30, 2018; Nareit dated November 12, 2018; Nasdaq, Inc. dated November 14, 2018; Nasdaq, Inc. et al. dated February 4, 2019; Society for Corporate Governance dated November 9, 2018; The Capital Group Companies, Inc. dated November 14, 2018; The Vanguard Group dated September 20, 2019; Tyler Technologies, Inc. dated September 20, 2019.

See

letters in response to the Proxy Process Roundtable from Addenda Capital et al. dated November 13, 2018; Adrian Dominican Sisters dated December 11, 2018; American Federation of Labor and Congress of Industrial Organizations dated November 9, 2018; Anonymous (19 commenters); California Public Employees' Retirement System dated December 11, 2018; California State Teachers' Retirement System dated November 30, 2018; City of New York Office of the Comptroller dated January 2, 2019; Conference for Corporate Responsibility Indiana and Michigan dated December 4, 2018; Council of Institutional Investors dated January 31, 2019; Theodore S. Cochrane dated January 2, 2019; Congregation of Sisters of St. Agnes dated December 4, 2018; Congregation of St. Basil dated December 3, 2018; CtW Investment Group dated January 16, 2019; Dana Investment Advisors dated November 30, 2018; Decatur Capital Management Inc. dated August 13, 2019; Dominican Sisters Grand Rapids dated December 2, 2018; Dominican Sisters of Springfield Illinois dated December 3, 2018; The Episcopal Church received December 11, 2018; Everence Financial dated December 6, 2018; FAIRR Initiative dated December 4, 2018; Franciscan Sisters of Perpetual Adoration dated December 5, 2018; Glass Lewis dated November 14, 2018; Green Century Capital Management, Inc. dated December 5, 2018; Interfaith Center on Corporate Responsibility dated November 6, 2018; Investor Voice, SPC dated November 14, 2018; Jantz Management LLC dated October 7, 2019; Jesuit Committee on Investment Responsibility dated December 10, 2018; Loring, Wolcott & Coolidge dated December 4, 2018; James McRitchie received November 27, 2018 and August 22, 2019; Mercy Investment Services, Inc. dated December 3, 2018; MFS Investment Management dated November 14, 2018; Midwest Coalition for Responsible Investment dated December 6, 2018; Missionary Oblates of Mary Immaculate dated December 12, 2018; Morningstar, Inc. dated December 17, 2018; NorthStar Asset Management, Inc. dated December 4, 2018; Pax World Funds dated November 9, 2018; Pension Investment Association of Canada dated April 17, 2019; Praxis Mutual Funds dated December 6, 2018; Presbyterian Church U.S.A. dated November 13, 2018; Priests of the Sacred Heart dated December 3, 2018; Province of St. Joseph of the Capuchin Order dated December 3, 2018; Racine Dominicans dated December 5, 2018; Robert E. Rutkowski dated November 15, 2018; Shareholder Rights Group dated September 17, 2018; Sisters of Charity—Halifax dated December 5, 2018; Sisters of St. Joseph of Orange dated December 18, 2018; Sisters of the Holy Cross dated December 10, 2018; Sisters of the Presentation of the Blessed Virgin Mary dated December 3, 2018; State of New York Office of the State Comptroller dated November 13, 2018; Trinity Health dated November 9, 2018; US SIF dated November 9, 2018; ValueEdge Advisors dated July 17, 2019; Washington State Investment Board dated November 14, 2018; Kyle Wright dated December 4, 2018.

See, e.g.,

letters in response to the Proxy Process Roundtable from American Securities Association dated June 7, 2019; Blackrock, Inc. dated November 16, 2018; Business Roundtable dated November 9, 2018; Exxon Mobil Corporation dated July 26, 2019; Nasdaq, Inc. dated November 14, 2018; Society for Corporate Governance dated November 9, 2018.

See

letters in response to the Proxy Process Roundtable from Blackrock, Inc. dated November 16, 2018; Society for Corporate Governance dated November 9, 2018.

See

letter in response to the Proxy Process Roundtable from Exxon Mobil Corporation dated July 26, 2019.

See

letter in response to the Proxy Process Roundtable from the American Securities Association dated June 7, 2019 (citing H.R. Rep No. 115-904, at 2 (2018)).

See, e.g.,

letters in response to the Proxy Process Roundtable from Council of Institutional Investors dated November 8, 2018 (citing Ceres et al., The Business Case for the Current SEC Shareholder Proposal Process 11-12 (2017),

available at https://www.ussif.org/files/Public_Policy/Comment_Letters/Business%20Case%20for%2014a-8.pdf

(“Ceres Business Case”)); Addenda Capital et al. dated November 13, 2018 (citing Adam M. Kanzer,

The Dangerous “Promise of Market Reform”: No Shareholder Proposals,

Harvard Law School Forum on Corporate Governance and Financial Regulation (Jun. 15, 2017),

available at https://corpgov.law.harvard.edu/2017/06/15/the-dangerous-promise-of-market-reform-no-shareholder-proposals/

See, e.g.,

letters in response to the Proxy Process Roundtable from Business Roundtable dated November 9, 2018; Center on Executive Compensation dated August 1, 2018.

See

letter in response to the Proxy Process Roundtable from Mercy Investment Services, Inc. dated December 3, 2018.

Below we discuss the proposed amendments to Rule 14a-8, which have been informed by the public input we have received, including in response to the Proxy Process Roundtable. 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 Proposed Amendments

A. Rule 14a-8(b)—Eligibility Requirements

1. Relevant History and Background of Rule 14a-8(b)

At the time the shareholder-proposal rule was initially adopted, a shareholder-proponent's eligibility to submit a proposal was not conditioned on owning a minimum amount of a company's securities, or holding the securities for a specified period of time. Instead, the rule enabled “a qualified security holder” to submit a proposal for inclusion in the company's proxy materials.

In 1947, the rule text was revised to specify that “any security holder entitled to vote at a meeting of security holders of the issuer” could submit a proposal.

In 1976, the Commission considered, but decided not to adopt, minimum ownership requirements, believing that there was not “sufficient justification” at that time for such requirements because the existing eligibility requirements “have not been abused.”

See

Release No. 34-3347 (Dec. 18, 1942) [7 FR 10655 (Dec. 22, 1942)].

See

Adoption of Revised Proxy Rules, Release No. 34-4037 (Dec. 17, 1947) [12 FR 8768 (Dec. 24, 1947)].

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”).

However, the Commission later reconsidered the matter in response to “criticisms of the current rule that have increased with the pressure placed upon the existing mechanism by the large number of proposals submitted each year and the increasing complexity of the issues involved in those proposals, as well as the susceptibility of certain provisions of the rule and the staff's interpretations thereunder to abuse by a few proponents and issuers.”

The Commission found merit in the views of many commenters that “abuse of the security holder proposal rule could be curtailed by requiring shareholders who put the company and other shareholders to the expense of including a proposal in a proxy statement to have some measured economic stake or investment interest in the corporation.”

The Commission accordingly amended the rule in 1983 to require shareholder-proponents to own “at least 1% or $1,000 in market value of securities entitled to be voted at the meeting” and to “have held such securities for at least one year.”

Co-proponents, however, were permitted to aggregate their holdings for purposes of meeting the ownership requirements.

1982 Proposing Release,

supra

note 2. at 47421. The Commission further explained: “It has been suggested that under current construction of the rule, a few proponents have been able to use the rule as a publicity mechanism to further personal interests that are unrelated to the interests of security holders as security holders and that certain sophisticated proponents, who submit proposals annually to a variety of issuers, are able to require the inclusion of a proposal which has generated little security holder interest by simply changing its form or minimally varying its coverage. The rule was not designed to burden the proxy solicitation process by requiring the inclusion of such proposals.”

Id.

at 47422 n.8.

See

1983 Adopting Release,

supra

note 6.

Id.

In addition, the Commission noted in 2007 that the one-year holding period ensures that shareholder proposals are submitted “by shareholders with a significant long-term stake in the company.”

See

2007 Proxy Access Proposing Release,

supra

note 12.

See

1983 Adopting Release,

supra

note 6.

In 1998, the Commission raised the $1,000 threshold to $2,000.

When it proposed this increase, the Commission explained that the revision was partly to adjust for inflation.

Upon adoption of the $2,000 threshold, the Commission noted that “[t]here was little opposition to the proposed increase among commenters.”

While the Commission had elected not to propose an amount higher than $2,000 “out of concern that a more significant increase could restrict access to companies' proxy materials by smaller shareholders,”

the Commission noted upon adopting the $2,000 threshold that several commenters “do not believe the increase is great enough to be meaningful, especially in light of the overall increase in stock prices over the last few years.”

The Commission accordingly indicated that it had “decided to limit the increase to $2,000

for now.

”

The Commission also sought comment on whether to shorten or lengthen the one-year holding period,

but it was not revised because, at that time, “there was no significant support for any modifications” to that

aspect of the rule.

The Commission has not revised the share ownership requirements since 1998.

See

1998 Adopting Release,

supra

note 8.

The Commission explained that the actual inflation adjustment would have been $600, which would have set the new threshold at $1,600. A new threshold of $2,000 was proposed, however, to account for future inflation and to simplify the calculation process.

See

Amendments to Rules on Shareholder Proposals, Release No. 34-39093 (Sep. 18, 1997) [62 FR 50682 (Sep. 26, 1997)] (“1997 Proposing Release”).

See

1998 Adopting Release,

supra

note 8.

See

1997 Proposing Release,

supra

note 36.

See

1998 Adopting Release,

supra

note 8.

Id.

(emphasis added).

See

1997 Proposing Release,

supra

note 36.

See

1998 Adopting Release,

supra

note 8.

2. Public Views on Rule 14a-8(b)

In recent years, some observers have advocated increasing the amount of securities a shareholder must own to be eligible to submit a shareholder proposal.

These groups have suggested alternative ownership requirements, such as eliminating the flat dollar threshold in favor of relying solely on a percentage-of-shares-owned test,

or raising the ownership threshold to $50,000, indexed annually for inflation.

Some observers have suggested raising the ownership requirements to lessen the burden on companies,

or to ensure that shareholder-proponents have a meaningful stake in the companies to which they submit proposals.

Others have suggested keeping the existing $2,000 requirement, or limiting any increase, to avoid excluding smaller investors,

and some have suggested that dropping the flat dollar threshold in favor of a percentage-only test would significantly limit shareholders' ability to submit shareholder proposals for inclusion in companies' proxy materials.

Several observers also have suggested lengthening the current one-year holding period requirement,

while at least one observer has suggested shortening it.

See, e.g.,

Business Roundtable, Responsible Shareholder Engagement and Long-Term Value Creation (Oct. 31, 2016),

available at https://s3.amazonaws.com/brt.org/archive/reports/BRT%20Shareholder%20proposal%20paper-final.pdf

(“BRT Report”); Nasdaq, The Promise of Market Reform: Reigniting America's Economic Engine (last updated Feb. 2018),

available at https://www.nasdaq.com/docs/Nasdaq_Blueprint_to_Revitalize_Capital_Markets_April_2018_tcm5044-43175.pdf

(“Nasdaq Report”); U.S. Dep't of Treasury, A Financial System That Creates Economic Opportunities 32 (Oct. 2017),

available at https://www.treasury.gov/press-center/press-releases/Documents/A-Financial-System-Capital-Markets-FINAL-FINAL.pdf

(“Treasury Report”);

see also

letters in response to the Proxy Process Roundtable from Advent Capital Management, Inc. dated July 29, 2019; Braemar Hotels & Resorts Inc. dated January 4, 2019; Business Roundtable dated November 9, 2018 and June 3, 2019; Center on Executive Compensation dated August 1, 2018; Group 1 Automotive, Inc. dated January 11, 2019; National Association of Manufacturers dated October 30, 2018; Nasdaq, Inc. dated November 14, 2018; Nasdaq, Inc. et al. dated February 4, 2019; Society for Corporate Governance dated November 9, 2018; The Capital Group Companies dated November 14, 2018. At the Commission's 38th Annual Government-Business Forum on Small Business Capital Formation held on August 14, 2019, one of the forum participant recommendations was to amend the submission thresholds.

See

BRT Report,

supra

note 43; Nasdaq Report,

supra

note 43.

See

letter in response to the Proxy Process Roundtable from Society for Corporate Governance dated November 9, 2018.

See id.

See, e.g.,

Nasdaq Report,

supra

note 43.

