Richard Alsop, Harald Halbhuber, and Lona Nallengara are partners at Shearman & Sterling LLP. This post is based on a Shearman memorandum by Mr. Alsop, Mr. Halbhuber, Mr. Nallengara, Meaghan Jerrett, Alexa Major, and Ryan Robski.
On July 13, 2022, the Securities and Exchange Commission (the “SEC”) proposed revisions to Rule 14a-8 under the Securities Exchange Act of 1934 to amend certain substantive bases on which U.S. public companies can exclude shareholder proposals from their proxy statements. The proposed amendments would make it harder for companies to exclude shareholder proposals based on the following three substantive bases for exclusion: substantial implementation, duplication and resubmission.
Background
Under Rule 14a-8, a company must include an eligible shareholder’s proposal in its proxy statement and bring it up for a vote at its shareholder meeting if the proposal meets certain procedural and substantive requirements. The rule has become a fundamental component of shareholder engagement, allowing shareholders to raise important topics for consideration at the annual meeting and to successfully advance certain corporate governance objectives, but has also created a corresponding burden for companies that are subject to numerous proposals that never achieve majority support.
First adopted in 1942, Rule 14a-8 has been the subject of various revisions, with the most recent significant amendments adopted in 1983. More importantly, Rule 14a-8 has been the subject of extensive SEC staff interpretive guidance through no-action letters that have served to define the scope of the procedural and substantive requirements and a number of Staff Legal Bulletins that have served, in part, to crystallize the Staff’s current thinking. [1]
