The Securities and Exchange Commission (SEC) voted on Wednesday to adopt amendments that critics say make it harder for smaller investors to influence a company’s agenda.
Announcing that it has “modernized its shareholder proposal rule,” shareholders must now submit an initial proposal after having held $2,000 of company stock for at least three years, or higher amounts for shorter periods of time.
The rules also provide for a “transition period” so that shareholders who are currently eligible at the $2,000 threshold will remain eligible to submit a proposal for inclusion in the company’s proxy statement so long as they continue to maintain at least their current holdings through the date of submission (and through the date of the relevant meeting).
“Today’s amendments reflect many years of the staff’s engagement with investors and market participants as well as their extensive experience with shareholder proposals,” SEC Chairman Jay Clayton said in a statement. “These amendments ensure there is an appropriate alignment of interests between shareholder-proponents and their fellow shareholders and illustrate again why retrospective review and, as appropriate, modernization of our rules is necessary.”
Critics respond
Opponents of the rule change voiced their displeasure.
“The new rule guts the existing shareholder proposal process, which has long served as a cost-effective way for shareholders to communicate their priorities and concerns to management, with little economic analysis supporting the needs for these substantial changes,” said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility. “The new rules appear to be based on a wholly unsupported assumption that shareholder proposals are simply a burden to companies with no benefits for companies or non-proponent investors when there is 50 years of evidence to the contrary.”
“The SEC has intervened to disrupt a system that has worked with fairness and integrity for over 50 years,” Andrew Behar, CEO of non-profit ESG issue expert As You Sow, added. “Companies have gained deep insight into potential material risks to their businesses courtesy of their shareholder engagements. Investors have had a forum to raise their concerns, assisting companies to outperform. This is an ecosystem based on mutual respect and a common goal; helping companies be as good as they can be. The new SEC rules will force shareholders to escalate to litigation and other means.”
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.