See

Ceres et al., An Investor Response to the U.S. Chamber's Proposal to Revise SEC Rule 14a-8, (Nov. 9, 2017),

available at http://www.iccr.org/sites/default/files/resources_attachments/investor_response_to_chamber_14a-8_nov_9_final_2.pdf; see also

letters in response to the Proxy Process Roundtable from Addenda Capital et al. dated November 13, 2018; Dominican Sisters of Adrian, Michigan dated December 11, 2018; American Federation of Labor and Congress of Industrial Organizations dated November 9, 2018; Anonymous (19 commenters); California Public Employees' Retirement System dated December 11, 2018; California State Teachers' Retirement System dated December 3, 2018; Conference for Corporate Responsibility Indiana and Michigan dated December 3, 2018; Congregation of Sisters of St. Agnes dated December 4, 2018; Council of Institutional Investors dated January 31, 2019; Theodore S. Cochrane dated January 2, 2019; Congregation of St. Basil dated December 3, 2018; CtW Investment Group dated January 16, 2019; Dominican Sisters—Grand Rapids dated December 2, 2018; Dominican Sisters of Springfield Illinois dated December 3, 2018; The Episcopal Church received December 11, 2018; Everence Financial dated December 6, 2018; FAIRR Initiative dated December 4, 2018; Form Letter A (18,614 letters); Franciscan Sisters of Perpetual Adoration dated December 5, 2018; Glass Lewis dated November 14, 2018; Interfaith Center on Corporate Responsibility dated November 6, 2018; Investor Voice, SPC dated November 14, 2018; Jesuit Committee on Investment Responsibility dated December 10, 2018; Loring, Wolcott & Coolidge dated December 4, 2018; James McRitchie received November 27, 2018; Mercy Investment Services, Inc. dated December 3, 2018; MFS Investment Management dated November 14, 2018; NorthStar Asset Management, Inc. dated December 4, 2018; Pax World Funds dated November 9, 2018; Pension Investment Association of Canada dated April 17, 2019; Praxis Mutual Funds dated December 6, 2018; Presbyterian Church (U.S.A.) dated November 13, 2018; Priests of the Sacred Heart dated December 3, 2018; Province of St. Joseph of the Capuchin Order dated December 3, 2018; Racine Dominicans dated December 5, 2018; Robert E. Rutkowski dated November 15, 2018; Shareholder Rights Group dated December 4, 2018; Sisters of Charity—Halifax dated December 5, 2018; Sisters of the Presentation of the Blessed Virgin Mary dated December 3, 2018; Sisters of St. Joseph of Orange dated December 18, 2018; Sisters of the Holy Cross dated December 10, 2018; State of New York Office of the State Comptroller dated November 13, 2018; Trinity Health dated November 9, 2018; Washington State Investment Board dated November 14, 2018.

See

Letter to Jeb Hensarling, Chairman and Maxine Waters, Ranking Member, House Financial Services Committee from Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors, dated April 24, 2017,

available at https://democrats-financialservices.house.gov/uploadedfiles/letter_-_cii_04.27.2017.pdf.

See

BRT Report,

supra

note 43;

see also

letters in response to the Proxy Process Roundtable from Advent Capital Management, LLC dated July 29, 2019; Business Roundtable dated November 9, 2018; Nasdaq, Inc. dated November 14, 2018; The Vanguard Group, Inc. dated September 20, 2019.

See

Roundtable Transcript,

supra

note 13, at 150, comments of Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations.

3. Need for Proposed Amendments

The shareholder-proposal process established by Rule 14a-8 facilitates engagement between shareholders and the companies they own. The rule also enables individual shareholders to shift to the company, and ultimately other shareholders, the cost of soliciting proxies for their proposals. Because it shifts burdens from proponents to companies, it is susceptible to overuse.

As the Commission has previously recognized, the ownership threshold and holding period in Rule 14a-8(b) aim to strike an appropriate balance such that a shareholder has some meaningful “economic stake or investment interest” in a company before the shareholder may draw upon company resources to require the inclusion of a proposal in the company's proxy statement, and before the shareholder may use the company's proxy statement to command the attention of other shareholders to consider and vote upon the proposal.

See

Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 85 (1991) (Under Rule 14a-8, “the majority must subsidize the activities of the minority who are allowed to make proposals without incurring the costs.”).

See

1982 Proposing Release,

supra

note 2; 1983 Adopting Release,

supra

note 6.

Much has changed since the Commission last considered amendments to Rule 14a-8, including the level and ease of engagement between companies and their shareholders. For instance, shareholders now have alternative ways, such as through social media, to communicate their preferences to companies and effect change.

See, e.g.,

Donna Fuscaldo,

Say Gives Retail Investors A Voice And Tesla Listens,

Forbes (Feb. 19, 2019),

https://www.forbes.com/sites/donnafuscaldo/2019/02/19/say-gives-retail-investors-a-voice-and-tesla-listens/;

Vanessa Fuhrmans,

Some U.S. Companies Bow to Social-Media Pressure, Sever NRA Ties, Wall Street Journal

(Feb. 24, 2018),

https://www.wsj.com/articles/some-u-s-companies-bow-to-social-media-pressure-sever-nra-ties-1519431715.

We are concerned that the $2,000/one-year threshold established in 1998 does not strike the appropriate balance today. We believe that holding $2,000 worth of stock for a single year does not demonstrate enough of a meaningful economic stake or investment interest in a company to warrant the inclusion of a shareholder's proposal in the company's proxy statement. As the table below demonstrates, the $2,000 threshold, adjusted for inflation, would be equal to $3,152 in 2019 dollars.

Moreover, using the cumulative growth of the Russell 3000 Index as a proxy for the average increase in companies' values, a $2,000 investment in a company in 1998 would be worth approximately $8,379 today.

We believe that the increase in price of shares and changes in inflation have contributed, in part, to the need to revisit the one-year holding period associated with the $2,000 threshold.

$3,152 = $2,000 × 1.576 (cumulative rate of inflation between May 1998 and August 2019 using the CPI inflation calculator,

available at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11%2C600.00&year1=201011&year2=201906

$8,379 = $2,000 × 4.190 (cumulative rate of growth of the Russell 3000 index between May 1998 and August 2019 assuming dividends are reinvested). Data is retrieved from Compustat Daily Updates—Index Prices.

Ownership Threshold Comparison

Threshold established in 1998

1998 threshold adjusted for inflation

Change in Russell 3000 Index

$2,000

$3,152

$8,379

We recognize that the amount of stock owned is not the only way to demonstrate an interest in a company, particularly for small investors. In many cases, the length of time owning the company's securities may be a more meaningful indicator that a shareholder has a sufficient interest that warrants use of the company's proxy statement. A shareholder's demonstrated long-term investment interest in a company may make it more likely that the shareholder's proposal will reflect a greater interest in the company and its shareholders, rather than an intention to use the company and the proxy process to promote a personal interest or publicize a general cause. A shareholder's demonstrated long-term investment interest may also make it more likely that a shareholder will continue to hold the shares after the shareholder's proposal is voted upon, and thus more likely that any costs of implementing the shareholder's proposal will be borne in part by the shareholder responsible for the proposal. We believe having a longer holding period is particularly important if the dollar value of the ownership interest is minimal because a person seeking to misuse the shareholder-proposal process could more easily purchase the smallest possible stake in a company to take advantage of the process.

4. Proposed Amendments

We are proposing to establish enhanced ownership requirements under Rule 14a-8(b) that take into account both the amount of securities owned and the length of time held, in determining a shareholder's eligibility to submit a shareholder proposal. Under the proposed ownership requirements, the shareholder-proposal process would remain available to a wide range of shareholders, including those with smaller investments, but would require those with smaller investments to hold their shares for a longer period of time. We believe these new thresholds would more appropriately balance the interests of shareholders who seek to use the company's proxy statement to advance their own proposals, on the one hand, with the interests of companies and other shareholders who bear the burdens associated with the inclusion of such proposals, on the other hand. We also believe the new thresholds would be a better indicator of a shareholder's investment interest in the company.

Under the proposed rule, a shareholder would be eligible to submit a Rule 14a-8 proposal for inclusion in a company's proxy materials if the shareholder satisfies one of three ownership requirements, each of which is designed to show that the shareholder-proponent has a demonstrated economic stake or investment interest in the company to which the proposal is submitted. Specifically, a shareholder would be eligible to submit a Rule 14a-8 proposal if the shareholder has continuously held at least:

• $2,000 of the company's securities entitled to vote on the proposal for at least three years;

• $15,000 of the company's securities entitled to vote on the proposal for at least two years; or

• $25,000 of the company's securities entitled to vote on the proposal for at least one year.

Due to market fluctuations, the value of a shareholder's investment in a company may vary throughout the applicable holding period before the shareholder submits the proposal. In order to determine whether the shareholder satisfies the relevant ownership threshold, the shareholder should look at whether, on any date within the 60 calendar days before the date the shareholder submits the proposal, the shareholder's investment is valued at the relevant threshold or greater, based on the average of the bid and ask prices.

See

1983 Adopting Release,

supra

note 6.

The proposed rule would retain the key elements of a minimum amount of securities owned and minimum time period held, including retaining the current $2,000 threshold for shares held continuously for at least three years. The tiered approach under the proposed revision would provide multiple options for demonstrating an ownership stake through a combination of amount of securities owned and length of time held. We believe this approach takes into account the varying situations of shareholders and would be preferable to a one-size-fits-all approach. Under the proposed rule, shareholders owning a smaller amount of securities could utilize the rule, provided that ownership was continuous over a longer period of time. The tiered approach would enable other shareholders to demonstrate an economic stake or investment interest through larger ownership interests and shorter holding periods.

Under the proposed rule, the current $2,000 threshold would remain the same to preserve the ability of long-term shareholders owning a relatively small amount of shares to continue to utilize Rule 14a-8, but these investors would be required to hold the securities for at least three years to be eligible to submit a proposal. In light of the small investment amount required under this ownership tier, we believe that a longer holding period is warranted to demonstrate a shareholder's sufficient investment interest in the company and, in turn, to justify requiring the company to include such a shareholder's proposal in its proxy statement.

We are proposing two additional eligibility options for shareholders, reflecting differences in amount of securities held and length of time held. We believe that the proposed thresholds

of $15,000 for at least two years and $25,000 for at least one year are each indicative of a shareholder having an economic stake or investment interest in the company that would justify requiring the company to include such a shareholder's proposal in its proxy statement.

We also propose to eliminate the current 1 percent ownership threshold, which historically has not been utilized. The vast majority of investors that submit shareholder proposals do not meet a 1 percent ownership threshold.

In addition, we understand that the types of investors that hold 1 percent or more of a company's shares generally do not use Rule 14a-8 as a tool for communicating with boards and management.

See

letter to Bill Huizenga, Chairman and Carolyn B. Maloney, Ranking Member, Subcommittee on Capital Markets, Securities, and Investment Committee on Financial Services from Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors, dated May 22, 2018 (explaining that “[e]ven [the Council of Institutional Investors'] largest public pension fund members rarely hold 1% of a public company”),

available at https://www.cii.org/files/May%2022,%202018%20Letter%20to%20Capital%20Markets%20Subcommittee%20(final).pdf;

letter to The Honorable Maxine Waters, Ranking Member, Committee on Financial Services from Jack Ehnes, Chief Executive Officer, CalSTRS, (June 5, 2017), at 1 (“While one percent may sound like a small amount, even a large investor like the $200 billion CalSTRS fund does not own one percent of publicly traded companies.”),

available at https://www.calstrs.com/sites/main/files/fileattachments/06-05-2017_maxine_financial_choice_act.pdf;

Statement of New York City Comptroller Scott M. Stringer on the April 19th Discussion Draft of the Financial CHOICE Act of 2017 (Apr. 25, 2017), at 1 (“Despite being among the largest pension investors in the world, we rarely hold more than 0.5% of any individual company, and most often hold less.”),

available at https://comptroller.nyc.gov/newsroom/testimonies/statement-of-new-york-city-comptrollerscott-m-stringer-on-the-april-19th-discussion-draft-of-the-financial-choice-act-of-2017-act/.

See, e.g.,

Roundtable Transcript,

supra

note 13, at 150, comments of Brandon Rees, Deputy Director of Corporations and Capital Markets, American Federation of Labor and Congress of Industrial Organizations.

The following table compares the proposed dollar thresholds as a percentage of market value as of December 2018 for the S&P 500 Index constituents and May 2019 for the Russell 3000 Index constituents:

Data for the S&P 500 constituents is retrieved from CRSP and data for the Russell 3000 constituents is retrieved from

Market Capitalization Ranges,

FTSE Russell Market,

https://www.ftserussell.com/research-insights/russell-reconstitution/market-capitalization-ranges

(last visited Oct. 31, 2019).

Registrant

$2,000

Threshold as

a percentage

of market value

$15,000

Threshold as

a percentage

of market value

$25,000

Threshold as

a percentage

of market value

Largest Registrant in the S&P 500 Index

0.0000003

0.0000019

0.0000032

500th Registrant in the S&P 500 Index

0.0001

0.0005

0.0009

3,000th Registrant in the Russell Index

0.0013

0.0098

0.0164

The proposed rule would not allow shareholders to aggregate their securities with other shareholders to meet the applicable minimum ownership thresholds to submit a Rule 14a-8 proposal. Although the Commission allowed shareholders to aggregate their holdings when it first adopted ownership thresholds in 1983, it did not provide reasons for doing so. We believe that allowing shareholders to aggregate their securities to meet the new proposed thresholds would undermine the goal of ensuring that every shareholder who wishes to use a company's proxy statement to advance a proposal has a sufficient economic stake or investment interest in the company.

