US SEC weighs scrapping shareholder resolution rule, shifting power to states
The US SEC is considering rescinding its shareholder proposal rule, which would hand regulation to states and likely weaken investor activism.
The U.S. Securities and Exchange Commission (SEC) has signaled it may scrap its long-standing rule governing shareholder proposals at public companies, a move that would transfer regulatory authority to individual states and potentially curb the influence of investor activists.
In a regulatory notice issued on Friday, the SEC said it would consider changes to Rule 14a-8, which currently sets minimum ownership thresholds for investors to file resolutions in company proxy statements. A spokesman for SEC Chairman Paul Atkins said the chairman has argued the rule "exceeds the Commission's authority and infringes upon state laws," and that the agency is expected to consider a proposal to rescind it entirely.
Shareholder resolutions on issues such as carbon emissions and executive compensation have become a staple of annual meetings, though their success rate has declined in recent years. Investor advocates warn that eliminating the federal framework would create a patchwork of state rules, making it harder for shareholders to raise concerns.
Tim Smith, senior policy adviser at the Interfaith Center on Corporate Responsibility, said the move would create confusion because state regulations vary widely. For example, a new Texas law could require investors to hold up to $1 million worth of shares to file a resolution, compared with the current SEC threshold of just $2,000.
"Across the investor community there will be a response to the questionable legal arguments he is making about the authority of the SEC," Smith said.
Corporate governance strategist Broc Romanek of the law firm Cooley predicted that if the rule is rescinded, shareholders may increasingly vote against company directors as other avenues for expressing disapproval narrow. "Votes against directors will be used more and more as other avenues are shut down," he said.
In a separate notice, the SEC said it plans to "modernize" the proxy solicitation process, which governs how shareholders communicate with each other. The agency said the aim is to reflect technological advances and current realities of shareholder communications. Activists, however, argue such changes could unfairly restrict speech by small investors.