# Procedural Requirements and Resubmission Thresholds Under Exchange Act Rule 14a-8 > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/fr%3A2020-21580 ## Record - **Collection:** Federal Register - **Document type:** Rule - **Published:** November 4, 2020 - **Citation:** 85 FR 70240 ## Text SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 240 [Release No. 34-89964; 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: Final rule. SUMMARY: We are adopting amendments to certain procedural requirements and the provision relating to resubmitted proposals under the shareholder-proposal rule in order to modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders. The amendments to the procedural rules: Amend the current ownership requirements to incorporate a tiered approach that provides three options for demonstrating a sufficient ownership stake in a company—through a combination of amount of securities owned and length of time held—to be eligible to submit a proposal; require certain documentation to be provided when a proposal is submitted on behalf of a shareholder-proponent; require shareholder-proponents to identify specific dates and times they can 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 amendments to the resubmission thresholds revise the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company's future shareholders' meetings from 3, 6, and 10 percent to 5, 15, and 25 percent, respectively. DATES: The final rules are effective January 4, 2021, except for amendatory instruction 2.b adding § 240.14a-8(b)(3), which is effective January 4, 2021 through January 1, 2023. See Section III for further information on transitioning to the final rules. 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 adopting 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 II. Final Amendments A. Ownership Requirements 1. Proposed Rule Amendments 2. Comments on the Proposed Rule Amendments 3. Final Rule Amendments B. Proposals Submitted on Behalf of Shareholders 1. Proposed Rule Amendment 2. Comments on the Proposed Rule Amendment 3. Final Rule Amendment C. The Role of the Shareholder-Proposal Process in Shareholder Engagement 1. Proposed Rule Amendment 2. Comments on the Proposed Rule Amendment 3. Final Rule Amendment D. One-Proposal Limit 1. Proposed Rule Amendment 2. Comments on the Proposed Rule Amendment 3. Final Rule Amendment E. Resubmission Thresholds 1. Proposed Rule Amendment 2. Comments on the Proposed Rule Amendment 3. Final Rule Amendment F. Momentum Requirement 1. Proposed Rule Amendment 2. Comments on the Proposed Rule Amendment 3. Final Rule Amendment G. Other Matters 1. Response to Constitutional Objections 2. Proposals Submitted to Open-End Investment Companies 3. Commission and Staff Role in the Rule 14a-8 Process III. Transition Matters IV. Other Matters V. Economic Analysis A. Introduction B. Economic Baseline 1. Companies 2. Non-Proponent Shareholders 3. Proponents of Shareholder Proposals C. Estimated Reduction in the Number of Shareholder Proposals D. Analysis of Costs and Benefits and Effects on Efficiency, Competition, and Capital Formation of the Final Rule Amendments 1. Companies 2. Non-Proponent Shareholders 3. Proponents of Shareholder Proposals E. Other Potential Effects of the Amendments 1. Effects of the Rule Amendments on Excludable Proposals by Type of Proposal, Proponent, and Company 2. Economic Effects of Final Rule Amendments on the Quality of Shareholder Proposals 3. Comments Regarding Voting Support and Economic Effects of the Rule Amendments F. Reasonable Alternatives 1. Alternative Amendments to Rule 14a-8(b) and Rule 14a-8(c) 2. Alternative Amendments to Rule 14a-8(i)(12) VI. Paperwork Reduction Act A. Background B. Summary of Comment Letters and Revisions to PRA Estimates C. Summary of the Amendments' Impact on Collections of Information D. Incremental and Aggregate Burden and Cost Estimates for the Final Amendments VII. Final Regulatory Flexibility Act Analysis A. Need for, and Objectives of, the Final Amendments B. Significant Issues Raised by Public Comments C. Small Entities Subject to the Final Amendments D. Projected Reporting, Recordkeeping, and Other Compliance Requirements E. Agency Action to Minimize Effect on Small Entities VIII. Statutory Authority I. Introduction A. Background Rule 14a-8 requires companies that are subject to the federal proxy rules to include shareholder proposals in companies' proxy statements to shareholders, subject to certain procedural and substantive requirements. 1 By giving any shareholder-proponent the ability to have a proposal included in the company's proxy statement to all shareholders, Rule 14a-8 enables eligible 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. 1 Unless otherwise noted, references to “shareholder proposal,” “shareholder proposals,” “proposal,” or “proposals” refer to submissions made in reliance on Rule 14a-8. This form of engagement among shareholder-proponents, other shareholders, and companies has benefits for shareholder-proponents as well as companies and their shareholders. However, the costs of processing, analyzing, and voting on the proponent's proposal largely are borne by the company and its shareholders. Accordingly, the mechanism for shareholder-proponents 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 procedural or 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 on resources and to command the time and attention of the company and other shareholders—is not inappropriately used. Over the years, the Commission has amended the shareholder-proposal rule as necessary to protect against such use and protect the integrity of the process. 2 The most recent significant amendments were adopted over 35 years ago in 1983. 2 The Commission has expressed 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 (July 14, 1948)], at 3974. 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 Proposed Amendments to Rule 14a-8, Release No. 34-19135 (Oct. 14, 1982) [47 FR 47420 (Oct. 26, 1982)], at 47427 (“1982 Proposing Release”). On November 5, 2019, we proposed amendments to the procedural requirements and resubmission thresholds under Rule 14a-8 as part of our ongoing focus on modernizing and improving the proxy voting process. 3 We noted at that time concerns with certain aspects of the shareholder-proposal rule, which had not been reviewed by the Commission in more than 20 years. 4 We also noted that shareholders' ability to communicate with issuers and other shareholders through various channels has evolved significantly in response to technological advancements and developing market practices. As a result of these developments, shareholders now have more tools at their disposal to engage with a company's board and management in a manner that may be more efficient and less costly for all parties than the Rule 14a-8 process. 3 See Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, Release No. 34-87458 (Nov. 5, 2019) [84 FR 66458 (Dec. 4, 2019)] (“Proposing Release”). 4 See Amendments To Rules On Shareholder Proposals, Release No. 34-40018 (May 21, 1998) [63 FR 29106 (May 28, 1998)] (“1998 Adopting Release”). In light of the above, we proposed amendments to the shareholder-proposal rule to: (1) Amend the criteria that a shareholder must satisfy to be eligible to have a proposal included in a company's proxy statement; (2) modify the rule limiting the number of proposals that may be submitted for a particular company's shareholders' meeting (the “one-proposal rule”) to establish that a single person may not submit multiple proposals at the same shareholders' meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder; and (3) revise the levels of shareholder support a proposal must receive to be eligible for resubmission at the same company's future shareholders' meetings. 5 5 See Proposing Release, supra note 3. We received many comment letters in response to the Proposing Release. 6 After taking into consideration these public comments, as well as the feedback received as part of the Commission's 2018 Roundtable on the Proxy Process (the “Proxy Process Roundtable”), 7 we are adopting the amendments substantially as proposed with the exception of the Momentum Requirement (defined below), which we are not adopting. The amendments are intended to modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders, including to help ensure that a shareholder-proponent has demonstrated a meaningful “economic stake or investment interest” in a company before the shareholder may draw on 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 on the proposal. 8 6 See generally letters submitted in connection with the Proposing Release, available at https://www.sec.gov/comments/s7-23-19/s72319.htm. Unless otherwise specified, all references in this release to comment letters are to those relating to the Proposing Release. 7 On November 15, 2018, Commission staff held a roundtable on the proxy process, 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. 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, which are available at https://www.sec.gov/comments/4-725/4-725.htm. 8 See 1983 Adopting Release, supra note 2. II. Final Amendments A. Ownership Requirements 1. Proposed Rule Amendments i. Ownership Thresholds Rule 14a-8(b) requires a shareholder that wishes to have a proposal included in a company's proxy materials to have continuously held at least $2,000 in market value, or 1 percent, of a company's securities entitled to vote on the proposal for at least one year as of the date the shareholder submits the proposal. In the Proposing Release, we proposed to modify the current one-year minimum holding period associated with the $2,000 ownership threshold to require continuous ownership for at least three years and to add two alternative ownership thresholds. As proposed, a shareholder would be eligible to submit a proposal if the shareholder had 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. Under the proposed amendment, a shareholder could satisfy any one of these thresholds to be eligible to submit a proposal. ii. Percentage Test We also proposed to eliminate the one-percent test in the rule because this test has not historically been utilized. In addition, we understand that the vast majority of shareholders who use Rule 14a-8 do not hold one percent or more of a company's shares. 9 9 See Proposing Release at 66464 n.58. iii. Aggregation We also proposed to amend the rule to prohibit shareholders from aggregating their securities with other shareholders for the purpose of meeting the applicable minimum ownership thresholds to submit a Rule 14a-8 proposal. Under the proposal, shareholders would continue to be permitted to co-file or co-sponsor shareholder proposals as a group if each shareholder-proponent in the group met one of the proposed eligibility requirements. iv. Lead-Filer Designation The Proposing Release also addressed whether co-filers, or co-sponsors, should be required to identify a lead filer and specify whether such lead filer is authorized to negotiate with the company and withdraw the proposal on behalf of the other co-filers. Although we did not propose to require this practice in our rules, we requested comment on whether we should revise the rules to require co-filers to identify a lead filer and authorize the lead filer to negotiate the withdrawal of the proposal on behalf of the other co-filers. 2. Comments on the Proposed Rule Amendments i. Ownership Thresholds The proposal generated a wide range of responses among commenters. Commenters that supported the revised ownership thresholds generally indicated that a tiered approach would help address concerns related to the shareholder-proposal process while maintaining an avenue of communication for shareholders of various investment sizes. 10 Several commenters also indicated that satisfaction of the proposed thresholds would help demonstrate that a shareholder-proponent has a meaningful ownership interest in the company that will receive the proposal. 11 10 See, e.g., letters from Center for Capital Markets Competitiveness dated January 31, 2020; Senator Kevin Cramer dated July 28, 2020; Energy Infrastructure Council dated February 3, 2020; Exxon Mobil Corporation dated February 3, 2020; International Bancshares Corporation dated January 23, 2020; Investment Company Institute dated February 3, 2020; National Association of Manufacturers dated February 3, 2020. 11 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Fidelity Management & Research LLC dated February 3, 2020; International Bancshares Corporation dated January 23, 2020. Many commenters questioned the need and/or rationale for the proposed amendment to the ownership requirements. 12 For example, several commenters disagreed with the discussion in the Proposing Release 13 positing that an investor's holding period is a meaningful indicator of a shareholder's interest in a company, or that a longer holding period may make it more likely that a proposal will reflect a greater interest in the company and its shareholders rather than promote a personal interest or publicize a general cause. 14 Other commenters questioned whether the proposed thresholds were commensurate with the rate of inflation or appreciation in the capital markets. 15 12 See, e.g., letters from CalSTRS dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; RK Invest Law, PBC dated February 3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. 