Biden’s SEC Removes Trump Era Restrictions on Shareholder Proposals

Keep in mind, as always, that shareholder proposals are advisory only, so even a 100 percent vote in favor can be ignored by the corporation. But it is good to see the SEC reversing the Trump-era restrictions that allowed bogus “proposals” to block legitimate ones,

Biden’s SEC has been pushing to expand the ability of shareholders to bring resolutions before companies since last year. In November, the SEC rescinded a Trump Administration move that had made it easier for companies to reject shareholder proposals by arguing that they were either too broad or too narrow.

Under the Trump regulations, companies were allowed to reject “narrow” proposals, such as a request to prepare a report on achieving zero-carbon emissions, on the grounds that they were attempts by shareholders to “micromanage” the company.

Companies were also allowed to “substantially implemented” the proposal — by taking any action related to the proposal’s subject, whether or not it was the action that shareholders were seeking, said Danielle Fugere, president of shareholder advocacy group As You Sow.

This exception was a particular favorite of companies seeking to avoid disclosing information related to efforts to curb emissions or otherwise fight climate change, and made it harder to get climate change-related resolutions to a vote, Welsh said.

In 2020, the retail giant Amazon employed this rationale to block company shareholders from voting on a resolution that would have required the company to commit to a detailed plan for “ensuring safe and healthy workplaces” and “affirming the right of workers to form and join trade unions and bargain collectively.” Amazon argued that it had already “substantially implemented” the proposal by publishing a statement about “Human Rights Principles” on its website.

Finding the sweet spot between proposals that weren’t too narrow to count as micromanaging, but weren’t too broad that companies could claim to have already implemented them was a difficult task that led to more proposals being rejected, said Fugere — and that may have been exactly the point.“If we put those specific concerns into a proposal, it was called micromanagement, but if we didn’t, we were blocked by the substantial implementation rule,” Fugere said.

In 2021, when the Trump regulations were still in effect, 10 of the 86 proposals that As You Sow submitted were rejected by the SEC. In this year’s proxy season, with the Trump regulations in the rearview, only one of As You Sow’s 92 proposals was rejected.

Now that it’s junked the Trump regulations, the Biden administration hopes to use the new rules to make it harder for companies to claim that they’ve substantially implemented a request. One thing the proposed rules say is that a company has to have put into place the specific elements of a resolution in order to claim substantial implementation, even if it has taken related action.

“Certainly fewer proposals will be blocked” once this rule takes effect, Zinner said. “Companies are always trying to find multiple bases for blocking resolutions, and this was often a grounds that companies were asserting.”

The Trump-era regulations also made it easier for companies to block resolutions if they were similar to other resolutions pending before them. Officially, the rules blocked “duplicate” resolutions from both going to a vote. But what this regulation meant in practice was that companies would try, often successfully, to block any two resolutions on the same subject, such as publicly reporting emissions, whether or not they were seeking the same goals.

Under the new proposed rules, a “duplicate” resolution could only be blocked “if it addresses the same subject matter and seeks the same solution by the same means,” Fugere said.

The third major change planned under the new rules concerns resubmitting resolutions over multiple years. Resolutions often pass after being filed several years in a row, and building support each year, but to prevent companies from being flooded with unpopular resolutions, if a proposal gets below a certain percentage of the vote in any year, it can’t be refiled.

When the Trump SEC regulations were in effect, companies would try to use this rule to block advocates from filing resolutions on any subject where another proposal had previously failed, whether or not the request for action was the same. Like the change to the duplication rule, the new resubmission rule would state that even if a proposal is on the same subject as one that previously failed, it can only be blocked if it requests the same action from the company

.If and when these new rules take effect, shareholder activists could take another shot at getting resolutions to a vote that were blocked during the Trump administration, like resolutions that would force companies to report on whether they plan to adhere to the emissions targets set out at the Paris climate agreement, require shareholders to vote on whether to approve particularly large severance packages for executives, or demand that companies commission independent racial impact studies.

While these measures from the Biden administration will help to even the playing field between shareholders and corporations, they may not last long after the next time that Republicans win control of the White House.

Biden Gives Activist Shareholders A Leg Up

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