NEW YORK – The U.S. Securities and Exchange Commission (SEC) 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 by the SEC last November, raises the bar for submitting shareholder proposals to companies’ annual ballots and increases the proportion of the vote a proposal must win before it can be resubmitted.
The SEC and corporate lobby groups have said the decades-old rules need to be modernized to stop niche issues clogging up corporate ballots – a risk that SEC chair Jay Clayton said on Wednesday could impose “significant” costs on companies and other shareholders.
But the changes sparked blowback from many investors, lawmakers, and the SEC’s own Democratic commissioners, who warned it would kill proposals on climate change, racial justice, and the COVID-19 pandemic just as corporate America should be confronting these problems.
“These issues are material to performance and shareholders … Today’s rule amendments unnecessarily interfere with, and may chill, the live debate over these issues,” said Caroline Crenshaw, the agency’s new Democratic commissioner.
Previously, an investor had to hold at least $2,000 of a company’s stock for one year to file a proposal – a threshold the SEC raised to three years on Wednesday. It also raised the proportion of the vote a proposal must win in order to be resubmitted to the ballot year-on-year.
However, the agency scrapped a highly contentious provision that would have allowed companies to exclude proposals that received falling levels of support, as first reported by Reuters. The SEC felt that change was “not necessary,” an official said.
Amy Borrus, executive director at the Council of Institutional Investors, a major investor group which fought the changes, said they would weaken investor voices and result in fewer shareholder proposals.
“And that is precisely the goal of the business lobby that pressed the SEC to make these changes. Simply put, CEOs and corporate directors do not like being second-guessed by shareholders,” she said.
Corporate groups including the U.S. Chamber of Commerce have pushed to rein in shareholder proposals and on Wednesday cheered the changes. The Chamber said they would help prevent “special interest activists” from pushing “narrow agendas unrelated to the success of public companies.”
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 Republican Commissioner Elad Roisman, who spearheaded the rule change.
Earlier this year, the SEC also imposed stricter rules on firms which advise investors how to vote in corporate elections, a change also backed by corporate lobbyists and panned by investor groups.
New York City Comptroller Scott Stringer said Wednesday’s change was a “slap in the face to corporate accountability.”