13 See Proposing Release at 66463. 14 See, e.g., letters from Council of Institutional Investors dated January 30, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; RK Invest Law, PBC dated February 3, 2020. 15 See, e.g., letters from CalPERS dated February 3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. Many commenters that opposed the proposed ownership thresholds expressed concern about their potential effect on the ability of shareholders with smaller investments to submit proposals. 16 Several commenters also expressed the view that shareholders with smaller investments play an important role in the shareholder-proposal process and may submit proposals that other shareholders support. 17 In addition, some expressed concern about these investors' ability to satisfy the proposed ownership thresholds without compromising portfolio diversification. 18 16 See, e.g., letters from Benedictine Sisters of Chicago dated January 23, 2020; Senator Sherrod Brown dated August 21, 2020; John Chevedden dated January 31, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Connecticut State Treasurer dated January 31, 2020; Council of Institutional Investors et al. dated July 29, 2020; Senator Tammy Duckworth dated January 30, 2020; James McRitchie dated November 5, 2019; James McRitchie dated July 21, 2020; Shareholder Rights Group dated June 10, 2020. 17 See, e.g., letters from John Chevedden dated July 13, 2020; John Chevedden dated July 20, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Council of Institutional Investors et al. dated July 29, 2020; Senator Tammy Duckworth dated January 30, 2020; Form Letter Type A; Illinois State Treasurer dated January 16, 2020; James McRitchie dated July 21, 2020. 18 See, e.g., Council of Institutional Investors dated January 30, 2020; NorthStar Asset Management, Inc. dated February 3, 2020; Shareholder Commons dated January 31, 2020; Shareholder Rights Group dated February 3, 2020; US SIF dated January 31, 2020. See also Recommendation of the SEC Investor Advisory Committee (IAC) Relating to SEC Guidance and Rule Proposals on Proxy Advisors and Shareholder Proposals dated January 24, 2020 (“Recommendation of the IAC”). Some commenters expressed the view that, while shareholders that are unable to submit proposals are able to pursue alternative avenues of engagement with management and other shareholders, these alternatives are not as effective as shareholder proposals. 19 For example, these commenters suggested that there are inherent weaknesses with using social media as a method of engagement, 20 or that alternative engagement methods do not allow shareholders to solicit the views of the entire shareholder base. 21 19 See, e.g., letters from Lucian A. Bebchuk dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; Council of Institutional Investors et al. dated July 29, 2020; James McRitchie dated February 2, 2020; New York State Comptroller dated February 3, 2020; NorthStar Asset Management, Inc. dated February 3, 2020. 20 See, e.g., letters from Council of Institutional Investors dated January 30, 2020; James McRitchie dated February 2, 2020; New York State Comptroller dated February 3, 2020. 21 See, e.g., letters from Council of Institutional Investors dated January 30, 2020; James McRitchie dated February 2, 2020. A number of commenters suggested adjustments or alternative approaches to the proposed ownership requirements. Some commenters that were supportive of the proposed tiered approach recommended raising the initial $2,000 threshold for inflation and/or periodically adjusting each of the proposed ownership thresholds for inflation going forward. 22 Several commenters that opposed the proposed ownership requirements indicated that they would not object to adjusting the existing $2,000 threshold for inflation. 23 Other commenters expressed support for a single threshold at an amount higher than $2,000. 24 One commenter suggested adopting thresholds of $5,000, $10,000, and $15,000, depending on the holding period. 25 Another commenter suggested tying eligibility to the size of an investor's total investment portfolio by applying the existing thresholds to investors with a total investment portfolio of less than $1 million and the proposed thresholds to those with a total investment portfolio in excess of $1 million. 26 Another commenter found merit to a tiered approach, but suggested an alternative in which shareholders meeting a three-year holding period would be permitted to submit a proposal regardless of investment amount. 27 22 See letters from Business Roundtable dated February 3, 2020; Exxon Mobil Corporation dated February 3, 2020; FedEx Corporation dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020; Society for Corporate Governance dated February 3, 2020. 23 See letters from CalPERS dated February 3, 2020; CFA Institute dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; James McRitchie dated February 2, 2020; Shareholder Rights Group dated February 3, 2020. 24 See letters from CT Hagberg LLC dated February 3, 2020 (suggesting a single threshold of $5,000); Jing Zhao dated February 3, 2020 (suggesting a single threshold of $2,500). 25 See letter from Van Brenner dated November 21, 2019. 26 See letter from John Taylor dated November 14, 2019. 27 See letter from Josh Feldblyum dated November 30, 2019. Several commenters offered views that were specific to the proposed holding periods. One commenter urged us to “consider changing the duration of the ownership requirement so as to better reflect the significant changes to holding periods during the years since the one-year requirement was established.” 28 Another commenter expressed the view that the current one-year holding period is appropriate in light of the average holding periods of individual and institutional investors. 29 Another commenter recommended adopting a three-year holding period for all shareholder-proponents because, in the commenter's view, such a holding period “would demonstrate a serious commitment to a company's long-term success and should discourage proposals focused on short-term changes.” 30 Other commenters suggested that the holding period should be aligned with the Internal Revenue Code, which treats an asset as a long-term capital asset if held for more than one year and is thus taxed at capital gain rather than ordinary tax rates. 31 Other commenters expressed the view that a shareholder's holding period may not accurately capture the nature of an investor's investment stake as the length of time held may not necessarily be indicative of the shareholder's future investment intent. 32 One of these commenters suggested that the Commission instead explore a requirement that a shareholder-proponent “attest that the holder will maintain ownership of at least $2,000 of shares . . . for at least one year after the annual meeting,” or a requirement that companies disclose a shareholder-proponent's name and holdings “so that shareholders could make their own determinations if they believe a stake is too small.” 33 Another commenter supported the proposed three-year holding requirement at the $2,000 threshold, but stated that further study was necessary to understand the implications of the $25,000 ownership requirement. 34 28 See letter from CalPERS dated February 3, 2020 (stating that “the average stock holding period spanned several years” when the Commission first adopted an ownership requirement, whereas today “the average stock holding period in the U.S. is under nine months”) (citing Ted Maloney & Robert Almeida, Jr., Lengthening the Investment Time Horizon (MFS Investment Management 2019), available at https://www.mfs.com/content/dam/mfs-enterprise/mfscom/insights/2019/November/mfse_time_wp/mfse_time_wp.pdf ). 29 See letter from AFL-CIO dated February 3, 2020. 30 See letter from The Vanguard Group, Inc. dated February 3, 2020. 31 See letters from Jantz Management LLC dated January 21, 2020; James McRitchie dated December 28, 2019; James McRitchie dated December 29, 2019; James McRitchie dated January 21, 2020; James McRitchie dated July 21, 2020; Tom Shaffner dated December 17, 2019. 32 See letters from Council of Institutional Investors dated January 30, 2020; Pension Investment Association of Canada dated January 23, 2020. 33 See letter from Council of Institutional Investors dated January 30, 2020. 34 See letter from Washington State Investment Board dated January 22, 2020. One commenter sought clarification as to whether share lending would be deemed to interrupt the period of continuous ownership. 35 35 See letter from Baillie Gifford & Co. dated February 3, 2020. ii. Percentage Test Several commenters supported 36 and two opposed 37 eliminating the one-percent ownership test. In addition, one commenter opposed the adoption of an ownership requirement based solely on a percentage of shares owned, 38 while another supported such a requirement. 39 36 See letters from CFA Institute dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; Manhattan Institute for Policy Research dated February 3, 2020; James McRitchie dated February 2, 2020; National Association of Manufacturers dated February 3, 2020; John Taylor dated November 14, 2019. 37 See letters from Local Authority Pension Fund Forum dated February 3, 2020; Jena Martin dated February 3, 2020. 38 See letter from John Taylor dated November 14, 2019. 39 See letter from Don E. Sprague dated November 15, 2019. iii. Aggregation Several commenters supported the proposed amendment related to shareholders' ability to aggregate their holdings, 40 while others opposed it. 41 One commenter stated that the proposed amendment would be premature without first studying the effects of any newly adopted ownership thresholds. 42 This commenter also suggested that a prohibition on aggregation would be inconsistent with the Commission's beneficial ownership rules as well as certain other state law provisions. 43 The commenters that supported the proposed amendment stated that allowing aggregation would undermine the principle underlying the ownership requirements. 44 Many commenters that opposed the proposed amendment stated that such a limitation would have a more pronounced effect on shareholders with smaller investments. 45 One of these commenters stated that aggregation among shareholders is an indication of their long-term investment interest. 46 Another of these commenters suggested that a group of shareholders that collectively satisfies an ownership requirement is not functionally different than a single shareholder that satisfies the requirement. 47 This commenter also stated the view that a proposal submitted by a group of shareholders aggregating their holdings may be “more worthy of consideration” than a proposal submitted by a single shareholder because it “involves coordination of support [among] multiple shareholders.” 48 Another commenter said that up to five shareholders should be allowed to aggregate their holdings. 49 40 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; Exxon Mobil Corporation dated February 3, 2020; International Bancshares Corporation dated January 23, 2020; Manhattan Institute for Policy Research dated February 3, 2020; National Association of Manufacturers dated February 3, 2020. 41 See, e.g., letters from Amazon Employees for Climate Justice dated February 3, 2020; American Baptist Home Mission Societies dated January 31, 2020; Baillie Gifford & Co. dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Church Investor Group dated January 29, 2020; CT Hagberg LLC dated February 3, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; Franciscan Sisters of Allegany, NY dated January 29, 2020; International Corporate Governance Network dated December 4, 2019; North American Securities Administrators Association, Inc. dated February 3, 2020; Oneida Trust Enrollment Committee dated February 3, 2020; Tom Shaffner dated December 17, 2019; Singing Field Foundation dated January 31, 2020; Sisters of St. Ursula dated January 23, 2020; Sisters of the Order of St. Dominic dated January 24, 2020; State Board of Administration of Florida dated February 3, 2020. 42 See letter from Professor James D. Cox et al. dated February 2, 2020. 43 Id. Another commenter also expressed the view that the proposed rule would be inconsistent with “other SEC rules that allow (and sometimes require) aggregation of shares held by different shareholders” in the context of different regulatory objectives such as when shareholders collectively owning more than five percent of a class of equity securities of a registrant act as a “group” for purposes of the disclosure requirements of Section 13(d) of the Exchange Act. See letter from Council of Institutional Investors et al. dated July 29, 2020. 44 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; Exxon Mobil Corporation dated February 3, 2020; International Bancshares Corporation dated January 23, 2020; Manhattan Institute for Policy Research dated February 3, 2020; National Association of Manufacturers dated February 3, 2020. 