Shareholders, however, would continue to be permitted to co-file or co-sponsor shareholder proposals as a group if each shareholder-proponent in the group meets an eligibility requirement. Shareholder-proponents often co-file or co-sponsor a shareholder proposal for a variety of reasons, such as conveying to the company's management, board, and other shareholders that the proposal has support from other shareholders. A lead filer is sometimes designated as the primary point of contact for the proposal, and each co-filer authorizes the lead filer to negotiate with the company and/or withdraw the proposal on the co-filer's behalf. Currently the rules do not require shareholder-proponents to designate a lead filer or make explicit other arrangements, but we believe this practice could facilitate engagement and reduce administrative burdens on companies, co-filers, and the staff. We believe that, as a best practice, shareholder-proponents should clearly state in their initial submittal letter to the company that they are co-filing the proposal with other proponents and identify the lead filer, specifying whether such lead filer is authorized to negotiate with the company and withdraw the proposal on the co-filer's behalf. Although we are not proposing to require this practice in our rules, we request comment as to whether we should revise the rules to require that co-filers identify a lead filer.

We note that ambiguities in the nature of coordination on a proposal's submission could prompt companies to seek exclusion under Rule 14a-8(i)(11). Specifically, if two or more shareholder-proponents submit substantially duplicative proposals but fail to clearly indicate that they intend to co-file or co-sponsor the proposal, the later-received proposal may be susceptible to exclusion under Rule 14a-8(i)(11).

We believe the proposed tiered thresholds would appropriately balance shareholders' ability to submit proposals with the attendant burdens. We are mindful of concerns that any revisions to the ownership requirements may have a greater effect on shareholders with smaller investments. We believe that the amendments we are proposing today adequately preserve the ability of smaller shareholders to submit proposals. Importantly, the proposed thresholds allow small and large shareholders to continue to participate in the shareholder-proposal process. We are, however, seeking comment on whether we should use other thresholds and/or criteria for determining eligibility to submit shareholder proposals and, if so, what thresholds or criteria should be considered.

We request and encourage any interested person to submit comments regarding the proposed amendments, specific issues discussed in this release, and other matters that may have an effect on the proposals. We note that comments are of the greatest assistance if accompanied by supporting data and analysis of the issues addressed in those comments.

Request for Comment

1. We are proposing to amend Rule 14a-8(b) to establish new ownership requirements for establishing an investor's eligibility to submit a shareholder proposal to be included in a company's proxy statement. Should we amend Rule 14a-8(b) as proposed?

2. The proposed amendments seek to strike a balance between maintaining an avenue of communication for shareholders, including long-term shareholders, while also recognizing the costs incurred by companies and their shareholders in addressing shareholder proposals. Are there other considerations we should take into account?

3. Should we adopt a tiered approach, providing multiple eligibility options, as proposed? Are there other approaches that would be preferable instead?

4. How is a sufficient economic stake or investment interest best demonstrated? Is it by a combination of amount invested and length of time held, as proposed, or should another approach to eligibility be used?

5. Are the proposed dollar amounts and holding periods that we propose for each of the three tiers appropriate? Are there other dollar amounts and/or holding periods that would better balance shareholders' ability to submit proposals and the related costs? Should any dollar amounts be indexed for inflation or stock-market performance?

6. We are proposing to maintain the $2,000 ownership level, but increase the corresponding holding period to three years. Should we also increase the $2,000 threshold? If so, what would be an appropriate increase? For example, should we adjust for inflation (

e.g.,

$3,000) or otherwise establish a higher amount?

7. Are there potential drawbacks with the tiered approach? If so, what are they?

8. Instead of adopting a tiered approach, should we simply increase the $2,000/one-year requirement? If so, what would be an appropriate threshold?

9. Should the current 1 percent test be eliminated, as proposed? Should the 1 percent threshold instead be replaced with a different percentage threshold? Are there ways in which retaining a percentage-based test would be useful in conjunction with the proposed tiered thresholds?

10. Should we instead use only a percentage-based test? If so, at what percentage level? Are there practical difficulties associated with a percentage-based test such as calculation difficulties that we should take into consideration?

11. Should we prohibit the aggregation of holdings to meet the thresholds, as proposed? Would allowing aggregation of holdings be consistent with a shareholder having a sufficient economic stake or investment interest in the company to justify the costs associated with shareholder proposals?

12. If we were to allow shareholders to aggregate their holdings to meet the thresholds, should there be a limit on the number of shareholders that could aggregate their shares for purposes of satisfying the proposed ownership requirements? If so, what should the limit be? For example, should the number of shareholders that are permitted to aggregate be limited to five so as to reduce the administrative burden on companies associated with processing co-filed submissions?

13. Should we require shareholder-proponents to designate a lead filer when co-filing or co-sponsoring a proposal? Would doing so facilitate engagement and reduce administrative burdens on companies and co-filers? If we required shareholder-proponents to designate a lead filer, should we require that the lead filer be authorized to negotiate the withdrawal of the proposal on behalf of the other co-filers? Would such a requirement encourage shareholders to file their own proposals rather than co-file? Would the number of shareholder proposal submissions increase as a result?

14. What other avenues can or do shareholders use to communicate with companies besides the Rule 14a-8 process? Has the availability and effectiveness of these other channels changed over time?

15. Unlike other issuers, open-end investment companies generally do not hold shareholder meetings each year. As a result, several years may pass between the submission of a shareholder proposal and the next shareholder meeting. In these cases, the submission may no longer reflect the interest of the proponent or may be in need of updating, or the shareholder may no longer own shares or may otherwise be unable to present the proposal at the meeting. Should any special provisions be considered, after some passage of time (

e.g.,

two years, three years, five years, etc.), to require shareholders to reaffirm submission of shareholder proposals for open-end investment companies or, absent reaffirmation, for the proposals to expire?

16. Does the Rule 14a-8 process work well? Should the Commission staff continue to review proposals companies wish to exclude? Should the Commission instead review these proposals? Is there a different structure that might serve the interests of companies and shareholders better? Are states better suited to establish a framework governing the submission and consideration of shareholder proposals?

B. Proposals Submitted on Behalf of Shareholders

1. Background

Companies receive proposals under Rule 14a-8 from individuals and entities that may not qualify to submit proposals at a particular company in their own name, but have arrangements to serve as a representative to submit a proposal on behalf of individuals or entities that have held a sufficient number of shares for the requisite period. We also understand that shareholders may wish to use a representative for a number of reasons, including to obtain assistance from someone who has more experience with the shareholder-proposal process or as a matter of administrative convenience. Often, the shareholder has an established relationship with the representative (

e.g.,

the shareholder has previously used the representative to submit proposals on his or her behalf, or the representative serves as the shareholder's investment adviser). In practice, the representative typically submits the proposal to the company on the shareholder's behalf along with necessary documentation, including evidence of ownership (typically in the form of a broker letter) and the shareholder's written authorization for the representative to submit the proposal and act on the shareholder's behalf. After the initial submission, the representative acts on the shareholder's behalf in connection with the matter, and communications between the shareholder and company related to the shareholder proposal are generally handled by the representative.

Rule 14a-8 does not address a shareholder's ability to submit a proposal for inclusion in a company's proxy materials through a representative; absent Commission regulation, this practice has been governed by state agency law.

Nevertheless, proposals are submitted by representatives who may or may not themselves have an economic stake in the relevant company. Some commenters have raised concerns about the use of a representative in the shareholder-proposal process.

For

example, some observers have suggested that it may be difficult in some cases to ascertain whether the shareholder in fact supports the proposal that has been submitted on their behalf.

When a representative speaks and acts for a shareholder, there may be a question as to whether the shareholder has a genuine and meaningful interest in the proposal, or whether the proposal is instead primarily of interest to the representative, with only an acquiescent interest by the shareholder. This uncertainty may also raise questions about whether the eligibility requirements of Rule 14a-8(b) have been satisfied.

We also note that it can be burdensome for companies to verify the purported agency relationship where the documentation provided by the person or entity submitting the proposal does not clearly establish that relationship.

Although Rule 14a-8 does not address a shareholder's ability to submit a proposal through a representative, it contemplates a representative presenting a proposal on the shareholder's behalf at a shareholders' meeting. Specifically, Rule 14a-8(h) states that the shareholder, or a “representative who is qualified under state law to present the proposal on [the shareholder's] behalf, must attend the meeting and present the proposal.” 17 CFR 240.14a-8(h).

See, e.g.,

BRT Report,

supra

note 43; Statement of Darla C. Stuckey, President and CEO, Society for

Corporate Governance, Before the H. Comm. on Financial Services Subcomm. on Capital Markets and Government Sponsored Enterprises, Sept. 21, 2016;

see also

letter in response to the Proxy Process Roundtable from Exxon Mobil Corporation dated July 26, 2019.

See, e.g.,

Statement of Darla C. Stuckey, President and CEO, Society for Corporate Governance, Before the H. Comm. on Financial Services Subcomm. on Capital Markets and Government Sponsored Enterprises, Sept. 21, 2016.

In 2017, the staff of the Division of Corporation Finance (the “Division”) issued Staff Legal Bulletin No. 14I (“SLB 14I”) to address some of the challenges and concerns stemming from a shareholder's use of an agent in the shareholder-proposal process. In SLB 14I, the Division explained that, in evaluating whether the eligibility requirements of Rule 14a-8(b) have been satisfied, it would look to whether a shareholder who uses an agent in the shareholder-proposal process provides documentation describing the shareholder's delegation of authority to the agent. SLB 14I also explained that, where this information is not provided, there may be a basis to exclude the proposal under Rule 14a-8(b). SLB 14I represents the views of the staff of the Division. It is not a rule, regulation, or statement of the Commission. Furthermore, the Commission has neither approved nor disapproved its content. SLB 14I, like all staff guidance, has no legal force or effect, it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

2. Proposed Amendments

To help address these challenges and concerns, we are proposing to amend the eligibility requirements of Rule 14a-8 to require shareholders that use a representative to submit a proposal for inclusion in a company's proxy statement to provide documentation attesting that the shareholder supports the proposal and authorizes the representative to submit the proposal on the shareholder's behalf. Specifically, the proposed rule would require documentation that:

• Identifies the company to which the proposal is directed;

• Identifies the annual or special meeting for which the proposal is submitted;

• Identifies the shareholder-proponent and the designated representative;

• Includes the shareholder's statement authorizing the designated representative to submit the proposal and/or otherwise act on the shareholder's behalf;

• Identifies the specific proposal to be submitted;

• Includes the shareholder's statement supporting the proposal; and

• Is signed and dated by the shareholder.

We believe an affirmative statement that the shareholder authorizes the designated representative to submit the proposal and/or otherwise act on the shareholder's behalf would help to make clear that the representative has been so authorized. In addition, we believe that a shareholder's affirmative statement that it supports the proposal would help to ensure that the interest being advanced by the proposal is the shareholder's own.

We believe that these proposed amendments would help safeguard the integrity of the shareholder-proposal process and the eligibility restrictions by making clear that representatives are authorized to so act, and by providing a meaningful degree of assurance as to the shareholder-proponent's identity, role, and interest in a proposal that is submitted for inclusion in a company's proxy statement. We also believe that the burden on shareholders of providing this information would be minimal, and we note that much of it is often already provided by shareholders. We also believe that these requirements would reduce some of the administrative burdens on companies associated with confirming the principal-agent relationship.

Request for Comment

17. We are proposing to amend Rule 14a-8's eligibility requirements to require certain additional information when a shareholder uses a representative to act on its behalf in the shareholder-proposal process. Should we amend the rule as proposed?

18. Are the informational requirements we are proposing appropriate? Should we require any additional information or action? If so, what additional information or action should we require? For example, should there be a notarization requirement? How would these measures affect the burden on shareholders?

19. Is any of the proposed information unnecessary to demonstrate the existence of a principal-agent relationship and/or the shareholder-proponent's role in the shareholder-proposal process? If so, what information is unnecessary?

20. Are there legal implications outside of the federal securities laws that we should be aware of or consider in allowing a principal-agent relationship in the context of the shareholder-proposal rule?

21. As part of the shareholder-proposal submission process, representatives generally deliver to companies the shareholder's evidence of ownership for purposes of satisfying the requirements of Rule 14a-8(b). Where the shareholder's shares are held in street name, this evidence comes in the form of a broker letter from the shareholder's broker. Since a broker letter from the shareholder's broker generally cannot be obtained without the shareholder's authorization, does the fact that the representative is able to provide this documentation sufficiently demonstrate the principal-agent relationship and/or the shareholder's role in the shareholder-proposal process? Is the answer different if the representative is the shareholder's investment adviser that owes a fiduciary duty to the shareholder?

C. The Role of the Shareholder-Proposal Process in Shareholder Engagement

1. Background

While Rule 14a-8 provides a means for shareholder-proponents to advance proposals and solicit proxies from other shareholders, the rule is only one of many mechanisms for shareholders to engage with companies and to advocate for the measures they propose. Other forms of engagement, including dialogue between a shareholder and management, may sometimes accomplish a shareholder's goals without the burdens associated with including a proposal in a company's proxy statement. Company-shareholder engagement can thus be an important aspect of the shareholder-proposal process, which we encourage both before and after the submission of a shareholder proposal. Proactive company engagement with shareholders has increased in recent years,

and shareholders frequently withdraw their proposals as a result of company-shareholder engagement.

