It could become much tougher to get shareholder proposals in front of investors under reforms being proposed by the U.S. Securities and Exchange Commission (SEC).
To start, the regulator is proposing to rescind the shareholder proposal rule, which deals with when companies are required to include shareholder proposals in their proxy materials — a move that would leave these issues up to state law and corporate policy.
It’s also proposing to amend the rule that prohibits companies from voting proxies on proposals that are tabled at a shareholder meeting but aren’t included in its proxy filings. That change is intended to give companies greater ability to seek voting authority for certain shareholder proposals.
Additionally, the SEC is proposing a set of changes to the proxy solicitation process — including a proposal to eliminate the requirement for companies to send annual reports to shareholders, eliminating the deadline for incorporating documents into a proxy statement and reducing the minimum broker search period to five days from 20 days.
The SEC said the reforms are being proposed in an effort to reign in federal securities law from conflicting with state laws, and to reflect advances in technology that have modernized corporate communications.
However, shareholder advocates have raised concerns about the regulator’s plans and the possible impact on corporate governance.
In particular, U.S. shareholder advocacy group As You Sow has criticized the proposed elimination of the shareholder proposal rule, saying that “the rule has been a driving force behind governance reforms now considered standard practice, including majority voting, independent board leadership, and expanded corporate disclosure.”
“Shareholder proposals provide the core infrastructure for corporate oversight, governance, and knowledge,” said Andrew Behar, CEO of As You Sow, in a release. “[The shareholder proposal rule] is not a fringe mechanism. It is the basic plumbing that allows owners of public companies to hold management accountable. Rescinding it after more than eight decades increases risks to all shareholders by removing a critical oversight mechanism, putting all U.S. investors at greater risk.”
SEC chairman Paul Atkins defended the agency’s plans in a statement accompanying the proposals.
“Today’s proposals demonstrate my focus on ensuring that the commission’s rules are within the agency’s statutory authority and reflect policy positions grounded in current and anticipated market practice and modern technologies,” he said.
The proposals will go out for a 60-day public comment period after they’re published in the Federal Register.