NEW YORK (Reuters) – The U.S. Securities and Exchange Commission voted 3-2 on Wednesday to make it tougher for shareholders to push companies on issues such as climate change, social justice and diversity, with Democratic commissioners dissenting against the move.
The rule, first proposed last November, raises the bar on how long investors have to hold $2,000 worth of stock before they can submit a shareholder proposal to be included on the company’s annual ballot and how much support they must receive before resubmitting it.
The guidelines on how much support proposals must receive to be resubmitted have not changed since 1954.
“Shareholder proposals impose costs on companies and non-proponent shareholders. These costs are significant,” said SEC Chairman Jay Clayton. “There is a risk … that shareholder-proponents would use the proposal process in a way that does not benefit the company or its other shareholders.”
Caroline Crenshaw, a Democrat and the newest SEC commissioner, said many proposals related to the COVID-19 pandemic and climate risk will now no longer make corporate ballots.
“These issues are material to performance and shareholders are increasingly using their vote to hold companies accountable,” Crenshaw said. “Today’s rule amendments unnecessarily interfere with, and may chill, the live debate over these issues.”
The SEC, which received blowback from many investors and shareholder advocates on the rule, moved away from a contentious change that would have allowed companies to exclude proposals that received falling levels of support, a development Reuters reported first. The SEC felt that change was “not necessary,” an official said on background.
Corporate lobbying groups, including the U.S. Chamber of Commerce, have pushed to rein in shareholder proposals and have argued that the bar for resubmitting them should be higher to stop niche issues with diminishing levels of support from clogging up company ballots.
The chamber commended the SEC for the change, saying the old rule “allowed special interest activists to push narrow agendas unrelated to the success of public companies and investor return.”
SEC officials said most of the proposals come from a small group of repeat filers.
“While we all have a right to get on our soapboxes, we have no right to force others to pay for them,” said Commissioner Elad Roisman, who supported the new rule and spearheaded it. “The ability for a single shareholder … to require a company to include his or her own proposal in the company’s proxy statement is not a fundamental right.”
Earlier this year, the SEC overhauled the proxy voting process, requiring that firms that give investors advice on how to vote on matters on corporate ballots show their recommendations to companies at the same time shareholders see them, and disclose any conflicts. Corporate lobbyists also backed that change, and investor groups panned it.
New York City Comptroller Scott Stringer said Wednesday’s change was a “slap in the face to corporate accountability.”
“The shareholder proposal rule seeks to remedy non-existent problems with draconian solutions that only further strengthen corporate executives’ already strong hand,” Stringer said.
Reporting by Jessica DiNapoli in New York; Editing by Jonathan Oatis, Paul Simao and Tom Brown