Republican bill would raise eligibility requirements for shareholder proposals
A senior governance official at the largest US labor group has dismissed the chances of Republicans being able to water down corporate governance regulations covering the ability of investors to file motions at annual meetings.
Brandon Rees, deputy director of the AFL-CIO’s office of investment, told delegates at the Society for Corporate Governance’s recent national conference that the Financial Choice Act (FCA), which passed the Republican-led House of Representatives on June 8, was ‘dead on arrival’ in the Senate.
The FCA would, among other things, direct the SEC to modify the eligibility requirements for submission of shareholder proposals under Securities Exchange Act Rule 14a-8 from the existing requirement that a shareholder own at least $2,000 of company stock for at least one year to requiring a shareholder to hold at least 1 percent of the issuer’s shares for at least three years.
The bill, if passed, would also require the SEC to raise the resubmission thresholds under Rule 14a-8 to 6 percent of the vote if the proposal was voted on once in the last five years, 15 percent if voted on twice in the last five years or 30 percent if voted on three times in the last five years. These would be increases from the current thresholds of 3 percent, 6 percent and 10 percent, respectively.
In addition, the bill would prohibit a company from including in its proxy materials ‘a shareholder proposal submitted by a person in such person’s capacity as a proxy, representative, agent or person otherwise acting on behalf of a shareholder.’
The proposed measures have attracted criticism from a coalition of state fiduciaries led by the New York State comptroller and New York City comptroller (CorporateSecretary.com, 6/13), and from the Council of Institutional Investors (CorporateSecretary.com, 4/26).
Speaking at the San Francisco conference, Rees disagreed with an assertion made by SEC commissioner Michael Piwowar earlier in the day that there is bipartisan support for curbs on the frequency with which shareholders can resubmit proposals that do not gain majority support. Investors don’t want any changes to the resubmission rules, Rees said. He described the issue as a ‘tempest in a teapot’ that comes up every few years and is merely a ‘distraction’, adding that he did not expect the potential changes to move forward.
Raising the threshold for being able to file a proposal to shareholders with at least 1 percent of the company’s shares would bar any investors other than those with billion-dollar stakes from acting, Rees noted. It would also be very difficult to define an ‘agent… acting on behalf of a shareholder,’ he added. ‘It’s a solution in search of a problem.’
If the reforms were to be imposed, investors could well turn to exempt solicitations, Rees suggested: ‘Who’s to say we won’t start running our own directors?’