SEC Proposes Rescission of Shareholder Proposal Rule and Reforms to Proxy Solicitation Process

What the SEC announced

The Securities and Exchange Commission proposed to rescind Rule 14a-8 under the Securities Exchange Act of 1934, which exceeds the scope of the Commission's statutory authority and intrudes into matters of state law.

The Commission outlined independent policy reasons for its proposed rescission of Rule 14a-8. Many of the justifications for adopting the rule either have not been substantiated in practice or are less compelling , and the rule has had unintended consequences, including the implication of federal preemption that may have discouraged states from developing their own laws governing shareholder proposals. Rescinding Rule 14a-8 would leave determinations about the role of shareholder proposals to state law and company governing documents.

The Commission also proposed amendments to Rule 14a-4(c) under the Exchange Act to provide companies with greater flexibility and shareholders with greater control regarding proposals for which a company may seek discretionary proxy voting authority.

The Commission separately proposed rule amendments to modernize the proxy solicitation process. Reflecting advancements in technology and current realities of shareholder communications, those amendments would:

Eliminate the requirement that companies deliver an annual report to security holders.

Eliminate the delivery deadline when documents are incorporated by reference into a proxy statement.

Eliminate the requirement and the ability to submit Notices of Exempt Solicitation.

Shorten the minimum broker search period from 20 business days to five business days.

The public comment periods will remain open for 60 days following the publication of the proposing releases in the Federal Register.