We believe

that encouraging this trend would be beneficial both to companies and to shareholders.

See

letters in response to the Proxy Process Roundtable from Business Roundtable dated June 3, 2019; Chevron Corporation dated August 20, 2019; Society for Corporate Governance dated November 9, 2018.

Company-shareholder engagement with respect to shareholder proposals has led to an increase in

the number of withdrawn proposals in recent years.

See, e.g.,

letters in response to the Proxy Process Roundtable from Everence Financial dated December 6, 2018 (“an increasing number of resolutions end up being withdrawn by the proponent because of conversations between [the proponent] and the company”); Praxis Mutual Funds dated December 6, 2018 (same); Principles for Responsible Investment dated November 14, 2018 (“a growing number of shareholder proposals are withdrawn due to corporate management developing workable solutions with investors”).

We understand that shareholder proposals are at times used as the sole method of engaging with companies despite a company's willingness to discuss, and possibly resolve, the matter with the shareholder.

In those cases, Rule 14a-8 may cause a shareholder to burden a company and other shareholders with a proxy vote that may have been avoided had meaningful engagement taken place. While we recognize that engagement may not always obviate the need for a proposal to be put to a vote, we believe that shareholders should be required to state when they are available to engage with a company when they submit a proposal for inclusion in the company's proxy statement. We believe that such a statement of availability would encourage greater dialogue between shareholders and companies in the shareholder-proposal process, and may lead to more efficient and less costly resolution of these matters.

We recognize that some shareholder-proponents use a shareholder proposal as a way to open a dialogue with management and not with the objective of having the matter go to a vote.

See

Roundtable Transcript,

supra

note 13, comments of Michael Garland, Assistant Comptroller, Corporate Governance and Responsible Investment, Office of the Comptroller, New York City.

2. Proposed Amendment

We are proposing to amend Rule 14a-8(b) to add a shareholder engagement component to the current eligibility criteria. Specifically, the proposed amendment would require a statement from each shareholder-proponent that he or she is able to meet with the company in person or via teleconference no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal.

The shareholder would be required to include contact information as well as business days and specific times that he or she is available to discuss the proposal with the company.

The proposal's date of submission is the date the proposal is postmarked or transmitted electronically. In the event the proposal is hand delivered, the submission date would be the date of hand delivery.

The contact information and availability would have to be the shareholder's, and not that of the shareholder's representative (if the shareholder uses a representative). A shareholder's representative could, however, participate in any discussions between the company and the shareholder.

We believe that this proposed eligibility requirement would encourage shareholders to engage with companies, and could facilitate useful dialogue between the parties by enabling the company to reach out directly to a shareholder-proponent to understand his or her concerns, potentially leading to a more mutually satisfactory and less burdensome resolution of the matter.

Request for Comment

22. We are proposing to amend Rule 14a-8(b) to add a shareholder engagement component to the current eligibility criteria that would require a statement from the shareholder-proponent that he or she is able to meet with the company in person or via teleconference no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal. Should we adopt the amendment as proposed? Could the shareholder engagement component be unduly burdensome or subject to abuse rather than facilitating engagement between the shareholder-proponent and the registrant? If so, how could we address such undue burden or abuse?

23. We are also proposing to require that the shareholder-proponent include contact information as well as business days and specific times that he or she is available to discuss the proposal with the company. Should we adopt this amendment as proposed? Should we specify any additional requirements for the contact information or availability? For example, should we require a telephone number or email address to be included? Should we require a minimum number of days or hours that the shareholder-proponent be available?

24. Would companies be more likely to engage with shareholders if the proposed amendment was adopted? Are there other ways to encourage such engagement that we should consider? Are there potential negative consequences of encouraging such engagement between individual shareholders and a company, or are there other potential negative consequences of this proposal?

25. As proposed, a shareholder would have to provide a statement that he or she is able to meet with the company in person or via teleconference no less than 10 calendar days, nor more than 30 calendar days, after submission of the shareholder proposal. Is this timeframe appropriate? If not, what would be an appropriate timeframe?

26. If the shareholder uses a representative, should we also require that the representative provide a similar statement as to his or her ability to meet to discuss the proposal with the company?

27. Should companies be required to represent that they are able to meet with shareholder-proponents?

28. What are ways that companies engage with shareholders outside of the shareholder-proposal process?

D. One-Proposal Limit

1. Background

Rule 14a-8(c) provides that “each shareholder may submit no more than one proposal to a company for a particular shareholders' meeting.” As the Commission explained when it adopted this restriction in 1976, the submission of multiple proposals by a single shareholder-proponent “constitute[s] an unreasonable exercise of the right to submit proposals at the expense of other shareholders” and also may “tend to obscure other material matters in the proxy statement of issuers, thereby reducing the effectiveness of such documents.”

See

1976 Adopting Release,

supra

note 30.

At the time the one-proposal limitation was adopted, the Commission explained that it was “aware of the possibility that some proponents may attempt to evade the new limitations through various maneuvers, such as having other persons whose securities they control submit . . . proposals each in their own names.”

To combat this type of abuse, the Commission clarified that the limitation “will apply collectively to all persons having an interest in the same securities (

e.g.,

the record owner and the beneficial owner, and joint tenants).”

Id.

Id. This limitation would continue to apply under the proposed amendments.

We continue to believe that this one-proposal limit is appropriate. In our view, the Commission's stated reasoning for the one-proposal limit applies equally to representatives who submit proposals on behalf of shareholders they represent. We believe permitting representatives to submit multiple proposals for the same shareholders' meeting would undermine the purpose of the one-proposal limit.

2. Proposed Amendment

We propose an amendment to Rule 14a-8(c) to apply the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal. The amended rule would state, “Each person may submit no more than one proposal, directly or indirectly, to a company for a particular shareholders' meeting. A person may not rely on the securities holdings of another person for the purpose of meeting the eligibility requirements and submitting multiple proposals for a particular shareholders' meeting.” Under the proposed rule, a shareholder-proponent may not submit one proposal in its own name and simultaneously serve as a representative to submit a different proposal on another shareholder's behalf for consideration at the same meeting. Similarly, a representative would not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative would be submitting each proposal on behalf of different shareholders. In our view, a shareholder submitting one proposal personally and additional proposals as a representative for consideration at the same meeting, or submitting multiple proposals as a representative at the same meeting, would constitute an unreasonable exercise of the right to submit proposals at the expense of other shareholders and also may tend to obscure other material matters in the proxy statement. We believe this amendment to the rule text would more consistently apply the one-proposal limit to shareholders and representatives of shareholders.

The amendment is not intended to prevent shareholders from seeking assistance and advice from lawyers, investment advisers, or others to help them draft shareholder proposals and navigate the shareholder-proposal process. Providing such assistance to more than one shareholder would still be permissible. However, to the extent that the provider of such services submits a proposal, either as a proponent or as a representative, it would be subject to the one-proposal limit and would not be permitted to submit more than one proposal in total. We seek comment, however, on whether the proposed amendment would have unintended consequences on the practice of shareholders using representatives to submit shareholder proposals.

We also are seeking comments on whether we should eliminate the practice of allowing natural-person shareholders to use a representative to submit a proposal. We request comment on whether the concerns raised by a shareholder's use of a representative would be better addressed with an amendment to the rule text, as proposed, or by prohibiting such use of a representative for the purpose of Rule 14a-8.

Request for Comment

29. We are proposing to amend Rule 14a-8(c) to explicitly state, “Each person may submit no more than one proposal, directly or indirectly, to a company for a particular shareholders' meeting. A person may not rely on the securities holdings of another person for the purpose of meeting the eligibility requirements and submitting multiple proposals for a particular shareholders' meeting.” Should we amend the rule as proposed?

30. Would the proposed amendment have unintended consequences on shareholders' use of representatives or other types of advisers, such as lawyers or investment advisers, and, if so, what are those consequences?

31. Alternatively, should we amend Rule 14a-8 to explicitly state that a proposal must be submitted by a natural-person shareholder who meets the eligibility requirements and not by a representative? If so, should we clarify that although a shareholder may hire someone to draft the proposal and advise on the process, the shareholder must be the one to submit the proposal?

32. Alternatively, should we require the shareholder-proponent to disclose to the company how many proposals it has submitted in the past to that company? For example, should we require disclosure of the number of proposals the shareholder has submitted directly, through a representative, or as a representative to the company in the last five years? Should companies be required to disclose this information in the proxy statement? Would this information be material to other shareholders when considering how to vote on the proposal?

33. If adopted, would the proposed informational requirements discussed in Section II.B alleviate the concerns addressed in this section such that the proposed amendments to Rule 14a-8(c) would be unnecessary?

34. In lieu of, or in addition to, limiting the number of proposals a shareholder would be able to submit directly or as a representative for other shareholders, should we adopt a total limit on the number of proposals allowed to be submitted per company per meeting? If so, what numerical limit would be appropriate, and how should such a limit be imposed?

35. As an alternative or in addition to limiting the number of proposals a shareholder would be able to submit directly or as a representative for other shareholders, should we adopt a limit on the aggregate number of shareholder proposals a person could submit in a particular calendar year to all companies? If so, what would be an appropriate limit, and how would such a limit be imposed?

36. Should we require companies to disclose how many proposals were withdrawn and therefore not included in the proxy statement, and how many were excluded pursuant to a no-action request?

E. Rule 14a-8(i)(12)—Resubmissions

1. Relevant History and Background of Rule 14a-8(i)(12)

Since 1948, the Commission has not required a company to include a proposal in its proxy statement “if substantially the same proposal was submitted to the security holders for action at the last annual meeting of security holders or at any special meeting held subsequent thereto and received less than three percent of the total number of votes cast in regard to the proposal.”

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.”

In 1954, the Commission observed that the ability to resubmit proposals that received 3 percent or more of the vote “resulted in the repetition year after year of proposals which have evoked very modest stockholder interest,” and amended the provision to add two additional resubmission thresholds; 6 percent if the matter had been previously voted on twice and 10 percent if the matter had been previously voted on three or more times.

As a result from 1954 to until today, a shareholder proposal was excludable if substantially the same proposal, or substantially the same subject matter, had previously been submitted during the relevant lookback period and received less than 3, 6, or 10 percent of the vote the last time it was voted on if voted on once, twice, or three or more times, respectively.

See

Adoption of Amendments to Proxy Rules, Release No. 34-4185 (Nov. 5, 1948) [13 FR 6678 (Nov. 13, 1948)].

See id.

See

1954 Adopting Release,

supra

note 11.

See id.

In 1983, the Commission raised the 3 and 6 percent thresholds to 5 and 8 percent, respectively, but these new thresholds subsequently were vacated because a court found that the Commission had not provided adequate notice of its proposal to raise the thresholds. The Commission accordingly reinstated the 3 and 6 percent thresholds in 1985, and it elected not to propose new thresholds at that time.

See

Proposals of Security Holders, Release No. 34-22625 (Nov. 14, 1985) [50 FR 48180 (Nov. 22, 1985)]. The U.S. District Court for the District of Columbia held that there was inadequate notice of the proposed rulemaking under the Administrative Procedure Act, explaining that the Commission had requested comment on “the appropriate levels for the percentage tests,” but “did not propose new percentage thresholds,” did not “reveal the theories that prompted the SEC to propose the change,” and did not indicate “whether the agency proposed the percentages to be raised, lowered, or maintained.”

See United Church Bd. for World Ministries

SEC,

617 F. Supp. 837, 839 (D.D.C. 1985).

In 1997, the Commission proposed increasing the resubmission thresholds to 6, 15, and 30 percent and, in doing so, stated that “a proposal that has not achieved these levels of support has been fairly tested and stands no significant chance of obtaining the level of voting support required for approval.”

The Commission also explained that it “propose[d] to increase the second and third thresholds by relatively larger amounts because the proposal will have had two or three years to generate support.”

While the Commission adopted other amendments (including increasing the share ownership threshold), it chose not to adopt this proposed amendment to the resubmission thresholds because “many commenters from the shareholder community [had] expressed serious concerns.”

The resubmission thresholds have remained 3, 6, and 10 percent since 1954.

See

1997 Proposing Release,

supra

note 36.

See id.

These new thresholds were introduced as part of a broader rulemaking that included other proposed revisions to Rule 14a-8 that, if adopted, were expected to result in fewer excludable proposals under the rule, and one of the reasons the Commission gave for proposing these revised resubmission thresholds was that higher thresholds would “counter-balance” the effect the other revisions would have had on the excludability of proposals.

See

1998 Adopting Release,

supra

note 8. Some commenters had expressed concern that the increases “would operate to exclude too great a percentage of proposals—particularly those focusing on social policy issues which tend to receive lower percentages of the shareholder vote.”

Id.

2. Public Views on Rule 14a-8(i)(12)

Over the last several years, public interest in revisiting the resubmission thresholds has grown. For example, in April 2014, the Commission received a rulemaking petition in support of revising the thresholds (the “Rulemaking Petition”).

In response to the Rulemaking Petition, the Commission received twenty-three comment letters, expressing a range of views on possible changes to the thresholds.