45 See, e.g., letters from Amazon Employees for Climate Justice dated February 3, 2020; American Baptist Home Mission Societies dated January 31, 2020; Baillie Gifford & Co. dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Church Investor Group dated January 29, 2020; CT Hagberg LLC dated February 3, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; Franciscan Sisters of Allegany, NY dated January 29, 2020; International Corporate Governance Network dated December 4, 2019; North American Securities Administrators Association, Inc. dated February 3, 2020; Oneida Trust Enrollment Committee dated February 3, 2020; Tom Shaffner dated December 17, 2019; Singing Field Foundation dated January 31, 2020; Sisters of St. Ursula dated January 23, 2020; Sisters of the Order of St. Dominic dated January 24, 2020. 46 See letter from First Affirmative Financial Network, LLC dated January 24, 2020. 47 See letter from Tom Shaffner dated December 17, 2019. 48 Id. 49 See letter from State Board of Administration of Florida dated February 3, 2020. iv. Lead-Filer Designation Several commenters supported a rule requiring the designation of a lead filer where co-filers submit a proposal. 50 Of these commenters, several supported a requirement that co-filers delegate to the lead filer the ability to negotiate with respect to, and withdraw, the proposal to reduce administrative burdens on companies. 51 50 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; Council of Institutional Investors dated January 30, 2020; Exxon Mobil Corporation dated February 3, 2020; General Motors Company dated February 25, 2020; James McRitchie dated February 2, 2020; National Association of Manufacturers dated February 3, 2020; Society for Corporate Governance dated February 3, 2020; State Board of Administration of Florida dated February 3, 2020. 51 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; Exxon Mobil Corporation dated February 3, 2020; National Association of Manufacturers dated February 3, 2020; Society for Corporate Governance dated February 3, 2020. Other commenters opposed the idea of requiring the designation of a lead filer. 52 Two of these commenters explained that such a requirement is unnecessary as co-filers already tend to designate a lead filer. 53 One of the commenters indicated that such a requirement could lead to more shareholder proposal submissions and suggested that, if such a requirement were adopted, companies should be required to disclose the lead filer and all co-filers in their proxy statements to foster engagement and provide investors with additional information related to their vote. 54 52 See letters from Local Authority Pension Fund Forum dated February 3, 2020; New York State Comptroller dated February 3, 2020; John Taylor dated November 14, 2019. 53 See letters from Local Authority Pension Fund Forum dated February 3, 2020; New York State Comptroller dated February 3, 2020. 54 See letter from New York State Comptroller dated February 3, 2020. 3. Final Rule Amendments i. Ownership Thresholds After considering the comments received, we are adopting the amendments as proposed. Under new Rule 14a-8(b), a shareholder will be eligible to submit a Rule 14a-8 proposal if the shareholder demonstrates continuous ownership of 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. 55 55 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. See 1983 Adopting Release, supra note 2. For these purposes, companies and shareholders should determine the market value by multiplying the number of securities the shareholder continuously held for the relevant period by the highest selling price during the 60 calendar days before the shareholder submitted the proposal. For purposes of this calculation, it is important to note that a security's highest selling price is not necessarily the same as its highest closing price. The Commission has previously indicated that the required dollar amount and holding period should be calibrated such that a shareholder has some meaningful “economic stake or investment interest” in a company—and therefore is more likely to put forth proposals reflecting an interest in the company and its shareholders than to use the proxy process to promote a personal interest or general cause—before the shareholder may draw on company and shareholder 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 time and attention of other shareholders to consider and vote on the proposal. 56 We believe this longstanding statement of the Commission's perspective continues to appropriately capture the various interests that should be considered when calibrating the eligibility of shareholder-proponents to access the proxy statement at little or no cost to themselves. 56 See 1983 Adopting Release, supra note 2. As we explained in the Proposing Release, we believe that holding $2,000 worth of a company's stock for a single year, a threshold that was last substantively reviewed and updated by the Commission in 1998, 57 does not appropriately ensure that the shareholder has a sufficiently meaningful stake in a company today. As the table below demonstrates, the $2,000 threshold, adjusted for inflation, is equivalent to $3,183 in 2020 dollars. 58 Moreover, using the cumulative growth of the Russell 3000 Index as a proxy for the average increase in companies' market values, a $2,000 investment in that index in 1998 would be worth approximately $9,489 today. 59 Furthermore, we estimate that the market capitalization of the largest 100 issuers in the S&P 500 Index (the companies that on a per-issuer basis receive a disproportionate number of shareholder proposals 60 ) has grown by 164 percent since 1998, and a $2,000 stake would be worth approximately $5,280 today. 61 We believe that the increases in inflation and market value have contributed, in part, to the need to revisit the $2,000/one-year ownership threshold and to recalibrate the relationship between the amount of stock owned and the requisite holding period to reflect a more appropriate economic stake or investment interest. 57 See 1998 Adopting Release. 58 $3,183 = $2,000 × 1.5915 (cumulative rate of inflation between May 1998 and July 2020, using the CPI inflation calculator, available at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11%2C600.00&year1=201011&year2=201906 ). 59 $9,489 = $2,000 × 4.744 (cumulative rate of growth of the Russell 3000 index between May 1998 and July 2020, which is the most recent date with available data, assuming dividends are reinvested). Data is retrieved from Compustat Daily Updates—Index Prices. 60 In 2019, out of a total of 371 shareholder proposals voted on, see Sullivan & Cromwell, 2019 Proxy Season Review, Part I (July 13, 2019), available at https://www.sullcrom.com/files/upload/SC-Publication-2019-Proxy-Season-Review-Part-1-Rule-14a-8-Shareholder-Proposals.pdf (“Sullivan & Cromwell Report”), 187 were voted on at S&P 100 companies, see David Bell, Silicon Valley and S&P 100: A Comparison of 2019 Proxy Season Results, Dec. 27, 2019, available at https://corpgov.law.harvard.edu/2019/12/07/silicon-valley-and-sp-100-a-comparison-of-2019-proxy-season-results/. 61 $5,280 = $2,000 × (1+1.64) (cumulative rate of growth in the market capitalization of the largest 100 issuers in the S&P 500 Index between May 1998 and May 2019, which is the most recent date with available data). Data is retrieved from Compustat Annual Updates—Security Monthly. Ownership Threshold Comparison Threshold established in 1998 1998 Threshold adjusted for inflation Change in Russell 3000 Index Change in largest 100 issuers in S&P 500 Index $2,000 $3,183 $9,489 $5,280 In making this assessment and recalibration, we recognize that the amount of stock owned is not the only way to demonstrate an interest in a company, particularly for smaller 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. We believe having a longer holding period is particularly important if the dollar value of the ownership interest is minimal, including in terms of a company's market capitalization, and may help address concerns related to misuse of the shareholder-proposal process, while ensuring that smaller investors have access to the proxy statements of companies in which they have a demonstrated continuing interest. We also recognize that shareholders' ability to communicate with issuers and other shareholders has evolved in response to technological advancements and developing market practices since our rules were last amended. As a result, shareholders now have more tools at their disposal to engage with a company's board and/or management, as well as their fellow shareholders, in a manner that may be more efficient and less costly for all parties than the Rule 14a-8 process. Thus, shareholders that do not meet the relevant one-, two-, or three-year holding period (and related $25,000, $15,000, or $2,000 continuous ownership threshold), and for some limited period of time would not be eligible to require a company to include a proposal in its proxy statement, can nevertheless raise important issues with companies and other shareholders through alternative avenues with greater ease than in the past. In establishing the amended thresholds, we also have considered the costs to the company and its shareholders associated with management's consideration of a proposal and/or its inclusion in the company's proxy statement, as well as the direct costs to other shareholders. In the Proposing Release, we cited several cost estimates for companies provided by market participants ranging from $50,000 to $150,000 per proposal associated with this process and estimated that the proposed amendments to the ownership thresholds could result in aggregate annual cost savings of up to $69.8 million per year for all Russell 3000 companies. 62 In response to the Proposing Release, several commenters provided us with estimates of the costs associated with a company's receipt of a shareholder proposal ranging from approximately $20,000 to $150,000. 63 The costs to non-proponent shareholders of considering shareholder proposals are difficult to quantify but in aggregate are estimated to be significant, including in comparison to the costs borne by shareholder-proponents. 64 Because Rule 14a-8 enables individual shareholders to shift to the company and other shareholders the significant cost of processing, analyzing, and voting their proposals, we believe the Commission's longstanding perspective that ownership thresholds should be calibrated so that a shareholder-proponent's economic stake or investment interest in the company is more likely to demonstrate an alignment of interest with the company's other shareholders continues to be appropriate. 62 See Proposing Release at 66502. 63 See letters from Business Roundtable dated February 3, 2020 (noting that “[a]lthough many member companies reported that it was difficult to quantify the costs of shareholder proposals, several reported costs ranging from $50,000 to $100,000 or more per proposal. In addition, a number of companies noted that their costs for first-time proposals are generally higher than those incurred for resubmitted proposals”); CalPERS dated February 3, 2020 (“Fortunately, the most substantial shareholder proposal work product is included in the no-action correspondence on the SEC's website and does not reflect a value anywhere near $150,000 per submission. During no-action fights, many proposals are disposed of fairly quickly and easily by referencing the appropriate exclusion. Companies actually pay less than $20,000 in marginal costs for the work product displayed on the SEC website.”); Center for Capital Markets Competitiveness dated January 31, 2020 (noting that “[t]he Commission cited commenters who estimated that the average cost of responding to a proposal for inclusion in the company's proxy statement can cost anywhere from $87,000 to $150,000 per proposal. Our members report that this is a fair estimate for a typical proposal, though some outliers (such as ones involving multiple rounds of correspondence with a proponent and the Commission) may exceed the high end of the range.”); John Coates and Barbara Roper dated January 30, 2020 (noting that the Commission's paperwork burden analysis uses “a much lower figure, based on direct company information: `A July 2009 survey of Business Roundtable companies, in which 67 companies responded . . . indicated that the average burden for a company associated with printing and mailing a single shareholder proposal is 20 hours with associated costs of $18,982.' While this much lower estimate may not comprehensively reflect all costs, it is a relevant datum for estimating cost savings, and is at least in tension with the SEC's assertion that $50,000 is a `lower bound' on costs.”); Exxon Mobil Corporation dated February 3, 2020 (estimating the direct cost of each shareholder proposal included in its proxy statement “to be at least $100,000”); General Motors Company dated February 25, 2020 (stating that a cost estimate of $87,000 to $150,000 is “directionally accurate”); Society for Corporate Governance dated February 3, 2020 (providing the results of a survey of its members in which one respondent reported a cost of $109,792 (including the cost of seeking no-action relief) with respect to a proposal received in 2018 that was ultimately withdrawn, and a cost of $133,587 with respect to a proposal in 2019 that was ultimately included in the company's proxy statement). For additional discussion of these cost estimates, see infra note 332 and accompanying text. 64 See infra Section V.D.2. Taking into account the above factors, the new thresholds will require a more appropriate demonstrated “economic stake or investment interest” in a company before the shareholder may draw on company and shareholder resources to require the inclusion of a proposal in the company's proxy statement, and before the shareholder-proponent may use the company's proxy statement to command the time and attention of other shareholders to analyze and vote on the proposal. 