Dive Brief:
- The Securities and Exchange Commission is planning to issue a proposal rescinding Rule 14a-8, which governs the shareholder proposal process, according to the White House Office of Management and Budget. The proposal to rescind the rule is pending regulatory review.
- OMB’s Office of Information and Regulatory Affairs said it received a proposal for the “Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals” on Friday, according to a post on RegInfo, a U.S. government website that tracks federal regulations. The SEC’s proposal will also include amendments to Rule 14a-4, which governs proxy solicitation, according to the post.
- The proposal to fully rescind the rule comes after SEC Chair Paul Atkins said in July that the agency was “holistically evaluating the rule.” Last month, the agency said it would no longer respond to no-action requests from companies.
Dive Insight:
The news that the SEC is planning a full rescission of the rule, while not wholly unexpected, comes after investor advocates filed a regulatory petition urging the SEC to “largely retain” the rule and consider more targeted amendments. The SEC announced in the latest federal regulatory agenda that it planned to propose amendments to the proxy process.
An SEC spokesperson told ESG Dive Tuesday that “the Commission is expected to consider a proposal to rescind the rule and return the role of regulating shareholder proposals to the States.”
“Since his time as a Commissioner, Chairman Atkins has highlighted concerns that the SEC's Rule 14a-8 on shareholder proposals exceeds the Commission’s authority and infringes upon State laws,” the agency spokesperson said in emailed comments. “In addition, the Commission is also expected to consider a proposal to modernize aspects of the proxy solicitation process to reflect advancement in technology and current realities of shareholder communications.
In his final speech as an agency commissioner in 2008, Atkins said that “the SEC's Rule 14a-8 on shareholder proposals inappropriately infringes upon state laws that govern the relationships among shareholders and between shareholders and the corporations that they own.”
Atkins reiterated his views at the Society for Corporate Governance Conference earlier this year, noting that the agency would evaluate the rule “in this light” and expressed a belief that “the Commission’s authority to prescribe rules ‘in the public interest’ is not plenary.”
“Government agencies may not add to their powers by adverse possession; longevity is not a substitute for legal authority,” Atkins said at the July conference. “Regardless of the fate of Rule 14a-8 next season and beyond, I implore all who have a role in the shareholder proposal process to not let it be weaponized by those who represent fringe interests. Annual meetings are not vehicles for political or social debates that have little or no bearing on investors’ financial returns.”
The SEC said in the latest regulatory agenda that it was planning “to propose amendments to modernize certain rules regarding the proxy solicitation process, including certain filing and procedural requirements relating to proxy solicitations and shareholder meetings, to reduce costs and compliance burdens.”
Julie Rizzo, partner at law firm K&L Gates, told ESG Dive Tuesday that the agency’s plan to rescind the rule “is not a surprise” given Atkins’ prior statements.
“While this news is the next logical and anticipated step in the SEC’s changing role in the shareholder proposal process, it will be interesting to watch as shareholder proponents and other stakeholders continue to evolve their actions in response to this proposed rule as well as how investor engagement overall also evolves as a result,” Rizzo said in emailed comments.
In their regulatory petition, a coalition of investor groups said that “outright rescission of Rule 14a-8 would upset a longstanding balance between investors and their companies,” according to a statement shared with ESG Dive. The group includes sustainability nonprofit Ceres, the U.S. Sustainable Investment Forum, the Interfaith Center on Corporate Responsibility, the Shareholder Rights Group and For the Long Term, as well as New York State Comptroller Thomas DiNapoli.
ICCR CEO Josh Zinner said in an emailed statement Tuesday that the rescission plan “is an attack on the fundamental rights of shareholders.”
“Investors focused on safeguarding the long-term value of their holdings have used the shareholder engagement process as a key instrument for constructive dialogue between shareholders and executives for over 50 years,” Zinner said. “This unprecedented challenge to the rights of shareholders has created an all hands on deck moment for investors, who we expect will respond vigorously.”
