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US SEC moves forward with tougher proxy rule proposals

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Via Financial Times

Shareholders will face higher hurdles to lobby for change at public companies under new proxy rule proposals set to be approved by the US Securities and Exchange Commission on Tuesday.

The US securities regulator has moved to require shareholders to hold more shares for longer before they can submit proposals, while also giving executives more tools to fight activist investors.

The rule changes raise stock ownership requirements along with vote thresholds, and impose new requirements on shareholder advisory firms to provide companies with advance copies of their advice before it goes to investors.

The agency, led by Jay Clayton, is set to approve putting the proposals out for public comment on Tuesday morning at an open meeting of its five-member commission. Taken together, the proposals represent a win for business lobby groups that have long grumbled about the costs of the modern proxy process and the influence of advisory firms.

The plans are likely to be met with fierce opposition from proxy advisory firms like Institutional Shareholder Services and Glass Lewis, which advise investors on how to vote on company proposals. Last week, ISS filed a lawsuit against the SEC in response to guidance it issued earlier this year.

The SEC has framed the changes as charting a middle course between the competing interests involved when activist groups attempt to force change at public companies by winning shareholder support for their proposals.

“We’re trying to strike the right balance between the costs associated with those proposals and the benefits that they provide,” said an SEC official, speaking on condition of anonymity ahead of the vote.

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Among the proposed changes is a ramp-up of the requirements for shareholders to make submissions. Currently, shareholders must hold $2,000 worth of shares for a year. The SEC plans to replace that with a requirement of holding $25,000 shares for at least a year, declining to $2,000 for three-year holdings.

Submissions that do not immediately win support will also need to receive higher levels of backing in order to be eligible for resubmission the following year. Under the new rules, even submissions that hit those hurdles would be ineligible if their support had dropped 10 per cent from the previous year under a “momentum” requirement.

Shareholders issuing proposals will also be required to state that they can either meet or speak via teleconference with executives between 10 and 30 days after submission. For firms like ISS and Glass-Lewis, the new rules would require them to submit their advice to management for feedback twice before issuing it to investors, and to include a link to any response by the company in their advice.

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