65 Each of these factors is described in greater detail below. 65 One commenter sought clarification regarding the effect of share lending. See letter from Baillie Gifford & Co. dated February 3, 2020. The rule will not prohibit share lending or otherwise require investors to maintain a net-long position. We note that the rule has not historically imposed such a requirement, and we are not aware of any concerns with respect to these practices by shareholder-proponents at this time. While the current $2,000 threshold will 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, these investors will be required to hold the securities for at least three years to be eligible to submit a proposal. In light of the smaller investment amount required under this ownership tier, we believe that a longer holding period is warranted to demonstrate a sufficient investment interest in a company before being able to draw on company and shareholder resources for the purpose of including a proposal in the company's proxy statement. Investors who currently are eligible to submit proposals under the current $2,000 threshold/one-year minimum holding period, but currently do not satisfy the new requirements, will continue to be eligible to submit proposals through the expiration of the transition period that extends for all annual or special meetings held prior to January 1, 2023, provided they continue to hold at least $2,000 of a company's securities. To help put these thresholds in context, the following table shows them as a percentage of market value as of April 2020 for the S&P 500 Index constituents and May 2020 for the Russell 3000 Index constituents: 66 66 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 Jun. 17, 2020). The largest registrant in the Russel 3000 index is the same as in the S&P 500 Index. 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 0.0000002 0.0000012 0.0000020 Smallest Registrant in the S&P 500 Index 0.0001 0.0009 0.0015 Smallest Registrant in the Russell 3000 Index 0.0021 0.016 0.026 Although the ownership thresholds are still very low as a percentage of market value, we believe that maintaining the $2,000 threshold and extending the holding period to three years, and adding new thresholds with one- and two-year holding periods, provides for a framework that is more effectively calibrated to the potentially varying interests of shareholder-proponents, companies, and other shareholders and, as a result, a shareholder-proponent that meets one of them will have demonstrated a sufficient “economic stake or investment interest” in a company before being able to draw on company and other shareholder resources for the purpose of including a proposal in the company's proxy statement. While we considered the alternative of simply raising the dollar amount of securities required to be held for one year, we were cognizant of the effect such an increase may have on investors with smaller investments, including those with a demonstrated long-term economic stake or investment interest in the company. We also considered adopting a single ownership threshold with a three-year holding period, but we believe that shorter holding periods are appropriate where a shareholder-proponent's demonstrated investment interest is greater in amount. Accordingly, we are retaining a $2,000 ownership threshold while adjusting the related holding period and adopting alternative thresholds for investors that have held their shares for shorter periods of time. For the reasons discussed above and in the Proposing Release, such as the costs incurred by other shareholders and companies and the availability of alternative communication channels, we do not believe that a one-year holding period is indicative of a sufficient investment interest where the amount invested is less than $25,000. We also do not find commenters' analogy to the Internal Revenue Code's treatment of capital assets compelling in light of the differing objectives of the Internal Revenue Code and the shareholder-proposal rule. 67 At the same time, we also do not find compelling the suggestion of a different commenter that a three-year holding period for all shareholder-proponents is necessary to demonstrate a “serious commitment to a company's long-term success.” 68 We believe that holding periods of less than three years are sufficient where the economic stake is greater. 67 See letters from Jantz Management LLC dated January 21, 2020; James McRitchie dated December 28, 2019; James McRitchie dated December 29, 2019; James McRitchie dated January 21, 2020; James McRitchie dated July 21, 2020; Tom Shaffner dated December 17, 2019. 68 See letter from The Vanguard Group, Inc. dated February 3, 2020. Two commenters suggested that any adjustments to the one-year holding period should be informed by the holding periods of investors generally. 69 In the Proposing Release, we noted our review of academic studies and other data on share ownership duration generally. 70 In establishing the amended holding periods, and in response to these commenters, we further reviewed holding period data. 71 We note, however, that academic studies and data regarding holding periods for smaller investors reflect a static assessment of general eligibility in the context of the current one-year minimum holding period and, therefore, do not account for changes in investment amounts and holding periods for the historically limited group of smaller investors that are interested in submitting proposals that may result from the amendments. 72 We believe that where the amount invested is relatively small, an investor's holding period provides a meaningful indicator of the shareholder-proponent's investment interest in the company. As such, where the amount invested is less than $25,000 but greater than $15,000, we believe that a holding period of two years is appropriate. Where the amount invested is less than $15,000 but greater than $2,000, we believe that the three-year holding period is appropriate. 73 69 See supra notes 28 and 29. 70 See Proposing Release at 66490 n.195. 71 See infra note 320 and accompanying text. 72 The ratio of shareholder-proponents whose proposals appeared in proxy statements during 2018 ( i.e., 170) to the number of direct and indirect investors in companies subject to the proxy rules ( i.e., 65 million) is roughly equal to three shareholder-proponents per million investors. 73 There may be a relation between duration of ownership and the propensity of a shareholder to submit a proposal. Although we agree with the view of certain commenters that the length of time a shareholder has held a company's securities may not necessarily determine future investment intent, 74 we believe that it provides a meaningful indication as to the nature of the investment. Thus, we believe that it is appropriate to place greater emphasis on the length of continuous stock ownership when the economic stake is less and vice versa. Moreover, in response to a commenter, we considered whether to adopt an eligibility requirement based on a shareholder-proponent's statement that it will maintain a minimum investment in the company's securities for some period of time after the shareholders' meeting for which a proposal is submitted. 75 However, we believe that a shareholder-proponent with a limited economic stake should first demonstrate a meaningful investment interest in a company before drawing on company and shareholder resources to require the inclusion of a proposal in the company's proxy statement, and before using the company's proxy statement to command the time and attention of other shareholders to consider and vote on the proposal. In our view, requiring a company to include a shareholder proposal in its proxy statement before a proponent has demonstrated a sufficient economic stake or investment interest would be inconsistent with the purpose of the ownership requirement and could render the shareholder-proposal process subject to abuse. Accordingly, we do not believe that such an approach is appropriate. 74 See letters from Council of Institutional Investors dated January 30, 2020; Pension Investment Association of Canada dated January 23, 2020. 75 See letter from Council of Institutional Investors dated January 30, 2020 (“[T]he SEC should explore benefits and costs of a forward-looking regime, for example requiring the shareholder to attest that the holder will maintain ownership of at least $2,000 of shares (as valued at submission date) for at least one year after the annual meeting.”). In response to the same commenter, we also considered whether to eliminate the ownership threshold and adopt a requirement that companies disclose a shareholder-proponent's name and holdings “so that shareholders could make their own determinations if they believe a stake is too small.” 76 Because a determination by shareholders regarding a proponent's investment stake would occur only after a proposal had been included in the company's proxy statement and voted upon, companies and their shareholders could bear the burdens associated with a proposal submitted by a proponent whose stake is ultimately determined to be too small by the company's shareholders. For this reason, we believe that such an approach would be inconsistent with the purpose of the ownership requirement and could render the shareholder-proposal process subject to abuse. Accordingly, we are not adopting such an approach. 76 Id. In establishing the amended thresholds, we also gave careful consideration to the effects any new thresholds may have on the ability of shareholders with smaller investments to submit proposals. We acknowledge, as several commenters asserted, that smaller shareholders can raise issues that other shareholders support. 77 The amendments we are adopting today do not preclude smaller shareholders from participating in the shareholder-proposal process. 78 As discussed above, the rule will continue to be available to shareholders that own at least $2,000 of a company's securities. We recognize, however, that the increased holding period will likely have some effect on the timing of submissions by those shareholders who could have relied on the current $2,000/one-year ownership threshold if they do not yet meet the three-year holding period (or the alternative eligibility thresholds). Specifically, shareholders that crossed the $2,000 ownership threshold for more than one year but less than three years (and do not satisfy the $15,000/two-year or $25,000/one-year thresholds) will need to postpone submitting a shareholder proposal until they have satisfied the requisite three-year holding requirement (or the alternative eligibility thresholds). We do not consider this increase in the holding period to be an undue burden on the ability to participate in the shareholder-proposal process, especially in light of the significant costs for other shareholders and the company involved in this method of shareholder engagement. 79 77 See, e.g., letters from Christian Brothers Investment Services, Inc. dated January 21, 2020; Council of Institutional Investors et al. dated July 29, 2020; Senator Tammy Duckworth dated January 30, 2020; Form Letter Type A; Illinois State Treasurer dated January 16, 2020; James McRitchie dated July 21, 2020. 78 Cf. letter from Fidelity Management & Research LLC dated February 3, 2020 (noting that the commenter “reviewed all shareholder proposals received by and voted on by Fidelity mutual funds for the past six years and found that the vast majority of these proposals would still have satisfied the eligibility criteria under the new tiered submission thresholds”). 79 See infra Section V.D. We also note that, while these shareholder-proponents will be unable to require a company to include a proposal in its proxy statement until the shareholder has held the securities for the requisite three-year period, they will not be precluded from raising matters that are important to them through alternative avenues of engagement. Today's investors are able to engage with companies and other investors in a variety of ways, including via email, video conference calls, one-on-one “sunny day” meetings, shareholder surveys, and e-forums. 80 Although we recognize these alternative channels are different than a shareholder proposal, we understand that companies today are more responsive to shareholder requests to engage through alternative channels than when our rules were last amended. 81 Moreover, raising these issues through one-on-one engagement with management may produce better outcomes than submitting shareholder proposals. 82 In addition, we note that shareholders engage directly with each other through various channels, and, accordingly, an issue that is sufficiently important to the broader shareholder base could be brought to the company's attention by other shareholders, including those that are eligible to submit a shareholder proposal. We also note that the proxy rules allow shareholders, including those that have held shares for less than one year, to conduct their own proxy solicitations in accordance with those rules. 