SEC Proposes to Significantly Narrow Bases for Excluding Shareholder Proposals Under Rule 14a-8: Proposed Amendments Would Significantly Narrow Standards for Exclusion on the Bases of Substantial Implementation, Duplication and Resubmission

Sullivan & Cromwell LLP - July 21, 2022
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On July 13, 2022, the Securities and Exchange Commission voted 3 to 2 (Commissioners Peirce and Uyeda dissenting) to propose amendments to three of the 13 substantive bases for excluding shareholder proposals provided for in Rule 14a-8 under the Securities Exchange Act of 1934.

The proposed amendments would meaningfully narrow each of the three exclusions. If adopted as proposed, these proposed amendments, together with the significant change in staff guidance that narrowed the ordinary business and economic relevance bases for excluding shareholder proposals in November 2021, will make it more challenging for companies to obtain no-action relief from the SEC with respect to the exclusion of Rule 14a-8 proposals and will almost certainly increase the prevalence of shareholder proposals.

Specifically, the proposed amendments would revise the substantial implementation, duplication and resubmission bases for excluding shareholder proposals under Rule 14a-8 as follows:

  • Substantial Implementation. Under Rule 14a-8(i)(10), a company can exclude a shareholder proposal that “the company has already substantially implemented.” The proposed amendments would provide that a proposal may only be excluded as substantially implemented if “the company has already implemented the essential elements of the proposal.”
  • Duplication and Resubmission. The proposed amendments would replace the current resubmission standard with a “substantially duplicates” standard and, for both the duplication and resubmission exclusions, specify that a proposal “substantially duplicates” another proposal if it “addresses the same subject matter and seeks the same objective by the same means.”

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