There have also been other calls for reform in this area,

as well as congressional interest.

See

Rulemaking Petition from the U.S. Chamber of Commerce, National Association of Corporate Directors, National Black Chamber of Commerce, American Petroleum Institute, American Insurance Association, The Latino Coalition, Financial Services Roundtable, Center on Executive Compensation, and Financial Services Forum, April 9, 2014,

available at https://www.sec.gov/rules/petitions/2014/petn4-675.pdf.

Comment letters received in response to the Rulemaking Petition are available at

https://www.sec.gov/comments/4-675/4-675.shtml.

See, e.g.,

BRT Report,

supra

note 43; Center for Capital Markets Competitiveness, Shareholder Proposal Reform: The Need to Protect Investors and Promote the Long-Term Value of Public Companies (2017),

available at https://www.centerforcapitalmarkets.com/wp-content/uploads/2013/08/023270_CCMC-SEC-Shareholder-Proposal-Reform-Report_Online_Report.pdf

(“CCMC Report”); Nasdaq Report,

supra

note 43; Treasury Report,

supra

note 43. At the Commission's 38th Annual Government—Business Forum on Small Business Capital Formation held on August 14, 2019, one of the forum participant recommendations was to amend the resubmission thresholds.

See, e.g.,

Corporate Governance: Fostering a System That Promotes Capital Formation and Maximizes Shareholder Value: Hearing Before U.S. H.R. Subcomm. on Capital Markets and Government Sponsored Enterprises of the Committee on Financial Services,

114th Cong. (2016);

Proxy Process and Rules: Examining Current Practices and Potential Changes: Hearing Before U.S. S. Comm. on Banking, Housing, and Urban Affairs,

115th Cong. (2018); H.R. 5756, 115th Cong. (2018); Financial CHOICE Act of 2017, H.R. 10, 115th Cong. § 844 (2017).

Some groups have expressed support for raising the resubmission thresholds because they believe the current thresholds no longer serve their intended purpose.

These observers suggest that resubmitted proposals distract shareholders and their fiduciaries from potentially more important matters by requiring them to spend additional time and resources reconsidering issues that have already been rejected by a majority of shareholders.

See, e.g.,

CCMC Report,

supra

note 84; Rulemaking Petition,

supra

note 82.

See, e.g.,

Rulemaking Petition,

supra

note 82, at 8-9.

In contrast, other groups suggest that, while the process may take time, resubmitted proposals can increase interest in, and shareholder support for, issues that at least some shareholders consider important.

In response to the Rulemaking Petition, one commenter cited as an example of an issue that took time to gain broader shareholder support, climate-change proposals, which averaged voting support of approximately 5 percent in 1999 and approximately 38 percent by 2017.

See

Ceres Business Case,

supra

note 25; letter in response to the Proxy Process Roundtable from Dominican Sisters of Springfield Illinois dated December 3, 2018; letter in response to the Rulemaking Petition from The Nathan Cummings Foundation dated April 30, 2018.

See

letter in response to the Rulemaking Petition from The Nathan Cummings Foundation dated April 30, 2018.

Some groups have suggested that a significant number of shareholder proposals are resubmissions of previously-submitted proposals. For example, one study indicates that 1,063 of 3,392 proposals that were included in the proxy statements of Fortune 250 companies between 2007 and 2016 were resubmitted proposals.

This report also states that 100 proposals were resubmitted three or more times between 2006 and 2013.

See

James R. Copland & Margaret M. O'Keefe, An Annual Report on Corporate Governance and Shareholder Activism, Manhattan Institute for Policy Research (2016),

available at https://media4.manhattan-institute.org/sites/default/files/pmr_2016.pdf.

Id.

A separate report states that one-third of proposals voted on between 2011 and 2018 were submitted two or more times at the same company.

This report also finds that approximately 95 percent of proposals are eligible for resubmission after the first submission and 90 percent are eligible after the second and third submission, and that “nearly all proposals that clear those thresholds and are submitted again remain eligible in subsequent submissions.”

In addition, the report indicates that the overwhelming majority of proposals that win majority support do so the first time they are submitted, and less than 9 percent of proposals that fail to win majority support the first time go on to pass in a subsequent attempt.

It further notes that “[w]hen the SEC first adopted the [resubmission] thresholds, between one-half and three-quarters of proposals failed to win sufficient support for resubmission,” and that “the 3%, 6% and 10% resubmission thresholds preclude a much smaller proportion of shareholder proposals today than in the past.”

See

Brandon Whitehill, Clearing the Bar, Shareholder Proposals and Resubmission Thresholds, Council of Institutional Investors (Nov. 2018),

available at https://docs.wixstatic.com/ugd/72d47f_092014c240614a1b9454629039d1c649.pdf

(“CII Report”). For a discussion of our findings with respect to this data, see

infra

note 197.

Id.

at 8.

Id.

Members of other groups have indicated that “[r]esubmissions for a

third or fourth time are very rare,” stating that since 2010 (and presumably through the report's publication date in 2017), a total of 35 environmental and social proposals that received less than 20 percent of the shareholder vote for two or more years were resubmitted.

According to this report, these 35 proposals were resubmitted to 26 companies.

See

Jonas Kron, Trillium Asset Management & Brandon Rees, AFL-CIO Office of Investment and co-chair CII Shareholder Advocacy Committee,

Frequently Asked Questions about Shareholder Proposals,

Council of Institutional Investors (last visited Oct. 30, 2019),

available at https://www.cii.org/files/10_10_Shareholder_Proposal_FAQ(2).pdf.

Id.

Some observers argue that the resubmission thresholds should be raised because companies incur significant expense as a result of receiving shareholder proposals, including resubmitted proposals, that are unlikely to win majority support.

In response to the Proxy Process Roundtable, some commenters expressed views that: Resubmitted shareholder proposals often take a disproportionate amount of time compared to annual management proposals;

resubmitted proposals exacerbate the costs of shareholder proposals;

100

the cost in terms of corporate resources spent to deal with resubmitted proposals is significant;

101

resubmitted proposals divert management time and resources;

102

and all shareholders bear the costs associated with resubmitted shareholder proposals.

103

Others contend that the costs are much lower.

104

It has also been suggested that the inability to resubmit shareholder proposals may drive shareholders to pursue alternative strategies that would be more costly and time-consuming for companies.

105

We are interested in obtaining, and request comment on, additional data about the costs incurred as a result of receiving shareholder proposals, including resubmitted proposals.

See, e.g.,

Rulemaking Petition,

supra

note 82, at 16; Statements of James R. Copland, Senior Fellow and Director, Legal Policy, Manhattan Institute for Policy Research and Darla C. Stuckey, President and CEO, Society for Corporate Governance, Before the H. Comm. on Financial Services Subcomm. on Capital Markets and Government Sponsored Enterprises, Sept. 21, 2016;

see also

letters in response to the Proxy Process Roundtable from American Securities Associations dated June 7, 2019; Exxon Mobil Corporation dated July 26, 2019 (stating that the company's cost per shareholder proposal, including resubmitted proposals, is more than $100,000).

See

letter in response to the Proxy Process Roundtable from Investment Company Institute dated March 15, 2019.

100

See

letter in response to the Proxy Process Roundtable from Business Roundtable dated June 3, 2019.

101

See

letter in response to the Proxy Process Roundtable from U.S. Chamber of Commerce Center for Capital Markets Competitiveness dated December 20, 2018.

102

See

letter in response to the Proxy Process Roundtable from National Association of Manufacturers dated October 30, 2018.

103

See

letter in response to the Proxy Process Roundtable from Society for Corporate Governance dated November 9, 2018.

104

See

Adam M. Kanzer,

The Dangerous “Promise of Market Reform”: No Shareholder Proposals,

Harvard Law School Forum on Corporate Governance and Financial Regulation (Jun. 15, 2017),

available at https://corpgov.law.harvard.edu/2017/06/15/the-dangerous-promise-of-market-reform-no-shareholder-proposals/

(“Kanzer 2017”); letter in response to the Rulemaking Petition from the Shareholder Rights Group dated October 5, 2017, at 11.

105

See, e.g.,

letters in response to the Rulemaking Petition from The McKnight Foundation dated June 11, 2018; Nathan Cummings Foundation dated April 30, 2018.

Various alternatives have been suggested for addressing the concerns with resubmitted proposals. A number of those who support raising the resubmission thresholds have suggested that raising them to 6, 15, and 30 percent would be appropriate.

106

One commenter suggested thresholds of 10, 25, and 50 percent, where failure to achieve the thresholds would render a proposal excludable for an amount of time equal to the number of years the proposal had previously been included in the company's proxy statement.

107

106

See, e.g.,

BRT Report,

supra

note 43; CCMC Report,

supra

note 84; letters in response to the Proxy Process Roundtable from American Securities Association dated June 7, 2019; Braemer Hotels & Resorts dated January 4, 2019; U.S. Chamber of Commerce Center for Capital Markets Competitiveness dated November 12, 2018; Center on Executive Compensation dated November 12, 2018; Group 1 Automotive, Inc. dated January 11, 2019; Nareit dated November 12, 2018; Nasdaq, Inc. et al. dated February 4, 2019; Society for Corporate Governance dated November 9, 2018; Tyler Technologies, Inc. dated September 20, 2019.

107

See

letter in response to the Proxy Process Roundtable from Exxon Mobil Corporation dated July 26, 2019.

3. Need for Proposed Amendments

We continue to believe, as the Commission stated when it first proposed a resubmission threshold for shareholder proposals in 1948, that resubmission thresholds are appropriate to “relieve the management of the necessity of including proposals that have been previously submitted to security holders without evoking any substantial security holder interest therein.”

108

See

1948 Proposing Release,

supra

note 6.

Having considered the feedback discussed above, and recognizing the range of views expressed, we are concerned that the current resubmission thresholds may allow proposals that have not received widespread support from a company's shareholders to be resubmitted—in some cases, year after year—with little or no indication that support for the proposal will meaningfully increase or that the proposal ultimately will obtain majority support. Companies and their shareholders bear the burdens associated with management's and shareholders' repeated consideration of these proposals and/or their recurrent inclusion in the proxy statement. While we recognize that some proposals may necessitate resubmission to obtain majority support, we do not believe shareholders whose proposals are unlikely ever to obtain or at least without a significant change in circumstances obtain such support—and thus to reflect the interests of a majority of shareholders—should be permitted to require companies and other shareholders to bear the costs associated with their proposals. If a proposal fails to generate meaningful support on its first submission, and is unable to generate significantly increased support upon resubmission, it is doubtful that the proposal will earn the support of a majority of shareholders in the near term or without a significant change in circumstances.

109

In light of these concerns, we are proposing to increase the resubmission thresholds to allow companies to exclude resubmitted proposals that have not received broad support and appear less likely to be on a sustainable path toward achieving majority shareholder support. In these circumstances, we believe a “cooling-off” period may be warranted to help ensure that the inclusion of such proposals does not result in unjustified burdens on companies and shareholders.

109

Based on our review of shareholder proposals that received a majority of the votes cast between 2011 and 2018, approximately 90% received such support on the first submission. Of the remaining 10%, 60% received 40% or more of the votes cast on the initial submission.

See

discussion

infra

Section IV.B.3.iv.

Under the current rule, proposals that are not supported by up to approximately 97 percent of votes cast on the first submission, 94 percent on the second submission, and 90 percent on the third or subsequent submissions remain eligible for resubmission. We recognize that initially lower levels of shareholder support do not always indicate how shareholders will vote on an issue in the future. Nevertheless, we are concerned that thresholds of 3, 6, and 10 percent may not demonstrate sufficient shareholder support to warrant resubmission, or adequately distinguish between proposals that ultimately are more likely to obtain majority support upon resubmission and those that are not. As one commenter has noted, “the current thresholds leave no less than 90% of proposals eligible for resubmission.”

110

These resubmitted proposals are permitted despite the fact that, according to the commenter, less than 9 percent of proposals that fail to win majority support the first time go on to pass in a subsequent attempt.

111

Thus, it appears that under the current thresholds the vast majority of shareholder proposals are eligible for resubmission regardless of their likelihood of gaining broader shareholder support or, ultimately, garnering a majority of the votes cast, at least in the near term.

110

See

CII Report,

supra

note 92, at 16. Based on our analysis, approximately 94% of proposals remain eligible for resubmission after the initial submission, 90% after the second submission, and 94% after the third or subsequent submission under the current resubmission thresholds. In total, approximately 93% of proposals remain eligible for resubmission under the current resubmission thresholds. Of these eligible proposals that were submitted from 2011 to 2018, approximately 6.5% garnered majority support at some point during that period following initial submission.

See

discussion

infra

Section IV.B.3.iv.

111

See

CII Report,

supra

note 92, at 8. Based on our analysis of proposals submitted between 2011 and 2018, 6.5% of resubmitted proposals that failed to win majority support on the first submission went on to pass in a subsequent attempt.

In addition, the current resubmission thresholds may not have the same effect today on resubmissions as they did when they were initially adopted. According to one commenter, the percentage of shareholder proposals eligible for resubmission today is considerably higher than at the time the thresholds were first introduced, when “between one-half and three-quarters of proposals failed to win sufficient support for resubmission.”

