CII has filed a “friend of the court” brief in the challenge filed by Jim McRitchie and As You Sow to the SEC rule restricting shareholder proposals that was published in a flawed, rushed rulemaking in the last weeks of the Trump administration.

Some highlights from the brief:

In its haste to adopt these rule changes, the Commission put the cart before the horse by raising the percentage of votes needed to resubmit proposals even after the Commission has acknowledged serious flaws in the ways votes are counted in the current “proxy plumbing” system, i.e., the procedures by which intermediaries process the millions if not billions of shares that may be voted at individual companies. A related concern to which the Commission paid short shrift is the effect of higher resubmission thresholds on shareholder votes at companies that have multiple classes of stock, e.g., one class of “common stock” that sold to the public and a smaller number of “Class B” shares that are held by company founders, founders’ families and other insiders. Such Class B shares may be entitled to two or 10 or 20 or another number of votes per share, and because those shares are usually voted against shareholder proposals, the higher resubmission requirements in the 2020 amendments have a disproportionate impact on proposals submitted at such dual class companies.

….

The Commission’s single-minded focus on the failure of shareholder proposals to achieve a majority vote was short-sighted, as there is a rich history of shareholder proposals improving corporate governance, often over the strenuous opposition of managements and directors, even if the proposals failed to receive majority support.…the Commission’s focus on whether proposals can attain majority support overlooks the fact that many shareholder proposals are withdrawn if, after a dialogue with the proponent, the company agrees to implement some or all of the policy recommended in the proposal. Such negotiated resolutions covered many topics over the years.