Investors Demand US SEC Delay Shareholder Proposal Changes
Late introduction of new guidance from the commission risks detrimentally affecting investors during upcoming proxy season.
A coalition of institutional investors has urged the US Securities and Exchange Commission (SEC) not to apply guidance replacing Staff Legal Bulletin (SLB) 14L to shareholder proposals filed before the recent changes were introduced.
Last week, the SEC rescinded SLB 14L, which had restricted companies’ ability to exclude shareholder resolutions, replacing it with new guidance in SLB 14M. Of particular concern to investors, SLB 14M will retroactively apply to shareholder proposals written specifically to comply with SLB 14L.
A letter from investor association Shareholder Rights Group and its members the Interfaith Center on Corporate Responsibility (ICCR) and As You Sow called on SEC’s Acting Chair Mark Uyeda and Acting Director of the Division of Corporation Finance Cicely LaMothe to forego applying the guidance provided in SLB 14M to shareholder proposals filed with companies before the bulletin was issued.
“This new SEC guidance will significantly curtail the ability of shareholders to file proposals related to issues of long-term risk for companies, to the detriment of both investors and issuers,” Josh Zinner, CEO at the ICCR, told ESG Investor.
“The timing of this guidance is particularly prejudicial to filers who have already submitted proposals based on the prior guidance, as it gives companies the ability to challenge these proposals under the new rules, creating an unfair advantage. For that reason, we are respectfully requesting that the SEC withdraw the new guidance at least as applied to proposals already filed this proxy season.”
Sanford Lewis, Director and General Counsel of the Shareholder Rights Group, added that there was an “inherent unfairness” in applying a different interpretive staff guideline than the proponents used in drafting their proposals.
The new guidance reinstates prior staff guidance on micromanagement that had been rescinded by SLB 14L, allowing shareholder proposals to be excluded more easily.
In Q4 2024, the SEC approved industrial gases company Air Products and Chemicals’ exclusion of a shareholder proposal on lobbying from its 2025 proxy statement, arguing the proposal sought to micromanage its business operations. This was followed by a surge of similar no action appeals against other proposals.
Luke Morgan, Attorney at As You Sow, told ESG Investor that the changes to micromanagement were “very significant” and risked “dialling back investors rights to raise material issues”.
“The bottom line on micromanagement is that this looks to me like a pretty severe strike at climate proposals specifically,” said Morgan. “If you’re asking a company to align with the Paris Agreement, arguably under this new approach you might be micromanaging that company. It’s not really clear how much space that the staff are going to leave for climate proposals moving forward.”
Punishing “good faith” shareholders
Shareholders had been anticipating a paring back of their rights under a second Donald Trump presidency, due to the expected appointment of Paul Atkins, a known critic of shareholder rights, as Chair of the SEC. Nonetheless the SEC bulletin has arrived as somewhat of a surprise, especially as Atkins’ confirmation hearing has not even been scheduled.
While the investor letter “recognise[s] that changing circumstances and new leadership can lead to revised guidance”, it states that historically investors and issuers have been given “fair notice” of any changes to “promote an orderly process and functional relationship between investors, companies and the staff”.
SEC bulletins have previously been issued in the months preceding the peak proposal drafting and filing season, occurring in November and December. In their letter, investors noted that the beginning of November was the latest that such bulletins had previously been issued. This bulletin, in contrast, has been issued midseason when the SEC has several hundred no action requests currently pending.
“In furtherance of a fair and predictable shareholder proposal process, we suggest that you withdraw SLB 14M until after the no action season or, at a minimum, limit its applicability to proposals filed after the bulletin was issued,” the letter stated, underscoring that SLB 14L should apply to proposals submitted before SLB 14M was issued.
“Retroactive application of the bulletin to proposals prepared under the previous guidance is likely to penalise shareholders operating in good faith under the preexisting staff guidance,” it warned. “We urge you not to do that to a large group of engaged investors.”
“It’s unprecedented to announce these changes in the middle of a season and then to state that they would be retroactive,” said Morgan. “There’s no emergency requiring this change, it’s just inviting companies to submit out of time new no action requests.
“We’re not going to allow this administration to trample shareholder rights,” he added. “It’s fundamentally unfair and we’re reviewing what we can do about it.”
Investor influence on hold
The SEC also issued seperate guidance last week which warned shareholders against asserting their intention to vote against management to influence decision-making.
The change has caused asset managers BlackRock and Vanguard to temporarily pause stewardship meetings according to reports to digest the changes. Before the change, the SEC’s stance was that fund managers owning more than 5% of a company were not deemed to be “influencing” corporate behaviour when they highlighted certain business issues, including those pertaining to ESG policies and executive pay.
The new rules impose more onerous reporting obligations on shareholders in certain circumstances, including applying pressure on management to change policy with reference to future voting intentions.
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