SEC’s Proposed New Rules Threaten Shareholder Democracy

Last December, our blog gave an update on efforts by trade associations to restrict shareholder rights .

On Tuesday, November 5, the Securities and Exchange Commission unveiled the exact nature of that threat and voted 3-2 on two separate measures to propose changes to rule 14a-8 that would severely restrict investors’ access to the corporate proxy. The changes would require that:

• Shareholders own $2,000 worth of company stock for a minimum of three years (up from one) before they can submit a shareholder resolution. They can submit proposals earlier if they own $25,000 for one year and $15,000 for two years. Small shareholders can no longer come together to aggregate their shares to file a resolution.
• Re-submission vote thresholds were raised from 3%, 6% and 10% for the first three years to 5%, 15% and 25%.
• Proxy service providers (such as ISS and Glass Lewis) will be required to provide a draft of their proxy advice to companies for comment ahead of issuance. There are several other restrictions on these companies.

These proposed changes are significant threats to our voice as shareholders. They have received significant push-back in the media (Reuters, MarketWatch) and by several investor groups (ICCR, US SIF, CII). “Between the filing threshold increases and the doubling of percentages for resubmissions, it means that smaller investors are going to find it much more difficult to file resolutions,” says Josh Zinner, CEO of ICCR. “It’s a blow against shareholder democracy.”

The 60-day comment period opens once the proposed rule changes are published in the Federal Registrar. Our members are encouraged to sign on to Ceres and ICCR comment letters or, better yet, send in your own comments to the SEC. You should also consider sending letters to your Congressional representatives. Finally, consider submitting op-eds and letters to the editor to your local paper and newsletter stories and blog posts on your websites.

To learn more about the issue and concerns, you read the statements by Commissioner Robert Jackson and Allison Herren. “There is a common theme that unites the two proposals before us today”, said Commissioner Herren. “They both would operate to suppress the exercise of shareholder rights.”

With regards to a second proposed rule change, ISS (Institutional shareholder Services) has filed a lawsuit against the SEC. The final resource is a website, supported by ICCR, that is gathering evidence and sharing reports concerning the shareholder proposal process (Investor Rights Forum).

A lot more to come on these proposals. Please lift your voice in opposition!