Investor group urges SEC to reopen proxy rules comment period

A group of investors is calling on the SEC to reopen the comment period on amendments to shareholder proxy rules after new data was submitted by its Division of Economic and Risk Analysis (DERA).

The DERA data, submitted on August 14, revealed that changes to Rule 14a-8 of the Securities Exchange Act of 1934 could reduce the number of retail investors eligible to file a proposal to be put up to a proxy vote.

In a letter addressed to the SEC, dated 4 September, the group claims the financial regulator failed to assess how these new rules would impact investors even though it had possession of the DERA data as long ago as August 2019.

The investors say the amendments would effectively deprive “most retail shareholders of the rights and ability to use the shareholder proposal process to protect and advance their interests as investors”.

The group is asking the SEC to reopen the comment period regarding its proposed amendments to Rule 14a-8, which would raise the eligibility thresholds for shareholders wanting to submit a proposal.

The group also reiterated its view that shareholder proposals and proxy voting are “economically important mechanisms for shareholders to monitor and hold corporate managements accountable to create and protect long-term value”.

The letter was filed by the Council of Institutional Investors, Ceres, the American Federation of Labor and Congress of Industrial Organizations, the Interfaith Center on Corporate Responsibility, the Shareholder Rights Group, Principles for Responsible Investment, and the US SIF: The Forum for Sustainable and Responsible Investment.

Under the Securities Exchange Act of 1934, rule 14a-8 allows shareholders to place certain proposals in a company’s proxy materials for voting at general meetings. It gives all the other shareholders chance to look, examine and weigh up how they feel about a resolution before deciding to vote either way.

On July 22, the SEC voted 3-1 to pass a raft of new measures focusing on how investors and their investment managers vote the shares of companies held in their funds.

Under the new rules, companies will be given greater power to dismiss proposals submitted by shareholders.

From now on, companies looking to dismiss a shareholder proposal can apply to the SEC for ‘no action relief’. Decisions on this matter do not have to be given in writing but can be delivered orally which some have criticised as lacking transparency.

The DERA report found that retail investors who have owned their shares for less than three years would be the most impacted.

DERA estimates that in up to 55% of all companies, less than 5% of investor accounts would be eligible to file a shareholder proposal following amendments.

The report also revealed that the amendments could deprive three-quarters of accounts the rights and ability to file a shareholder proposal in 99% of companies.

The group says this is an “extreme cut” to investor rights, which the original release did not disclose.