80 See Matteo Tonello & Matteo Gatti, Board-Shareholder Engagement Practices, Harvard L. Sch. F. on Corp. Governance (Dec. 30, 2019), available at https://corpgov.law.harvard.edu/2019/12/30/board-shareholder-engagement-practices/; Cleary Gottlieb Steen & Hamilton LLP, Shareholder Engagement Trends and Considerations (Jan. 10, 2020), available at https://www.clearygottlieb.com/news-and-insights/publication-listing/shareholder-engagement-trends-and-considerations; 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/. See also letter from Business Roundtable dated February 3, 2020. 81 See, e.g., letter from Business Roundtable dated February 3, 2020. 82 See T.Rowe Price, Sustainable Investing (April 2020), available at https://www.troweprice.com/content/dam/trowecorp/Pdfs/ESG_2019_AnnualReport-Global_30_April_2020_Final.pdf (“Our experience after many years of assessing ESG issues as part of our investment process is that direct, one-on-one engagement with companies produces better outcomes than shareholder resolutions.”). For the reasons discussed above, we believe that the amended thresholds appropriately capture the various interests that should be considered when calibrating the eligibility of shareholder-proponents to access a company's proxy statement at little or no cost to the shareholder-proponent. As such, we are not incorporating the suggestions of certain commenters, such as adjusting the thresholds to $5,000, $10,000, or $15,000; 83 eliminating a minimum dollar investment for shareholders meeting a three-year holding period; 84 establishing thresholds that are contingent on the size of an investor's total investment portfolio; 85 or subjecting the thresholds to future inflation adjustments. 86 Although we recognize that a minimum amount of stock owned is not the only way to demonstrate a current and continued investment interest in a company, we do not believe that eliminating a minimum dollar investment for shareholders meeting a three-year holding period would be consistent with the concept of demonstrating a meaningful economic stake or investment interest in a company prior to submitting a shareholder proposal. In addition, although we appreciate that the thresholds will represent different proportional investments relative to each shareholder's total investment portfolio— e.g., they will represent a larger proportional investment where portfolio size is smaller and vice versa—we believe thresholds that vary based on the size of an investor's total investment portfolio would be difficult to administer. For example, such a requirement could necessitate a shareholder's submission and a company's verification of voluminous amounts of documentation for the purpose of demonstrating and ascertaining the size of the shareholder's total investment portfolio in order to ascertain the applicable ownership threshold. Thus, we are not adopting thresholds that vary based on the size of a proponent's total investment portfolio. We also are not adopting a provision that would require periodic future inflation adjustments. We believe that such a mechanism is unnecessary at this time in light of the tiered approach being adopted. 83 See letter from Van Brenner dated November 21, 2019. 84 See letter from Josh Feldblyum dated November 30, 2019. 85 See letter from John Taylor dated November 14, 2019. 86 See letters from Business Roundtable dated February 3, 2020; Exxon Mobil Corporation dated February 3, 2020; FedEx Corporation dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020; Society for Corporate Governance dated February 3, 2020. Although some commenters raised concerns about the effects the new thresholds could have on portfolio diversification, they did not provide data about costs or the likelihood of occurrence. They also did not provide data addressing the percentage of smaller investors that maintain a diversified portfolio or the diversification of holdings of the relatively smaller subset of such investors that submit shareholder proposals. While we acknowledge that, in theory, some shareholders may not be able to satisfy the three-year ownership requirement without affecting portfolio diversification decisions to some degree, we believe the appropriate allocation of capital, taking into account various factors, including portfolio diversification and the importance of submitting a proposal for inclusion in a company's proxy statement, is something for the investor to determine. We also note that the three different ownership thresholds in the final rules will afford shareholders some flexibility in determining how to allocate capital while considering whether qualifying to submit a proposal in a shorter timeframe is in the shareholder-proponent's interest. In those situations where a shareholder decides not to alter portfolio diversification, we note that an issue that is sufficiently important to the broader shareholder base may be brought to the company's attention by other shareholders, including those that are eligible to submit a shareholder proposal. ii. Percentage Test As proposed, the amended rule will not include a component based on a percentage of shares owned. We believe that each of the revised thresholds represents a meaningful economic stake or investment interest such that a separate percentage-based threshold is unnecessary. We also believe that shareholders would be unlikely to rely on such a threshold in light of the new thresholds and that the amendment will avoid administrative complexities that could result from a percentage-based test. We also note that commenters who addressed it generally supported eliminating the current percentage ownership test. 87 Accordingly, we are not adopting a percentage-based component. 87 See letters from CFA Institute dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; Manhattan Institute for Policy Research dated February 3, 2020; James McRitchie dated February 2, 2020; National Association of Manufacturers dated February 3, 2020; John Taylor dated November 14, 2019. iii. Aggregation As proposed, aggregation of holdings for purposes of meeting the ownership requirements will not be permitted. Instead, each shareholder must satisfy one of the three ownership thresholds to be eligible to submit or co-file a proposal. 88 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. Consistent with the views of several commenters, we believe that allowing shareholders to aggregate their securities to meet the new thresholds would undermine the goal of ensuring that each 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. 89 We recognize this limitation could affect the ability of shareholders with smaller investments to submit shareholder proposals, but as explained above, we believe each shareholder-proponent should have a meaningful ownership stake in a company before being permitted to draw on company resources to include a proposal in the company's proxy statement as well as draw on the time, attention, and other resources of non-proponent shareholders. 90 88 Shareholders whose shares are held in joint tenancy may submit proposals individually or jointly. However, the one-proposal limit will apply collectively to all persons having an interest in the same shares. 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”). 89 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; Exxon Mobil Corporation dated February 3, 2020; International Bancshares Corporation dated January 23, 2020; Manhattan Institute for Policy Research dated February 3, 2020; National Association of Manufacturers dated February 3, 2020. 90 In articulating the need for an ownership requirement in prior releases, the Commission has explained that shareholders who submit proposals should have a specified “economic stake” or “investment interest” in the company. See 1983 Adopting Release, supra note 2. See also Amendments to Rules on Shareholder Proposals, Release No. 34-39093 (Sep. 18, 1997) [62 FR 50682 (Sep. 26, 1997)] (noting that “[o]ne purpose of the requirement is to curtail abuse of the rule by requiring that those who put the company and other shareholders to the expense of including a proposal in proxy materials have had a continuous investment interest in the company.”). In parts of this release, we use “ownership stake” in lieu of “economic stake” because we believe an ownership stake represents a type of economic stake. Moreover, we do not agree with the commenter who suggested that a group of shareholders that collectively, but not individually, satisfies an ownership requirement is functionally the same as a single shareholder that satisfies the requirement. 91 Although the total dollar amount may be the same under either scenario, we do not believe that group ownership (where each member of the group does not individually satisfy one of the ownership requirements) represents an equivalent economic stake or investment interest as a single shareholder who satisfies the ownership requirements. Accordingly, we do not believe a group comprising shareholders, where each member of the group does not individually satisfy one of the ownership requirements, will have demonstrated a sufficient ownership interest to be eligible to submit a proposal. For similar reasons, we do not agree with commenters who suggested that aggregated holdings are indicative of a long-term investment interest, 92 or that a proposal submitted by a group of shareholders aggregating their holdings is “more worthy of consideration” than a proposal submitted by a single shareholder. 93 In our view, the more relevant consideration for these purposes is not the number of shareholder-proponents, but rather, whether each such proponent has a meaningful economic stake in the company. Accordingly, aggregation will not be permitted under the final amendments. 94 91 See letter from Tom Shaffner dated December 17, 2019. 92 See letter from First Affirmative Financial Network, LLC dated January 24, 2020. 93 See letter from Tom Shaffner dated December 17, 2019 . 94 We do not agree with the commenter who suggested that the amendment is premature and that we should first study the effects of the new ownership thresholds. See letter from Professor James D. Cox et al. dated February 2, 2020. As stated above, we do not believe that group ownership (where the group comprises shareholders none of whom individually meets one of the ownership requirements) represents a sufficient economic or investment interest to require inclusion of a proposal in a company's proxy statement. This view applies regardless of how frequently shareholders might elect to aggregate and, therefore, we do not believe it is necessary to first study the effects of the new ownership thresholds prior to adopting the amendment. We also do not agree with this and another commenter's suggestion that the amendment is at odds with other aspects of corporate and/or securities laws under which aggregation of holdings is permitted or required. We note that the primary examples cited by the commenter were the subject of a 5% ownership requirement, whereas the ownership requirements under the amended thresholds are considerably lower— i.e., $2,000, $15,000, and $25,000. In light of the relatively low ownership requirements under the amendment, we do not believe the ability to aggregate is necessary or appropriate. As previously stated, aggregate holdings at these ownership levels would not represent a sufficient economic or investment interest and could undermine the purpose of the ownership requirement. In addition, we do not agree with the commenter's suggestion that the amendment is inconsistent with the beneficial ownership provisions under the federal securities laws, which, among other things, require any “group” of beneficial holders owning more than five percent of a security registered under Section 12 of the Exchange Act to file a Schedule 13D or Schedule 13G. We note that the objectives of the beneficial ownership reporting requirements fundamentally differ from those of the shareholder-proposal rule. iv. Lead-Filer Designation Although shareholders will not be able to aggregate their holdings under the amendment, they will continue to be permitted to co-file proposals as a group if each shareholder-proponent in the group meets an eligibility requirement. 95 However, we are not adopting rules requiring co-filers to identify a lead filer or specify whether the lead filer is authorized to negotiate a withdrawal on behalf of the co-filers. As several commenters observed, such a requirement does not appear necessary at this time as co-filers already tend to designate a lead filer. 96 Nevertheless, we continue to believe that, as a best practice, co-filers 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 behalf of the other co-filers. 97 95 Under Section 13(d) and Section 13(g), a “group” is formed when two or more persons act together for the purpose of acquiring, holding, voting, or disposing of the securities. Congress created the “group” concept to prevent persons who seek to pool their voting or other interests in the securities of an issuer from evading the Section 13(d) or 13(g) obligations because no one person owns more than five percent of the securities. To the extent co-filers are acting together (or in concert with others) for the purpose of voting in favor of their proposals they should consider whether such activity constitutes a “group” for purposes of Section 13(d) and Section 13(g). 