The U.S. Securities and Exchange Commission (SEC) recently adopted final rules¹ to modernize Rule 14a-8 governing shareholder proposals. The final rules aim to ensure that shareholder-proponents demonstrate a sufficient economic stake or investment interest in a company prior to attempting to effectuate change at the company.

Highlights of the final rules are summarized below.

Amend Rule 14a-8(b) to Update Shareholder-Proponent Ownership Eligibility Requirements

• Eliminating the requirement that a shareholder-proponent hold at least 1% of a company’s securities for at least one year before submitting a proposal.

• Providing the following three alternative thresholds of dollar value and continuous ownership of a company’s securities for eligibility to submit a proposal:

	Value	Minimum Duration
Threshold 1	$2,000	3 years
Threshold 2	$15,000	2 years
Threshold 3	$25,000	1 year

• Prohibiting the aggregation of holdings for purposes of satisfying the amended ownership thresholds.

Amend Rule 14a-8(b) to Promote Shareholder Engagement

• Requiring that a shareholder who elects to use a representative for the purpose of submitting a shareholder proposal provide documentation (i) to make clear that the representative is authorized to act on the shareholder’s behalf and (ii) to provide a meaningful degree of assurance as to the shareholder’s identity, role and interest in a proposal that is submitted for inclusion in a company’s proxy statement.

• Requiring that each shareholder-proponent (i) state that he or she is able to meet with the company to discuss the proposal within a specified timeframe after submitting a proposal and (ii) provide contact information and dates and times for such meeting.

Amend Rule 14a-8(c) to Move to One Proposal per “Person”

• Applying the one-proposal rule to “each person” rather than “each shareholder” who submits a proposal, such that a shareholder-proponent will not be permitted to submit one proposal in his or her own name and simultaneously serve as a representative to submit a different proposal on another shareholder’s behalf for consideration at the same meeting.  

• Likewise, a representative will not be permitted to submit more than one proposal to be considered at the same meeting, even if the representative were to submit each proposal on behalf of different shareholders.

Amend Rule 14a-8(i)(12) to Replace Resubmission Thresholds

• Revising the levels of shareholder support that a proposal must receive to be eligible for resubmission at the same company’s future shareholder meetings and allowing for the exclusion of a proposal if it deals with substantially the same subject matter as a proposal previously included in the company’s proxy statement within the past five years so long as: 

  • the most recent vote took place within the past three years; and 

  • at its most recent vote, the proposal received support from:

    • less than 5% of the votes cast if previously voted on once;

    • less than 15% of the votes cast if previously voted on twice; and

    • less than 25% of the votes cast if previously voted on three or more times.

Transition Period

The final rules also provide for a transition period with respect to the ownership thresholds that will allow shareholders meeting specified conditions to rely on the $2,000/one-year ownership threshold for proposals submitted for an annual or special meeting to be held prior to January 1, 2023.

What’s Next?

The amendments will be effective 60 days after publication in the Federal Register, and the final amendments will apply to any proposal submitted for an annual or special meeting to be held on or after January 1, 2022; provided, however, that there is a transition period as described above for meetings held prior to January 1, 2023.  Companies should consider the impact of the final rules on future shareholder proposals, but should continue to rely on the current shareholder proposal rule heading into the 2021 proxy season.

1 See “Procedural Requirements and Resubmission Thresholds under Exchange Rule 14a-8,” SEC Release No. 34-89964 (September 23, 2020), available at https://www.sec.gov/rules/final/2020/34-89964.pdf.