SEC Proposes Rescinding Rule 14a-8, the Key Shareholder Proposal Mechanism

The US Securities and Exchange Commission has proposed rescinding Rule 14a-8, the federal framework since 1942 that has given shareholders a route to have proposals included in a company's proxy statement for a vote, commonly used for proposals on sustainability, climate change, executive pay and other governance issues. The Commission's stated rationale is that the rule "exceeds its authority and intrudes into state law."

 

SEC Chair Paul Atkins framed the proposal around jurisdictional authority, stating it reflects "a recognition that the Commission must act within its authority" and that the SEC does not have authority from Congress to determine matters appropriate for shareholder votes. He had previously indicated eliminating the rule would form part of his plans to "de-politicize shareholder meetings," specifically calling out ESG-related proposals as consuming "a significant amount of management's time" and imposing "costs on the company." SEC Commissioner Mark Uyeda said "Rule 14a-8 has been co-opted to advance the agendas of various political interests—acting without any fiduciary duty to a corporation or its shareholders—at the expense of the millions of investors that directly and indirectly own public companies." Atkins added that the rescission "would not eliminate the concept of shareholder proposals and is not an attempt by the Commission to silence shareholders."

 

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Shareholder rights and corporate governance groups criticised the proposal. Council of Institutional Investors Executive Director Glenn Davis called it a "solution in search of a problem," warning it "will launch a new race to the bottom in state corporate law and result in a dramatic reduction in shareholders who qualify as proponents, notwithstanding smaller investors' history of putting forward many of the most highly supported proposals." Davis said "the SEC, created for the purpose of protecting investors in the aftermath of the Crash of 1929, today proposed to rescind a World War II-era rule protecting shareholders' ability to suggest ideas to improve the companies they own."

 

Source: The Securities and Exchange Commission