96 See letters from Local Authority Pension Fund Forum dated February 3, 2020; New York State Comptroller dated February 3, 2020. 97 We remind co-filers 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). B. Proposals Submitted on Behalf of Shareholders 1. Proposed Rule Amendment We proposed to add a new eligibility requirement to Rule 14a-8 that would require shareholders that use a representative to submit a proposal for inclusion in a company's proxy statement to provide 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. 2. Comments on the Proposed Rule Amendment The proposed amendment generated a wide range of responses. Some commenters expressed the view that the proposed requirements were appropriate, 98 while others opposed them. 99 Several commenters stated that the proposed representations would help clarify the relationship between the shareholder-proponent and the representative with minimal burden to shareholders. 100 Other commenters recommended adding additional informational requirements regarding a shareholder-proponent's motives for submitting a proposal. 101 One of these commenters suggested revisions to the rule text that would require: (i) The proposal text to be embedded in the authorization letter, (ii) the shareholder-proponent to sign the authorization letter no later than the date the proposal is submitted, and (iii) the authorization letter to specify that the representative is authorized to revise the proposal and/or supporting statement. 102 Several commenters stated that representatives should not be permitted to submit proposals on behalf of shareholders, although two of these commenters seemed supportive of the proposed requirements in the absence of such a prohibition. 103 98 See letters from British Columbia Investment Management Corporation dated February 3, 2020; Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; CFA Institute dated February 3, 2020; Corporate Governance Coalition for Investor Value dated February 3, 2020; Exxon Mobil Corporation dated February 3, 2020; General Motors Company dated February 25, 2020; Nareit dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020; National Association of Manufacturers dated February 3, 2020; School Sisters of Notre Dame Cooperative Investment Fund received January 24, 2020; Tom Shaffner dated December 17, 2019; Sisters of the Order of St. Dominic dated January 24, 2020; Southwestern Energy Company dated February 3, 2020. 99 See letters from AFL-CIO dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; CalPERS dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; Figure 8 Investment Strategies dated January 31, 2020; Illinois State Treasurer dated January 16, 2020; International Brotherhood of Teamsters dated February 3, 2020; Local Authority Pension Fund Forum dated February 3, 2020; James McRitchie dated February 2, 2020; Paul M. Neuhauser dated February 3, 2020; New York City Comptroller dated February 3, 2020; North Berkeley Wealth Management dated January 31, 2020; Shareholder Rights Group dated March 18, 2020; State Board of Administration of Florida dated February 3, 2020; John Taylor dated November 14, 2019; Trillium Asset Management dated February 3, 2020; Worker Owner Council of the Northwest dated February 3, 2020. 100 See letters from Business Roundtable dated February 3, 2020; CFA Institute dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020. 101 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Corporate Governance Coalition for Investor Value dated February 3, 2020; Nareit dated February 3, 2020; Southwestern Energy Company dated February 3, 2020. 102 See letter from Southwestern Energy Company dated February 3, 2020. 103 See letters from CT Hagberg LLC dated February 3, 2020; Exxon Mobil Corporation dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020. Of commenters that were opposed to the proposed amendment, several expressed the view that the proposed informational requirements could interfere with the principles of agency under state law and/or a representative's ability to carry out its fiduciary duties. 104 For example, some commenters expressed concern that the proposed amendment would intrude on the agency relationship by requiring the shareholder-proponent to pre-authorize the form and content of a shareholder proposal prior to its submission, 105 or by requiring written authorization that is not required under state law. 106 Some commenters also stated that an amendment requiring this information is unnecessary because the information is often already provided. 107 Commenters also raised concerns about the effects the proposed requirements could have on entities, such as asset managers, that must act through agents. 108 104 See, e.g., letters from AFL-CIO dated February 3, 2020; As You Sow dated February 3, 2020; CalPERS dated February 3, 2020; Council of Institutional Investors dated January 30, 2020; Figure 8 Investment Strategies dated January 31, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; International Brotherhood of Teamsters dated February 3, 2020; Worker Owner Council of the Northwest dated February 3, 2020. 105 See, e.g., letters from AFL-CIO dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Shareholder Rights Group dated March 18, 2020. 106 See, e.g., letter from AFL-CIO dated February 3, 2020. 107 See, e.g., letters from AFL-CIO dated February 3, 2020; CalPERS dated February 3, 2020; James McRitchie dated February 2, 2020. 108 See, e.g., letters from AFL-CIO dated February 3, 2020; International Brotherhood of Teamsters dated February 3, 2020; International Corporate Governance Network dated December 4, 2019; Paul M. Neuhauser dated February 3, 2020; New York City Comptroller dated February 3, 2020. In response to a request for comment, two commenters stated that a representative's ability to deliver evidence of the shareholder-proponent's ownership sufficiently demonstrates the representative's authority to submit a proposal on a shareholder's behalf, 109 while two others stated that it does not sufficiently demonstrate such authorization. 110 109 See letters from Council of Institutional Investors dated January 30, 2020; James McRitchie dated February 2, 2020. 110 See letters from Exxon Mobil Corporation dated February 3, 2020; Southwestern Energy Company dated February 3, 2020. 3. Final Rule Amendment We are adopting the amendment as proposed, but with a modification in response to commenters that clarifies that the shareholder-proponent must identify the specific topic of the proposal, rather than the specific language of the proposal, to be submitted. The rule will require shareholders that use a representative to submit a proposal for inclusion in a company's proxy statement to provide 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 submitting the proposal and the shareholder's designated representative; • Includes the shareholder's statement authorizing the designated representative to submit the proposal and otherwise act on the shareholder's behalf; • Identifies the specific topic of the proposal to be submitted; • Includes the shareholder's statement supporting the proposal; and • Is signed and dated by the shareholder. As discussed in the Proposing Release, 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 arrange 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 amount of time. 111 111 See Proposing Release at 66465-66466. 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 often speaks for and acts on the shareholder's behalf in connection with the matter. 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. 112 112 See, e.g., Baker Hughes Inc., SEC No-Action Letter 2016 WL 722853 (Feb. 22, 2016) (investment adviser failed to provide documentation sufficient to ascertain the shareholder's identity, role, or interest in the proposal); Chevron Corp., SEC No-Action Letter 2014 WL 262988 (Apr. 4, 2014) (same). We believe that these amendments will 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 these requirements will reduce some of the administrative burdens associated with confirming a shareholder's role in the shareholder-proposal process and that the burden on shareholder-proponents of providing this information will be minimal; in fact, we note that much of it is often already provided. Although much of this information is already provided in accordance with staff guidance, 113 we do not agree with commenters who suggested that current practices obviate the need for an amendment. 114 We believe that an amendment will promote consistency among shareholder-proponents and provide greater clarity to those seeking to rely on the rule. In addition, we believe it is important that the documentation include the shareholder's statement authorizing the designated representative to submit the proposal and otherwise act on the shareholder's behalf, as well as the shareholder's statement supporting the proposal, neither of which is addressed in staff guidance. At this time, however, we do not believe that any of the additional informational requirements suggested by commenters are necessary to demonstrate a shareholder-proponent's identity, role, and interest in a proposal and, accordingly, we are not adding any additional requirements. 113 See Staff Legal Bulletin No. 14I (Nov. 1, 2017). 114 See, e.g., letters from AFL-CIO dated February 3, 2020; CalPERS dated February 3, 2020; James McRitchie dated February 2, 2020. We do not expect these requirements will interfere with a shareholder-proponent's ability to use an agent, or prevent representatives who act as fiduciaries from carrying out their fiduciary duties. Although shareholder-proponents who elect to submit a proposal through a representative will be required to provide additional information about their submissions, the rule will not prevent them from using representatives in accordance with state law. Moreover, the rule's requirement to disclose this information is only a condition on the ability of a shareholder-proponent, under federal law, to submit a proposal for inclusion in a company's proxy statement. The rule does not substantively alter the agency relationship between a shareholder and a representative. Thus, we do not agree with the commenter who stated that the proposed amendment “interferes with state agency law by requiring that shareholders provide express and specific authorization of the designated representative to submit a shareholder proposal.” 115 Furthermore, in response to commenters who suggested that the amendment would intrude on a shareholder-proponent's ability to use an agent by requiring the shareholder- proponent to pre-authorize the form and content of a shareholder proposal prior to its submission, 116 we have revised the rule text to state that the shareholder-proponent must identify the specific topic (as opposed to the text) of the proposal to be submitted. Likewise, we do not believe that the rule will interfere with a representative's ability to act as a fiduciary or satisfy any applicable fiduciary obligations. Rather, the rule is intended to help shareholders and companies more clearly understand the nature and scope of the relationship between a shareholder-proponent and his or her representative. 115 See letter from AFL-CIO dated February 3, 2020. 116 See, e.g., letters from AFL-CIO dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Shareholder Rights Group dated March 18, 2020. In addition, we agree with those commenters who expressed the view that a representative's ability to obtain a broker letter from the shareholder's broker does not offer a sufficient degree of assurance as to the shareholder-proponent's identity, role, and interest in a proposal. 117 Although the ability to obtain a broker letter will generally require the shareholder's authorization, the scope of such authorization may not be evident. In this situation, it may be unclear whether a shareholder is aware of or has authorized the submission of the specific proposal to a particular company. The new requirements will provide a greater degree of certainty with respect to these issues with minimal burden on the shareholder-proponent. 117 See letters from Exxon Mobil Corporation dated February 3, 2020; Southwestern Energy Company dated February 3, 2020. Furthermore, we are clarifying in response to commenters 118 that, where a shareholder-proponent is an entity, and thus can act only through an agent, compliance with the amendment will not be necessary if the agent's authority to act is apparent and self-evident such that a reasonable person would understand that the agent has authority to act. For example, compliance generally would not be necessary where a corporation's CEO submits a proposal on behalf of the corporation, where an elected or appointed official who is the custodian of state or local trust funds submits a proposal on behalf of one or more such funds, where a partnership's general partner submits a proposal on behalf of the partnership, or where an adviser to an investment company submits a proposal on behalf of an investment company. On the other hand, compliance would be required where the agency relationship is not apparent and self-evident. For example, compliance would be required where an investment adviser submits a proposal on behalf of a client that is a shareholder. A private relationship between a third-party investment adviser and the adviser's client would not be apparent or self-evident because these private relationships are generally governed by private contractual arrangements where the scope of the principal-agent relationship does not as a matter of course extend to representation with respect to the submission of proposals. Additionally, there are inherent difficulties in ascertaining the scope of such a relationship, as investment advisers can provide a wide range of services to their clients, 119 which may or may not include shareholder advocacy on the client's behalf. 