112

It has been suggested that this difference may be due to a number of factors, including the role proxy advisory firms now play in the shareholder voting process,

113

and greater participation by institutional investors in that process.

114

Consequently, we are concerned that the current thresholds may not be functioning effectively to alleviate companies and their shareholders of the obligation to consider, and spend resources on, matters that have previously been voted on and rejected by shareholders without sufficient indication that a proposal will gain traction among the broader shareholder base in the near future.

112

See

CII Report,

supra

note 92, at 6 (citing Lewis D. Gilbert, Dividends and Democracy 108 (1956) (noting that “[b]etween half and three quarters of the proposals being submitted would be banned” by the Commission's proposed thresholds of 3%, 7%, and 10%)). We note that the Commission ultimately adopted thresholds of 3%, 6%, and 10%.

113

Cf.

Rulemaking Petition,

supra

note 82, at 6-7.

114

See

CII Report,

supra

note 92, at 6.

4. Proposed Amendments

To address these concerns, we are proposing revisions to Rule 14a-8(i)(12) that would replace the current resubmission thresholds of 3, 6, and 10 percent with new thresholds of 5, 15, and 25 percent, respectively, and add an additional provision to the rule that would allow companies to exclude proposals that have been submitted three or more times in the preceding five years if they received more than 25 percent, but less than 50 percent, of the vote and support declined by more than 10% the last time substantially the same subject matter was voted on compared to the immediately preceding vote. We believe these proposed amendments would allow proposals to receive due consideration without imposing on companies and their shareholders the burden of having to repeatedly consider matters on which they have already indicated a lack of interest, or where interest has waned.

(i) Proposed Resubmission Thresholds

Under proposed Rule 14a-8(i)(12), a shareholder proposal may be excluded from a company's proxy materials if it deals with substantially the same subject matter as a proposal,

115

or proposals, previously included in a company's proxy materials within the preceding five calendar years if the most recent vote occurred within the preceding three calendar years and that vote was:

115

The condition in Rule 14a-8(i)(12) that the shareholder proposals deal with “substantially the same subject matter” does not mean that the previous proposal(s) and the current proposal must be identical. In 1983, the Commission amended the language in the exclusion from “substantially the same proposal” to “substantially the same subject matter.”

See

1983 Adopting Release,

supra

note 6. In doing so, the Commission explained that the purpose of amending the exclusion was to “counter the abuse of the security holder 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.”

Id.

When considering whether proposals deal with substantially the same subject matter, the staff has focused on whether the proposals share the same “substantive concerns” rather than the “specific language or actions proposed to deal with those concerns.”

Id.

We are not proposing changes to the “substantially the same subject matter” standard, but seek comment on whether such a change would be appropriate or necessary in light of the proposed amendments.

• Less than 5 percent of the votes cast if previously voted on once;

• Less than 15 percent of the votes cast if previously voted on twice; or

• Less than 25 percent of the votes cast if previously voted on three times or more.

116

Only votes for and against a proposal would be included in the calculation of the shareholder vote. Abstentions and broker non-votes would not be included in the calculation.

We are proposing a modest increase to the initial resubmission threshold of 2 percent, and more significant increases to the second and third thresholds of 9 and 15 percent, respectively. As a result, there will be a 10 percent spread between the first and second threshold and the second and third threshold. We believe that more significant revisions to the second and third thresholds are appropriate due to the fact that a proposal will have already been considered by shareholders two or three times before becoming subject to these thresholds.

Currently, 90 percent or more of all proposals are eligible for resubmission at each threshold.

117

Under the current thresholds, many of these proposals fail to obtain meaningful, or majority, support upon resubmission. From 2011 to 2018, there were 864 unique proposals that were resubmitted.

118

Of these, only 54 (6.5%) ultimately garnered majority support (as noted in Table 9 in Section IV.C.2.iii below, only one of these would have been excludable under the proposed resubmission thresholds). The proposed increases in the resubmission thresholds to 5, 15, and 25 percent reflect our experience with shareholder proposals and are intended to reduce the number of proposals eligible for resubmission that have little or no chance of gaining meaningful, or majority, shareholder support while still providing

shareholders with the opportunity to build support for their proposals.

117

See supra

note 110.

118

The number of unique proposals that were resubmitted refers to the count of proposals that were resubmitted and voted on at least once during the sample period 2011 to 2018. The number of proposals (864) differs from the number referred to in the tables in Section IV.B.3.iv (1,442) because the latter is not limited to unique proposals.

In particular, our proposed increase for the initial resubmission threshold from 3 to 5 percent would exclude proposals that are very unlikely to earn majority support upon resubmission, but would still permit a very large percentage of proposals to be resubmitted.

119

We believe that a cooling-off period is warranted if a matter is unable to garner the support of at least 1 in 20 shareholders upon its initial submission. Based on our analysis of the proposals that ultimately garnered majority support from 2011 to 2018, 90 percent did so on the first submission, and more than half of the proposals that were resubmitted garnered more than 40 percent on the first submission.

120

Of the remaining proposals, nearly all garnered support of at least 5 percent on the first submission.

121

While we recognize that there have been a few instances in which proposals that have failed to receive at least 5 percent of the votes cast have gone on to garner significantly greater shareholder support, these instances appear to be infrequent and may be the result of factors other than or in addition to the resubmission.

122

119

Of the proposals resubmitted between 2011 and 2018, we estimate that approximately 85% would have been eligible for resubmission under the proposed resubmission thresholds.

See infra

Table 9 in Section IV.C.2.iii.

120

See infra

Section IV.B.3.iv.

121

Id.

122

Based on our review of shareholder proposals that received a majority of the votes cast on a second or subsequent submission between 2011 and 2018, only 2% of the proposals that have failed to receive at least 5% of the votes cast have gone on to garner majority support.

See infra

Section IV.B.3.iv.

The proposed increase for the second and third resubmission thresholds to 15 and 25 percent are also intended to provide a better indicator of proposals that are more likely to ultimately obtain majority support than the current thresholds. We believe that proposals receiving these levels of support will have better demonstrated a sustained level of shareholder interest to warrant management and shareholder consideration upon resubmission, subject to the discussion in Section II.E.4.ii below. As indicated in Section IV.B.3.iv below, these thresholds are below the average and median support for initial submissions of 34 and 30 percent, respectively. Of the resubmitted proposals that ultimately obtain majority support, the overwhelming majority garner more than 15 percent on their second try and more than 25 percent on their third submission.

123

As with the initial resubmission threshold, these thresholds would exclude proposals that are unlikely to earn majority support, but would still permit a significant number of proposals to be resubmitted.

124

We believe that a cooling-off period also is warranted if, after three or more submissions, more than 75 percent of the votes cast have not supported the matter.

123

Based on our review of shareholder proposals that received a majority of the votes cast on a second or subsequent submission between 2011 and 2018, 95% received support greater than 15% on the second submission, and 100% received support greater than 25% on the third or subsequent submission. In addition, of the 22 proposals that obtained majority support on their third or subsequent submissions, approximately 95% received support of over 15% on their second submission, and 100% received support of over 25% on their third or subsequent submission.

See infra

Section IV.B.3.iv.

124

See infra

Section IV.B.3.iv.

We recognize, as discussed in Section IV below, that raising the resubmission thresholds would be expected to result in the exclusion of more proposals than currently. Our analysis in Table 9 in Section IV.C.2.iii indicates that under the proposed 15%/25% thresholds, there would be 14%/27% more proposals that would be excludable than under the current rules. While these are increases in the overall number of excludable proposals, we believe these thresholds would better distinguish those excludable proposals that are on a path toward more meaningful shareholder support from those that are not. In other words, we believe that, under the proposed resubmission thresholds, any increase in the number of excludable proposals that would have been on a path toward more meaningful shareholder support would be small.

We also believe that the proposed resubmission thresholds would reduce the costs associated with management's and shareholders' repeated consideration of these proposals and their recurrent inclusion in the proxy statement while still maintaining shareholders' ability to submit proposals, and engage with companies, on matters of interest to shareholders. We believe that the proposed resubmission thresholds may lead to the submission of proposals that will evoke greater shareholder interest in, and foster more meaningful engagement between, management and shareholders, as the proposed thresholds would incentivize shareholders to submit proposals on matters that resonate with the broader shareholder base to avoid exclusion under Rule 14a-8(i)(12).

We believe that the proposed resubmission thresholds strike an appropriate balance between reducing the costs to companies of responding to proposals that do not garner significant shareholder support and may be unlikely to do so in the future, with preserving shareholders' ability to engage with a company and other shareholders through the shareholder-proposal process. In addition, as is currently the case, the resubmission thresholds would not act as a permanent bar and, thus, shareholders would be able to resubmit substantially similar proposals after a three-year cooling-off period. We recognize, however, that there may be alternative thresholds that could also achieve this balance, and we seek public comment on whether the proposed thresholds strike the correct balance.

We also considered whether to propose any changes to the vote-counting methodology. For example, we considered whether votes by insiders should be excluded from the calculation of votes cast for purposes of determining whether the resubmission thresholds have been satisfied. In addition, we considered whether to apply a different vote-counting methodology for companies with dual-class voting structures.

125

We elected not to propose alternative vote-counting methodologies, however, because we believe that including these votes in the voting calculation more accurately captures the sentiment of all shareholders, including insiders and controlling shareholders. Nevertheless, we seek comment on whether changes to the current vote-counting methodology are necessary. We also considered whether to adopt an exception to the rule that would allow an otherwise excludable proposal to be resubmitted if there are material developments that suggest a resubmitted proposal may garner significantly more votes than when previously voted on. We elected not to propose such an exception, however, because we believe it would be difficult in many cases to determine how the intervening developments would affect shareholders' voting decisions. We seek

comment on whether such an exception should be added to the rule.

125

Cf.

letter in response to the Proxy Process Roundtable from CtW Investment Group dated January 16, 2019 (noting that increasing the resubmission thresholds will make it more difficult to satisfy the resubmission thresholds at companies with dual-class voting structures); letter in response to the Rulemaking Petition from the Shareholder Rights Group dated October 5, 2017 (“When one considers dual class share ownership, insider ownership and the non-involvement of passive investors, the percent of support for a proposal reflected by the Rule's counting methods may reflect a sharp underestimate of the support by those investors known to actively consider shareholder proposals.”).

Request for Comment

37. Should we maintain the current approach of three tiers of resubmission thresholds but increase the thresholds to 5, 15, and 25 percent, as proposed? Would alternative thresholds such as 5, 10, and 15 percent, or 10, 25, and 50 percent, be preferable? If so, what should the thresholds be? Should we instead adopt the thresholds that were proposed by the Commission in the 1997 Proposing Release (

i.e.,

6, 15, and 30 percent)? Do the proposed resubmission thresholds better distinguish those proposals that are on a path to meaningful shareholder support from those that are not?

38. Alternatively, should we remove resubmission thresholds for the first two submissions and, instead, allow for exclusion if a matter fails to receive majority support by the third submission within a certain number of years? Under such an approach, what would be an appropriate lookback period and how long should the cooling-off period be (

e.g.,

three years, five years, or some other period of time)?

39. What are the estimated costs companies incur as a result of receiving resubmitted proposals? Are the costs different for resubmitted proposals than for initial submissions? In particular, which specific costs incurred (

e.g.,

printing costs, staff time, fees paid to external parties such as legal advisors or proxy solicitors, management time, board time, etc.) may differ between resubmitted proposals and initial submissions?

40. Is there a voting threshold that, if not achieved initially, a proposal is unlikely to surpass in subsequent years? Conversely, is there a voting threshold that, if achieved, a proposal is unlikely to fall below in subsequent years?

41. Should we shorten or lengthen the relevant five-year and three-year lookback periods? If so, what should the lookback periods be?

42. Should the vote-counting methodology under Rule 14a-8(i)(12) be revised? For example, should shares held by insiders be excluded from the voting calculation, or should broker non-votes and/or abstentions count as votes “against”? Should there be a different vote-counting methodology for companies with dual-class voting structures? If so, what should that methodology be?

43. Would the proposed changes in resubmission thresholds meaningfully affect the ability of shareholders to pursue initiatives for which support may build gradually over time? Do legal or logistical impediments to shareholder communications affect the ability of shareholders to otherwise pursue such longer horizon initiatives? If so, how? Are there ways to mitigate any potential adverse effects of the proposed resubmission thresholds while limiting costs to companies and shareholders?

44. When considering whether proposals deal with substantially the same subject matter, the staff has focused on whether the proposals share the same “substantive concerns” rather than the “specific language or actions proposed to deal with those concerns.” Should we consider adopting this standard, or its application? Should we consider changing this standard, or its application? For example, should we adopt a “substantially the same proposal” standard?

