One of the SEC Chair Jay Clayton's priorities is to review the level of voting support shareholders must receive after submitting a shareholder proposal to be able to resubmit the proposal in a subsequent year and the ownership levels required to do so. The Financial CHOICE Act contained one approach to reform, but that legislation is unlikely to move forward in the near term. Moreover, the SEC can act by regulation -- legislative action is not required. With this in mind, Keith Higgins, a partner with Ropes & Gray, and the former Director of the SEC's Division of Corporation Finance, which oversees the SEC's corporate disclosures and proxy proposal process, has put forward an approach to reforming the resubmission thresholds. The approach offers a moderate approach which could potentially assist in winning bipartisan support at the Commission. Finally, the fact that Higgins only recently left his post as Director of Corp Fin gives the proposal more weight. Among Mr. Higgins's proposals include:
- Resubmission Thresholds: Noting that there are many proposals which get limited support each year and yet if a if 90% of shareholders oppose a proposal for three years in a row, the company must continue to included it if submitted the following year, Mr. Higgins states that the current resubmission thresholds are too low. Mr. Higgins notes that the business community has "suggested an increase to 6%/15%/30%" from the current 3%/6%/10% thresholds. As for the business community's proposal, Mr. Higgins notes the numbers are "not exactly right" but "are likely pretty close".
- Ownership Thresholds: Current rules only require an individual own at least $2,000 of the market value of the company's stock for a single year to be eligible to submit shareholder proposals. Noting that the CHOICE Act's proposal to change that value to 1% of shares outstanding would not work, Mr. Higgins concludes that the dollar value is best left alone while suggesting that the amount of time the proponent is required to own stock prior to submission could perhaps be extended to three years.
- Proposals by Proxy: The CHOICE Act would prohibit proposals submitted by a person acting on behalf of another shareholder. This is designed to target a small number of gadfly activists who account for a large portion of proposals submitted to companies annually. While Higgins is not in favor of banning the process, he believes adding more procedural requirements, like requiring specific authorization to submit a proposal at a particular company could be required.
- Factual Inaccuracies: Current SEC rules only permit a company to exclude proposals on the basis of false or misleading statements if they are material to the proposal and supporting statement as a whole. The statement must also be a fact, not an opinion over which there is disagreement. Higgins suggests changing the rule to allow companies to redact proposals based on a single misleading statement or inaccuracies which the proponent refuses to change along with a note explaining the redaction.