120 118 See letters from AFL-CIO dated February 3, 2020; International Brotherhood of Teamsters dated February 3, 2020; International Corporate Governance Network dated December 4, 2019; Paul M. Neuhauser dated February 3, 2020; New York City Comptroller dated February 3, 2020. 119 See Regulation Best Interest: The Broker-Dealer Standard of Conduct, Release No. 34-86031 (June 5, 2019) [84 FR 33318 (July 12, 2019)], at 33319. 120 An investment adviser may advise multiple clients who submit their own shareholder proposals, as long as the adviser complies with the one-proposal limitation. See infra Section II.D.3. C. The Role of the Shareholder-Proposal Process in Shareholder Engagement 1. Proposed Rule Amendment We proposed to amend Rule 14a-8(b) to add a shareholder engagement component to the current eligibility criteria, which 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. Under the proposal, shareholders would also be required to include their contact information as well as business days and specific times that they are available to discuss the proposal with the company. 2. Comments on the Proposed Rule Amendment We received numerous comments on the proposed amendment regarding a shareholder-proponent's statement of ability to engage with the company. Some commenters supported the proposed amendment, 121 while others opposed such a requirement. 122 Of those that opposed the proposed amendment, several expressed the view that such a requirement would not make companies more likely to engage with shareholders. 123 Some commenters also questioned the basis for and appropriateness of the 10 to 30 calendar-day window, 124 or suggested that requiring a statement of availability would impose a burden on shareholders. 125 121 See letters from Business Roundtable dated February 3, 2020; Center for Capital Markets Competitiveness dated January 31, 2020; CFA Institute dated February 3, 2020; Church Investor Group dated January 29, 2020; Energy Infrastructure Council dated February 3, 2020; International Corporate Governance Network dated December 4, 2019; Nareit dated February 3, 2020; Nasdaq, Inc. dated February 3, 2020; National Association of Manufacturers dated February 3, 2020; Pension Investment Association of Canada dated January 23, 2020; Robeco dated January 16, 2020; Society for Corporate Governance dated February 3, 2020. 122 See, e.g., letters from AFL-CIO dated February 3, 2020; As You Sow dated February 3, 2020; Boston Common Asset Management dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; CalPERS dated February 3, 2020; Ceres et al. dated February 3, 2020; John Chevedden dated January 30, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Council of Institutional Investors dated January 30, 2002; Figure 8 Investment Strategies dated January 31, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; Harrington Investments, Inc. dated February 3, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; International Brotherhood of Teamsters dated February 3, 2020; Local Authority Pension Fund Forum dated February 3, 2020; Maryknoll Sisters of St. Dominic, Inc. dated January 17, 2020; Paul M. Neuhauser dated February 3, 2020; New York City Comptroller dated February 3, 2020; New York State Comptroller dated February 3, 2020; Nia Impact Capital dated February 2, 2020; NorthStar Asset Management, Inc. dated February 3, 2020; Pension Investment Association of Canada dated January 23, 2020; Paul Rissman dated January 15, 2020; Rockefeller Asset Management dated January 31, 2020; Segal Marco Advisors dated February 3, 2020; Shareholder Rights Group dated February 3, 2020; Singing Field Foundation dated January 31, 2020; State Board of Administration of Florida dated February 3, 2020; John Taylor dated November 14, 2019; Trillium Asset Management dated February 3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020; Worker Owner Council of the Northwest dated February 3, 2020. 123 See, e.g., letters from Council of Institutional Investors dated January 30, 2020; Local Authority Pension Fund Forum dated February 3, 2020; New York State Comptroller dated February 3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. 124 See, e.g., letters from As You Sow dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Council of Institutional Investors dated January 30, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020. 125 See, e.g., letters from Boston Trust Walden et al. dated January 27, 2020; John Chevedden dated January 30, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. Several commenters raised questions about certain technical aspects of the proposal, such as whether the times specified for engagement should be during the company's normal business hours, 126 and when the 10 to 30 calendar-day period starts to run where co-filers submit their proposals on different dates. 127 One commenter stated that shareholder-proponents should be available to discuss the proposal, but encouraged the Commission to provide clarity as to whether the shareholder-proponent must identify a minimum number of dates and/or times that the proponent would be available to discuss the proposal, or whether the dates and/or times offered must be convenient to the company. 128 This commenter also suggested that a lack of clarity on these points could result in unnecessary no-action requests. 129 126 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Council of Institutional Investors dated January 30, 2020; Society for Corporate Governance dated February 3, 2020. 127 See letter from Council of Institutional Investors dated January 30, 2020. 128 See letter from International Corporate Governance Network dated December 4, 2019. Another commenter also sought clarification on the ramifications of a shareholder being unable to meet on one of the dates the shareholder identifies. See letter from Boston Trust Walden et al. dated January 27, 2020. 129 See letter from International Corporate Governance Network dated December 4, 2019. A number of commenters stated that companies also should be required to be available to engage with the shareholder-proponent and/or to state that they attempted to engage with the proponent prior to submitting a no-action request. 130 Two commenters that were supportive of an engagement-related mechanism suggested that, instead of stating their availability to engage, shareholder-proponents should include a statement with their submission as to whether they attempted to engage with the company prior to submitting the proposal. 131 Another commenter indicated that a statement of general availability would be preferable. 132 Other commenters expressed the view that shareholder-proponents should be required to make a good-faith effort to meet with a company after stating their availability to engage, 133 or that there should be a penalty for failing to engage. 134 Another commenter suggested that where the shareholder-proponent is different from the lead filer, the lead filer should be required to participate in the engagement. 135 130 See letters from AFL-CIO dated February 3, 2020; CalPERS dated February 3, 2020; Ceres et al. dated February 3, 2020; Church Investor Group dated January 29, 2020; Council of Institutional Investors dated January 30, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; Illinois State Treasurer dated January 16, 2020; International Brotherhood of Teamsters dated February 3, 2020; International Corporate Governance Network dated December 4, 2019; Local Authority Pension Fund Forum dated February 3, 2020; Loring, Wolcott & Coolidge dated January 31, 2020; James McRitchie dated February 2, 2020; Mercy Investment Services dated January 31, 2020; New York City Comptroller dated February 3, 2020; NorthStar Asset Management, Inc. dated February 3, 2020; Pension Investment Association of Canada dated January 23, 2020; Tom Shaffner dated December 17, 2019; Shareholder Rights Group dated February 3, 2020; State Board of Administration of Florida dated February 3, 2020; Trillium Asset Management dated February 3, 2020; US SIF dated January 31, 2020; Worker Owner Council of the Northwest dated February 3, 2020. 131 See letters from Baillie Gifford & Co. dated February 3, 2020; Stewart Investors dated January 30, 2020. 132 See letter from James McRitchie dated February 2, 2020. 133 See letter from National Association of Manufacturers dated February 2, 2020. 134 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Nasdaq, Inc. dated February 3, 2020. 135 See letter from Society for Corporate Governance dated February 3, 2020. A number of commenters expressed concern about the requirement that the contact information and availability be the shareholder-proponent's, and not that of the shareholder's representative (if the shareholder uses a representative). 136 Some of these commenters suggested that this requirement would disadvantage shareholder-proponents who require a representative's assistance in utilizing and/or navigating the shareholder-proposal process. 137 Other commenters suggested that this requirement could have a chilling effect on shareholder-proposal submissions because shareholder-proponents may not feel comfortable engaging with companies themselves. 138 One commenter also expressed concern about a shareholder's private telephone number or email address being made public through the no-action process. 139 Another commenter indicated that the proposed amendment could indirectly raise costs on shareholders. 140 136 See letters from Emily Aldridge dated January 31, 2020; Jennifer Astone dated January 17, 2020; Kate Barron-Alicante dated January 31, 2020; Jane Bulnes-Fowles dated February 3, 2020; Brian Canning January 31, 2020; Harvey Christensen dated January 28, 2020; Christian Brothers Investment Services, Inc. dated January 21, 2020; Clean Yield Asset Management dated February 3, 2020; Sara Culotta dated February 3, 2020; Daughters of Charity of St. Vincent de Paul dated January 30, 2020; John Eing dated January 31, 2020; Nancy Faris dated January 27, 2020; First Affirmative Financial Network, LLC dated January 24, 2020; Global Affairs Associates, LLC dated February 3, 2020; Gorge Sustainable Investing dated December 27, 2019; Green America et al. dated January 29, 2020; Patricia Hathaway dated January 31, 2020; Andrew Howard dated December 14, 2019; Neela Hummel dated January 31, 2020; Andrew Ish dated February 2, 2020; Brent Kessel dated January 31, 2020; Laird Norton Family Foundation dated January 28, 2020; Lynnea C. Lane dated February 3, 2020; James McRitchie dated February 2, 2020; Margaret Miars dated December 13, 2019; Thomas Miars dated December 13, 2019; Anne Miller dated January 23, 2020; Laura Morganelli dated January 31, 2020; Oneida Trust Enrollment Committee dated February 3, 2020; Pension Investment Association of Canada dated January 23, 2020; Rhia Ventures dated January 31, 2020; Cheryl Ritenbaugh dated January 17, 2020; Rockefeller Asset Management dated January 31, 2020; The Arntz Family Foundation dated January 14, 2020; The Pension Board—United Church of Christ, Inc. dated January 29, 2020; Upcyclers Network dated January 17, 2020; US SIF dated January 31, 2020; Luci Walker dated December 9, 2019; Barbara J. Wolf dated January 31, 2020; Ann W. Woll dated January 18, 2020. 137 See, e.g., letters from Boston Trust Walden et al. dated January 27, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; Singing Field Foundation dated January 31, 2020. 138 See, e.g., letters from As You Sow dated February 3, 2020; Paul Rissman dated January 15, 2020. 139 See letter from James McRitchie dated February 2, 2020. 140 See Recommendation of the IAC, supra note 18. 3. Final Rule Amendment We are adopting the amendment largely as proposed, but with some modifications in response to comments received. We believe that encouraging company-shareholder engagement through this new requirement will be beneficial both to shareholders and to companies. As we explained in the Proposing Release, 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 their fellow shareholders and to advocate for the measures they propose. While other forms of engagement may sometimes accomplish a shareholder's interest in communicating with a company and its other shareholders without the burdens associated with including a proposal in a company's proxy statement, we understand that shareholder proposals are at times used as the sole method of engaging with companies even if the company is willing to discuss, and possibly resolve, the matter with the shareholder. 141 In those cases, Rule 14a-8 may result in a shareholder burdening other shareholders and the company with a proxy vote that may have been avoided had meaningful prior engagement taken place. 