(ii) Momentum Requirement for Proposals Addressing Substantially the Same Subject Matter as Those Previously Voted on Three or More Times in the Preceding Five Calendar Years

In addition to raising the resubmission thresholds to 5, 15, and 25 percent, we are proposing to amend Rule 14a-8(i)(12) to allow companies to exclude proposals dealing with substantially the same subject matter as proposals previously voted on by shareholders three or more times in the preceding five calendar years that would not otherwise be excludable under the 25 percent threshold if (i) the most recently voted on proposal received less than a majority of the votes cast

and

(ii) support declined by 10 percent or more compared to the immediately preceding shareholder vote on the matter (the “Momentum Requirement”). For example, under such a requirement, a proposal would be excludable where proposals dealing with substantially the same subject matter had previously been voted on three times in the preceding five calendar years and received 26 percent of the votes cast on the third submission compared to 30 percent on the second submission. In this case, the percentage of votes cast on the third submission (26 percent) declined by more than 10 percent compared to the percentage of votes cast on the second submission (30 percent) and, thus, proposals dealing with substantially the same subject matter would be excludable during the relevant lookback period.

The purpose of this requirement would be to relieve management and shareholders from having to repeatedly consider, and bear the costs related to, matters for which shareholder interest has declined. We note that it would apply only to matters that have been previously voted on three or more times in the preceding five years, giving shareholder-proponents a number of years to advocate for, and the broader shareholder base ample opportunity to consider, the matters raised. We further believe that a 10 percent decline in the percentage of votes cast may demonstrate a sufficiently significant decline in shareholder interest to warrant a cooling-off period. Nevertheless, we seek comment on whether 10 percent is an appropriate figure, or whether some other method or figure would be more appropriate, to gauge shareholder interest.

The Momentum Requirement would not apply where the previously voted on proposal(s) received a majority of the votes cast at the time of the most recent shareholder vote, even if shareholder support had declined by 10 percent or more compared to the immediately preceding vote.

126

We believe proposals that receive a majority of the votes cast have demonstrated a sufficient level of shareholder interest to qualify for resubmission. In addition, it is our understanding that companies frequently act on proposals, including non-binding proposals, that receive a majority of the votes cast, which can reduce the likelihood of resubmitted proposals.

126

If, after receiving a majority of the votes cast, a matter receives less than a majority of the votes cast upon a subsequent submission, the Momentum Requirement would apply. We believe that the same rationale underlying the Momentum Requirement applies where shareholder support declines below a majority of the votes cast, but we seek comment on this point.

Request for Comment

45. Should we adopt the Momentum Requirement, as proposed? If so, should we adopt this requirement instead of, rather than in addition to, the proposed resubmission thresholds? Would this requirement be difficult to apply in practice?

46. As proposed, a proposal that receives a majority of the votes cast at the time of the most recent shareholder vote would not be subject to the Momentum Requirement. Is there a voting threshold below a majority of the votes cast that demonstrates a sufficient level of shareholder interest in the matter to warrant resubmission regardless of whether future proposals addressing substantially the same subject matter gain additional shareholder support? If so, what is an appropriate threshold?

47. As proposed, a proposal that receives a majority of the votes cast at

the time of the most recent vote would not be excludable under the Momentum Requirement. Should this exception to the Momentum Requirement be limited to the most recent shareholder vote, or should it apply to a different lookback period such as three years or five years?

48. Should the Momentum Requirement apply to all resubmitted proposals, not just those that have been resubmitted three or more times? For example, assuming adoption of the proposed resubmission thresholds, should a proposal be excludable if proposals addressing substantially the same subject matter received 19 percent on the first submission and 16 percent on the second submission, even though 16 percent exceeds the relevant proposed threshold of 15 percent for a second submission?

49. Does a 10 percent decline in the percentage of votes cast demonstrate a sufficiently significant decline in shareholder interest to warrant a cooling-off period for any proposal receiving less than majority support? Would a different percentage—such as 20, 30, or 50 percent—or an alternative threshold, be more appropriate?

50. Should the cooling-off period for proposals that fail the Momentum Requirement be shorter than the cooling-off period for proposals that fail to satisfy the existing resubmission thresholds? If so, what would be an appropriate cooling-off period?

51. Are there other mechanisms we should consider that would demonstrate that a proposal has lost momentum? For example, should there be a separate basis for exclusion if the level of support has not increased by more than 10 percent in the last two votes in the previous five years? Or, should there be a separate basis for exclusion if the level of support does not reach 50 percent within 10 years of first being proposed? If so, what would be an appropriate cooling-off period?

III. General Request for Comment

We request and encourage any interested person to submit comments on any aspect of our proposals, other matters that might have an impact on the proposed amendments, and any suggestions for additional changes. With respect to any comments, we note that they are of greatest assistance to our rulemaking initiative if accompanied by supporting data and analysis of the issues addressed in those comments and by alternatives to our proposals where appropriate.

IV. Economic Analysis

A. Introduction

We are proposing to amend certain procedural requirements and the provision relating to resubmitted proposals under the shareholder-proposal rule. We are sensitive to the economic effects that may result from the proposed rule amendments, including the benefits, costs, and the effects on efficiency, competition, and capital formation. Section 3(f) of the Exchange Act, Section 2(b) of the Securities Act of 1933, and Section 2(c) of the Investment Company Act require us, when engaging in rulemaking that requires us 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. Additionally, Section 23(a)(2) of the Exchange Act requires us, when making rules or regulations under the Exchange Act, to consider, among other matters, the impact that any such rule or regulation would have on competition and states that the Commission shall not adopt any such rule or regulation which would impose a burden on competition that is not necessary or appropriate in furtherance of the Exchange Act.

We discuss the potential effects of the proposed rule amendments as well as possible alternatives to the proposed amendments below. Where possible, we have attempted to quantify the costs, benefits, and effects on efficiency, competition, and capital formation expected to result from the proposed rule amendments. In some cases, however, we are unable to quantify the economic effects because we lack the information necessary to provide a reasonable and reliable estimate. Where we are unable to quantify the economic effects of the proposed rule, 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 the potential impacts of the proposed rule amendments on efficiency, competition, and capital formation.

B. Economic Baseline

The baseline against which the costs, benefits, and the impact on efficiency, competition, and capital formation of the proposed rule amendments are measured consists of the current regulatory framework and the current practices for shareholder proposal submissions.

1. Current Regulatory Framework

State laws, corporate bylaws, and federal securities laws jointly govern the shareholder-proposal process. Under state law, a shareholder generally has the right to appear in person at an annual or special meeting and put forth a resolution to be voted on by the shareholders. Such resolutions can include, for example, proposals to adopt, amend, or repeal bylaws or to request the board to take certain actions. State law also governs shareholders' ability to submit a proposal through a representative.

127

Company bylaws can limit shareholders' ability to attend or present at shareholder meetings. Federal securities law governs communications in advance of shareholder meetings, including solicitation of proxies for items to be voted on at the meeting. Federal securities law also requires companies to allow shareholders to vote by proxy at shareholder meetings and requires companies to include a shareholder's proposal in the company's proxy statement unless a ground for exclusion is met. Most shareholders currently vote in advance of shareholder meetings through the proxy process.

127

See supra

Section II.B.

Rule 14a-8 addresses when a company must include a shareholder proposal in its proxy statement at an annual or special meeting of shareholders.

128

Rule 14a-8 also sets forth procedural and substantive bases upon which a company can exclude a shareholder proposal from its proxy statement. Under Rule 14a-8(b), to be eligible to submit a proposal, a proponent “must have continuously held at least $2,000 in market value, or 1%, of the company's securities entitled to be voted on the proposal at the meeting for at least one year by the date [the proponent] submit[s] the proposal.” The Commission currently allows investors to aggregate their securities with other investors to meet the applicable minimum ownership thresholds to submit a Rule 14a-8 proposal. The rule does not currently require a shareholder-proponent to provide information specific to the use of a representative in the shareholder-proposal process, or state when he or she is able to meet with the company to discuss the proposal.

128

A shareholder may alternatively solicit proxies by filing its own proxy statement that complies with the federal proxy rules.

Rule 14a-8(c) provides that a shareholder may submit no more than

one proposal to a company for a particular shareholders' meeting.

Rule 14a-8(i)(12) allows companies to exclude a shareholder proposal that “deals with substantially the same subject matter as another proposal or proposals that has or have been previously included in the company's proxy materials within the preceding 5 calendar years” if the matter was voted on at least once in the last three years and did not receive: (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.

2. Affected Entities

The proposed amendments to Rule 14a-8(b), Rule 14a-8(c), and Rule 14a-8(i)(12) could affect all companies subject to the federal proxy rules that receive shareholder proposals, the proponents of these proposals, and other non-proponent shareholders of these companies.

129

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.

130

In addition, there are certain registered companies that voluntarily file proxy materials. Finally, Rule 20a-1 under the Investment Company Act subjects all management companies to the federal proxy rules.

131

129

The proposed amendments could also have second-order effects on providers of administrative and advisory services related to proxy solicitation and shareholder voting.

130

We are not aware of any asset-backed issuers that have a class of equity securities registered under Section 12 of the Exchange Act. Most asset-backed issuers report pursuant to under Section 15(d) of the Exchange Act and thus are not subject to the federal proxy rules. Nine asset-backed issuers had a class of debt securities registered under Section 12 of the Exchange Act as of December 2018. As a result, these asset-backed issuers are not subject to the federal proxy rules.

Foreign private issuers are exempt from the federal proxy rules under Rule 3a12-3(b) of the Exchange Act. 17 CFR 240.3a12-3(b).

131

Rule 20a-1 of the Investment Company Act 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.

See

17 CFR 270.20a-1.

“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.

As of December 31, 2018, there were 5,746 companies that had a class of securities registered under Section 12 of the Exchange Act (including 98 Business Development Companies (“BDCs”)).

132

As of the same date, there were 120 companies that did not have a class of securities registered under Section 12 of the Exchange Act that voluntarily filed proxy materials.

133

As of August 31, 2019, there were 12,718 management companies that were subject to the federal proxy rules: (i) 12,040 open-end funds, out of which 1,910 were Exchange Traded Funds (“ETFs”) registered as open-end funds or open-end funds that had an ETF share class; (ii) 664 closed-end funds; and (iii) 14 variable annuity separate accounts registered as management investment companies.

134

The summation of these estimates yields 18,584 companies where there is a possibility of being affected by the proposed rule amendments.

135

132

We estimate the number of companies with a class of securities registered under Section 12 of the Exchange Act by reviewing all Forms 10-K filed during calendar year 2018 with the Commission and counting the number of unique companies that identify themselves as having a class of securities registered under Section 12(b) or Section 12(g) of the Exchange Act. Foreign private issuers that filed Forms 20-F and 40-F and asset-backed issuers that filed Forms 10-D and 10-D/A during calendar year 2018 with the Commission are excluded from this estimate.

See supra

note 130.

BDCs are all entities that have been issued an 814-reporting number. Our estimate includes BDCs that may be delinquent or have filed extensions for their filings, and it excludes 6 wholly owned subsidiaries of other BDCs.

133

We identify registered 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 that filed any proxy materials during calendar year 2018 with the Commission. The proxy materials we consider in our analysis are Forms DEF14A, DEF14C, 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 2018 with the Commission and we exclude from our estimates Forms N-14 that are exclusively registration statements.

To identify companies reporting pursuant to Section 15(d) but not registered under Section 12(b) or Section 12(g) of the Exchange Act, we review all Forms 10-K filed in calendar year 2018 with the Commission and count the number of unique companies that identify themselves as reporting pursuant to Section 15(d) of the Exchange Act and not registered under Section 12(b) or Section 12(g) of the Exchange Act.

134

We estimate the number of unique management companies by reviewing all Forms N-CEN filed between June 2018 and August 2019 with the Commission. 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.

The number of potentially affected Section 12 and Section 15(d) reporting companies is estimated over a different time period (

i.e.,

January 2018 to December 2018) than the number of potentially affected management companies (

i.e.,

June 2018 to August 2019) because there is no complete N-CEN data for the most recent full calendar year (

i.e.,

2018). Management companies started submitting Form N-CEN in September 2018 for the period ended on June 30, 2018 with the Commission.

135

18,584 = 5,746 companies with a class of securities registered under Section 12 of the Exchange Act + 120 companies without a class of securities registered under Section 12 of the Exchange Act that voluntarily filed proxy materials + 12,718 management companies.

The above mentioned estimates are an upper bound of the number of potentially affected entities because a substantial portion of these entities would not be expected to file proxy materials or receive a shareholder proposal in a given year. Out of the 18,584 potentially affected entities mentioned above, 5,690 filed proxy materials with the Commission during calendar year 2018.

136

Out of the 5,690 companies, 4,758 (84%) were Section 12 or Section 15(d) reporting companies and the remaining 932 (16%) were management companies.

137

136

See supra

note 133 for details on the estimation of companies that filed proxy materials with the Commission during calendar year 2018.

137

According to data from Forms N-CEN filed with the Commission between June 2018 and August 2019, there were 965 management companies that submitted matters for its security holders' vote during the reporting period: (i) 729 open-end funds, out of which 86 were ETFs registered as open-end funds or open-end funds that had an ETF share class; (ii) 235 closed-end funds; and (iii) one variable annuity separate account (

see

Form N-CEN Item B.10). The discrepancy in the estimated number of management companies using proxy filings (

i.e.,

932) and Form N-CEN data (

i.e.,

965) likely is attributable to the different time periods over which the two statistics are estimated.

Proponents of shareholder proposals also could be affected by the proposed rule amendments. We estimate that there were 170 proponents—38 individual proponents and 132 institutional proponents—that submitted a shareholder proposal that was included in a proxy statement and was subsequently voted on as lead proponent or co-proponent during calendar year 2018.

138

Data is retrieved from proxy statements (

see infra

note 182).

See infra

Section IV.C.2.i for a discussion of limitations of the proxy statement data.

We also estimate that there were 278 proponents that submitted a voted, omitted, or withdrawn proposal as lead proponent or co-proponent during calendar year 2018. Data is retrieved from ISS Analytics.

See infra

Section IV.B.3.i for a discussion of limitations of the ISS Analytics data.

Non-proponent shareholders of companies also could be affected by the proposed rule amendments. As broad context, we note that the ratio of the number of estimated proponents whose proposals appeared in proxy statements during 2018 (170) to the number of direct and indirect investors in companies subject to the proxy rules is extremely small. According to a recent study based on the 2016 Survey of Consumer Finances, approximately 65 million households owned stocks directly or indirectly (through other investment instruments).

139

Our analysis of institutional investor data also shows that there were 4,558 unique institutional investors during 2018.

140

The ratio is roughly three proponent shareholders per million investors.

139

See

Jesse Bricker et al.,

Changes in U.S. Family Finances from 2013 to 2016: Evidence from the Survey of Consumer Finances,

103 Fed. Res. Bull., Sept. 2017, at 20, 39,

available at https://www.federalreserve.gov/publications/files/scf17.pdf

(51.9% of the 126.0 million families represented owned stocks). This is a triennial survey, and the latest data available as of this time is from the 2016 survey.

Based on industry data provided by a proxy services provider, we estimate that there were 22.2 million retail accounts that directly held shares of U.S. public companies during calendar year 2017. 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, the data covers a subset of all retail accounts (

i.e.,

approximately 80% of all retail accounts).

140

Data is retrieved from the Thomson Reuters Institutional (13f) Holdings dataset. Unique institutional investors are the unique Manager Numbers that filed a Form 13F at least for one quarter during calendar year 2018 with the Commission. The estimated number of institutional investors is a lower bound of the actual number of institutional investors because only institutional investors that exercise discretion over $100 million or more in Section 13(f) securities must file Form 13F with the Commission.

3. Current Practices

i. General Discussion

In this section, we provide descriptive statistics on shareholder proposals 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. In particular, we provide descriptive statistics on all proposals and descriptive statistics by proposal outcome over time (

i.e.,

voted, omitted, and withdrawn proposals). We provide these statistics to understand how the number of proposals has changed over time, including because, from the perspective of a company, the costs and benefits of a shareholder proposal may vary with the outcome of the proposal.

Similarly, we provide descriptive statistics by the type of company that receives the proposal (

i.e.,

large versus small companies), by proposal topic (

i.e.,

governance, environmental, and social proposals), and by proponent type (

i.e.,

institutions versus individuals). These factors are relevant to our analysis of the proposed amendments to the ownership and resubmission thresholds because the economic effects of the proposed amendments may depend on company size, proposal topic, and proponent type.

141

Further, we provide descriptive statistics on the concentration of proposals to better understand how the proposal submission is distributed across the various proponents.

142

141

These statistics are also relevant in light of commenters' concerns that the proposed amendments may affect certain proposals and proponents differently.

See, e.g.,

letter in response to the Proxy Process Roundtable from Shareholder Rights Group dated October 25, 2019.

142

These statistics are also relevant in light of commenters' concerns that a few shareholders submit the majority of the proposals.

See infra

note 166.

Finally, we provide descriptive statistics on the voting support and the probability of obtaining majority support for all proposals, by proposal topic, and by proponent type. This analysis allows us to provide some evidence on the effects of the proposed amendments on proposals that may garner high and/or majority shareholder support, and to examine whether the proposed amendments to the resubmission thresholds may have larger effects for some types of proposals and proponents than for others.

To understand current and historical practices for shareholder proposals, we study a sample of submitted shareholder proposals to Russell 3000 companies that were either (i) included in companies' proxy statements; (ii) identified by companies for exclusion through the SEC staff no-action process (whether ultimately voted on by shareholders, excluded by the company, or withdrawn by the proponent); or (iii) submitted by the proponents (based on information provided by the proponents) but never appeared on the company's proxy statement.

143

The study of a sample of submitted shareholder proposals allows us to establish a baseline against which we will compare effects of the proposed amendments. Figure 1 shows the number of shareholder proposals submitted to Russell 3000 companies between 1997 and 2018. The dashed line in Figure 1 shows the number of submitted shareholder proposals between 1997 and 2003, and the solid line shows the number of submitted proposals from 2004 to 2018. Data on submitted proposals prior to 2004 is incomplete. Hence, our economic analysis focuses on shareholder proposals submitted between 2004 and 2018. Nevertheless, to provide an understanding of longer term trends in the number of submitted proposals, we use data prior to 2004 for the purposes of Figure 1 only.

143

Unless stated otherwise, all data in this section is retrieved from ISS Analytics. ISS Analytics identifies proposals that were withdrawn based on whether the proponent had submitted a withdrawal letter to the company as part of the no-action process, or whether the proponent had informed ISS or otherwise made known (for example, through its website) that it had withdrawn the proposal. To the extent that a proponent did not submit a withdrawal letter to the company or did not inform ISS Analytics or otherwise make known that it had withdrawn the proposal, our sample may not include all withdrawn proposals.

We exclude from our analysis shareholder proposals related to proxy contests for the election of directors because these proposals are usually included in shareholders' (as opposed to companies') proxy statements and thus are not subject to Rule 14a-8.

Between 1997 and 2018, shareholders submitted a total of 20,804 proposals to Russell 3000 companies. Out of the 20,804 proposals, 14,860 were submitted in the 2004 to 2018 period. Shareholders submitted 831 proposals to Russell 3000 companies in 2018, representing a 4 percent decrease relative to the number of shareholder proposals submitted in 2017. As Figure 1 shows, the number of submitted shareholder proposals has fluctuated from a low of 745 in 2001 to a high of 1,136 in 2008, with an average of 946 submitted shareholder proposals between 1997 and 2018. Our analysis shows no discernible trend in the number of submitted shareholder proposals in the 1997 to 2018 period.

144

In this and all subsequent analyses, to examine if there is a statistically significant time trend in the data, we regress the variable of interest

to a year trend variable, and we test whether the coefficient on the trend variable is statistically different from zero. We use a two-tailed t-test and a 90% confidence interval.

See, e.g.,

William H. Greene, Econometric Analysis (6th ed. 2007) (“Greene (2007)”).

The

-value on the trend variable is equal to 0.35.

EP04DE19.006

Figure 2 shows the percentage of voted, omitted, and withdrawn shareholder proposals for Russell 3000 companies between 2004 and 2018. We study the percentage of voted, omitted, and withdrawn proposals separately because each of these categories of proposals may impose different burdens on—and also provide different benefits to—companies and their shareholders. Voted proposals are those that went to a shareholder vote. Omitted proposals are those that were omitted following an issuance of a no-action letter by Commission staff.

145

Withdrawn proposals are primarily those that the proponent voluntarily withdrew after reaching an agreement with management or without reaching an agreement.

146

145

A proposal may be omitted without a no-action letter from the Commission staff. In particular, a company may give notice to the Commission that it will exclude the proposal or give notice to the Commission that it plans to exclude the proposal and seek relief from a court. Those proposals likely are captured in the withdrawn proposals category in our ISS Analytics dataset because ISS Analytics only classifies proposals for which the Commission staff has issued a no-action letter as omitted proposals.

146

We classify as “withdrawn” proposals that: (i) Were withdrawn by the proponent (3,292 or 76.8% of all withdrawn proposals); (ii) were not found in the company's proxy materials and for which it is yet to be determined whether they were withdrawn or omitted (802 or 18.7% of all withdrawn proposals); (iii) were on the ballot but never came to a vote because the proponent did not appear at the meeting to present the proposal (120 or 2.8% of all withdrawn proposals); (iv) the proponent indicated it intended to submit but that were never actually submitted (52 or 1.2% of all withdrawn proposals); (v) were not voted on because the meeting was cancelled, usually due to a merger, acquisition, bankruptcy, or calling of a special meeting (18 or 0.4% of all withdrawn proposals); and (vi) were not voted on because the meeting was postponed, usually due to a merger, acquisition, bankruptcy, or calling of a special meeting (4 or 0.1% of all withdrawn proposals). The above mentioned proposal categories are available through ISS Analytics.

As Figure 2 shows, out of all proposals submitted to Russell 3000 companies between 2004 and 2018, 56 percent went to a shareholder vote, 15 percent were omitted following a no-action letter issued by Commission staff, and 29 percent were withdrawn. The percentage of voted, omitted, and withdrawn proposals has largely remained stable during our sample period.

147

Untabulated analysis shows no statistically significant trend in the number of voted, omitted, and withdrawn proposals over time (

-values are equal to 0.93, 0.37, and 0.34, respectively).

EP04DE19.007

Out of the 831 proposals submitted in 2018, 447 were voted, 123 were omitted, and 261 were withdrawn.

148

The proposed rule amendments would enhance disclosure requirements for proposals submitted through a representative. To understand how frequently proposals are submitted through a representative, we manually collect information on the identity of the proponents and representatives from the proxy statements, and we estimate that from the 447 voted proposals submitted for inclusion in a company's proxy materials for 2018 shareholder meetings, 363 provided some information related to the identity of the proponents, out of which 67 (or 18% = 67/363) were submitted by a representative.

149

148

A few proposals were submitted to companies outside of the Russell 3000 index. Using FactSet's corporate governance database, SharkRepellent (

available at https://sharkrepellent.net

), we estimate that in 2018, there were 19 voted shareholder proposals at 11 companies outside of the Russel 3000 index. Our analysis focuses on proposals submitted to companies within the Russell 3000 index because this sample represents the vast majority of submitted shareholder proposals.

149

We potentially underestimate the percentage of proposals submitted by a representative because companies might provide information on the identity of the proponent but might not mention that the proposal was submitted via a representative in the proxy statement.

In all subsequent analysis in this section (except for the analysis that relates to voting support), we examine all submitted proposals (rather than focusing on just one of voted, omitted, or withdrawn proposals) to determine the potential impact of the proposed amendments because Rule 14a-8 applies to all submitted proposals.

Next, we compare the average number of proposals submitted to large and small companies because the frequency of submitted proposals, and thus the effects of the proposed amendments, may vary with company size. In particular, Figure 3 compares the average number of proposals submitted to large companies relative to our universe of companies (

i.e.,

Russell 3000 companies). Large companies are represented by the S&P 500 constituents.

150

As Figure 3 shows, S&P 500 companies (

i.e.,

solid line in Figure 3) received on average 1.56 proposals each year, and Russell 3000 companies (

i.e.,

dashed line in Figure 3) received on average 0.33 proposals each year during our sample period. The average number of proposals submitted to S&P 500 companies is statistically significantly higher than the average number of proposals submitted to Russell 3000 companies during our sample period.

151

The average number of proposals submitted to S&P 500 companies has decreased from 1.85 in 2004 to 1.24 in 2018, representing a 33 percent decrease during our sample period, and the average number of proposals submitted to Russell 3000 companies has decreased from 0.38 in 2004 to 0.28 in 2018, representing a 26 percent decrease during our sample period.

152

Results are qualitatively similar when we compare voted rather than all submitted shareholder proposals for S&P 500 and Russell 3000 companies.

153

150

The median market capitalization of Russell 3000 constituents was $1.7 billion as of May 10, 2019 and the median market capitalization of S&P 500 constituents was $22 billion as of August 30, 2019.

See Market Capitalization Ranges,

FTSE Russell Market,

https://www.ftserussell.com/research-insights/russell-reconstitution/market-capitalization-ranges

(last visited Sept. 23, 2019);

S&P 500, S&P Dow Jones Indices,

https://us.spindices.com/indices/equity/sp-500

(last visited Sept. 23, 2019).

We retrieve data on whether a proposal was submitted to an S&P 500 and/or a Russell 3000 company from ISS Analytics.

The ISS Analytics data only covers Russell 3000 companies. S&P 500 companies usually are a subset of the Russell 3000 companies. To the extent that some S&P 500 companies are not part of the Russell 3000 index, our analysis underestimates the average number of proposals submitted to S&P 500 companies, because those proposals are missing from our data.

151

In this and all subsequent analysis, we use a two-tailed t-test and a 90% confidence interval to compare differences in means across groups.

The

-value is equal to zero.

152

Untabulated analysis shows a statistically significant downward trend in the average number of proposals submitted to S&P 500 and Russell 3000 companies during our sample period (

-values are equal to zero).

153

Untabulated analysis shows that the average number of voted proposals for S&P 500 companies has decreased from 0.99 in 2004 to 0.70 in 2018, representing a 29% decrease during our sample period, and the average number of voted proposals for Russell 3000 companies has decreased from 0.20 in 2004 to 0.15 in 2018, representing a 26% decrease du

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