142 We believe that having shareholder-proponents state their availability to discuss their proposal will facilitate dialogue between shareholders and companies in the shareholder-proposal process, and may lead to more efficient and less costly resolution of these matters. Company-shareholder engagement can thus be an efficient alternative to the shareholder-proposal process. We understand that proactive company engagement with shareholders has increased in recent years, 143 and that shareholders frequently do not submit, or ultimately withdraw, their proposals as a result of company-shareholder engagement. 144 141 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 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 Michael Garland, Assistant Comptroller, Corporate Governance and Responsible Investment, Office of the Comptroller, New York City. 142 We acknowledge that engagement outside the shareholder-proposal process can also result in burdens on companies, but our rules do not mandate that such activity occur. 143 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. 144 Company-shareholder engagement with respect to shareholder proposals frequently leads to withdrawn proposals. See, e.g., letters in response to the Proxy Process Roundtable from Everence Financial dated December 6, 2018 (“[A]n 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.”). See also Proposing Release at 66478 fig.2. Under the amendment, shareholder-proponents will be required to provide the company with a written statement that they are able to meet with the company in person or via teleconference at specified dates and times that are no less than 10 calendar days, nor more than 30 calendar days, after submission of the proposal. 145 For example, for a proposal submitted on October 1, the shareholder-proponent would be required to identify dates of availability between October 11 and October 31. 146 Although some commenters questioned the basis for this window of availability, 147 we believe that it is appropriate for several reasons. While we recognize the point made by commenters that some companies may choose not to engage until after the deadline for submitting proposals or later, 148 we believe that encouraging engagement shortly after submission can lead to swifter resolution of these matters and obviate the need for a no-action request. In this regard, we note that where a proposal is submitted at or near a company's deadline for receiving proposals, the company will have a relatively short amount of time to prepare and submit a no-action request. 149 Thus, early engagement may help avoid the time and expense of the no-action process. Nevertheless, the amended rule will not permit shareholders to identify availability earlier than 10 days after the proposal's submission, so that the company will have sufficient time to consider the proposal prior to engagement taking place. 150 In addition, shareholders may have a better sense of what their availability will be 10 to 30 days after submitting the proposal compared with longer periods. Moreover, shareholders have some degree of flexibility in choosing when to submit a proposal prior to the submission deadline and therefore can do so when they are more likely to have greater availability. 145 The contact information and availability will have to be the shareholder's, and not that of the shareholder's representative (if the shareholder uses a representative). The amendment, however, does not preclude a representative from participating in any discussions between the company and the shareholder. 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. 146 Companies that intend to seek exclusion under Rule 14a-8(b) based on a shareholder-proponent's failure to provide some or all of this information must notify the proponent of the specific defect(s) within 14 calendar days of receiving the proposal so that the shareholder-proponent has an opportunity to cure the defect(s), and the shareholder-proponent is required to respond to this notice within 14 days. See 17 CFR 240.14a-8(f)(1). Where a company sends a deficiency notice for the purpose of requesting identification of a shareholder-proponent's availability to engage, the shareholder-proponent must identify dates of the shareholder-proponent's availability that are within the remaining 10- to 30-day window. For example, where a proposal is submitted on October 1, the company's deficiency notice is received by the shareholder-proponent on October 15, and the shareholder-proponent responds to the deficiency notice by email on October 20, the shareholder-proponent would be required to identify business days between October 21 and October 31 that the shareholder-proponent is available to discuss the proposal. 147 See, e.g., letters from As You Sow dated February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; Council of Institutional Investors dated January 30, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; New York City Comptroller dated February 3, 2020. 148 See, e.g., letters from Boston Trust Walden et al. dated January 27, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. 149 For a regularly-scheduled meeting, the deadline for submitting proposals is “120 calendar days before the date of the company's proxy statement released to shareholders in connection with the previous year's annual meeting.” See 17 CFR 240.14a-8(e)(2). A company that intends to exclude a proposal “must file its reasons with the Commission no later than 80 calendar days before it files its definitive proxy statement and form of proxy with the Commission.” If a proposal is received at or near the 120-day deadline and the company intends to file its definitive proxy statement at or near the anniversary of the prior year's proxy filing date, the company will generally have approximately 40 days from receiving the proposal to notify the Commission of its intention to exclude the proposal. 150 Although the rule will require shareholder-proponents to identify their availability within the 10- to 30-day window, the parties can arrange to engage on a date that is not within that window. Shareholder-proponents will also be required to provide their contact information 151 and identify specific business days and times ( i.e., more than one date and time) that they are available to discuss the proposal. 152 In response to commenters, we are modifying the final rule to clarify that the times specified should be during the regular business hours of the company's principal executive offices. 153 If these hours are not disclosed in the company's proxy statement, 154 the shareholder-proponent should identify times between 9:00 a.m. and 5:30 p.m. on business days in the time zone of the company's principal executive offices. If a company is not available to engage with the shareholder-proponent on the specific date(s) or time(s) originally identified by the shareholder-proponent, engagement may take place at a different date and/or time, provided that it is acceptable to both the shareholder-proponent and company. If the shareholder-proponent's availability changes, the company should be notified and alternative date(s) and time(s) should be provided to the company. 151 In response to one commenter's concern regarding the potential for a shareholder's private contact information to be made publicly available through the no-action process, see letter from James McRitchie dated February 2, 2020, we note that Commission staff removes personally identifiable information from no-action requests and related correspondence before making these materials publicly available on the Commission's website. 152 Where shareholders elect to co-file a proposal, all co-filers must either: (1) Agree to the same dates and times of availability or (2) identify a single lead filer who will provide dates and times of the lead filer's availability to engage on behalf of all co-filers. 153 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Council of Institutional Investors dated January 30, 2020; Society for Corporate Governance dated February 3, 2020. 154 The Commission's proxy rules do not require issuers to disclose this information, but companies may choose to do so to facilitate shareholder engagement with respect to shareholder proposals. If an issuer chooses to disclose this information, we suggest that it appear alongside the deadline for submitting proposals. We do not agree with the commenter who suggested that providing a general statement of the shareholder-proponent's availability would be preferable to identifying specific dates and times. 155 While a general statement of availability could indicate a shareholder-proponent's willingness to engage, the identification of specific dates and times would add certainty as to the shareholder-proponent's availability, and we believe that engagement may be more likely to occur where the company knows the shareholder-proponent's availability in advance. 155 See letter from James McRitchie dated February 2, 2020. The contact information and availability must be the shareholder-proponent's, and not that of the shareholder's representative, if any. 156 We do not agree with commenters who suggested that this requirement will disadvantage shareholder-proponents who require a representative's assistance in navigating the shareholder-proposal process. 157 We believe that a shareholder-proponent who elects to require a company to include a proposal in its proxy statement, requiring the company and other shareholders to bear the related costs, should be willing and available to discuss the proposal with the company and not simply rely on its representative to do so. At least one commenter suggested that shareholders could incur greater costs as a result of the proposed amendment, 158 but we believe any cost will be de minimis given that engagement can take place through inexpensive means, such as teleconference calls. 156 Where a shareholder-proponent is an entity, and thus can act only through an agent, and the agent's authority to act is apparent and self-evident such that a reasonable person would understand that the agent has authority to act on the entity's behalf, the contact information and availability may be that of the agent. Cf. supra Section II.B.3. 157 See, e.g., letters from Boston Trust Walden et al. dated January 27, 2020; Interfaith Center on Corporate Responsibility dated January 27, 2020; Singing Field Foundation dated January 31, 2020. 158 See Recommendation of the IAC, supra note 18. We also believe that the ability to engage directly with the shareholder-proponent may encourage greater dialogue between the shareholder and the company, and may lead to more efficient and less costly resolution of these matters. As explained in the Proposing Release, however, shareholder-proponents may seek assistance and advice from lawyers, investment advisers, or others to help them draft shareholder proposals and navigate the shareholder-proposal process. 159 The shareholder-proponent's representative also may participate in any discussions between the company and the shareholder. 160 Thus, shareholder-proponents will be able to continue to seek and utilize the assistance of a representative. 159 See Proposing Release at 66468. 160 See supra note 145. Other than providing the clarifications discussed above, we are not making any changes to what we proposed. For example, we are not adopting a requirement suggested by commenters that shareholder-proponents include a statement with their submission as to whether they attempted to engage with the company prior to submitting the proposal. 161 The company will already know whether the shareholder attempted to engage prior to submission and the statement suggested by the commenter would not be available to other shareholders. Thus, there would be minimal value associated with providing such a statement. 162 To the extent engagement takes place prior to a proposal's submission, the new rule will encourage further dialogue between the shareholder-proponent and company after submission. In addition, although some commenters stated that shareholders should be required to make a good-faith effort to meet with a company after stating their availability to engage, 163 or that there should be a penalty for failing to engage, 164 the rule will not impose requirements governing specific engagement activities between the shareholder-proponent and the company. 161 See letters from Baillie Gifford & Co. dated February 3, 2020; Stewart Investors dated January 30, 2020. 162 One commenter expressed the view that this information “would allow other shareholders to assess the attitude of the proponent and the company to the issue and to engagement generally.” See letter from Baillie Gifford & Co. dated February 3, 2020. However, it is unclear how other shareholders would learn of this information absent imposing a new disclosure requirement on issuers, which we are not inclined to do at this time. 163 See letter from National Association of Manufacturers dated February 2, 2020. 164 See letters from Center for Capital Markets Competitiveness dated January 31, 2020; Nasdaq, Inc. dated February 3, 2020. Under the new rule, companies will not be required to engage with a shareholder-proponent or to state that they attempted to engage with the shareholder-proponent prior to submitting a no-action request, as some commenters suggested. 165 Because companies and their shareholders bear the burdens assoc [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2020-21580. Public record. Not legal advice.