US SEC moves forward with tougher proxy rule proposals

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

The US securities regulator 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 proposed 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.

Jay Clayton, the SEC chairman, said the changes were necessary to modernise the proxy process, arguing that proxy advisers had become as important in the market as auditors, rating agencies and analysts.

“These market developments require our attention,” he said.

The proposals, which the SEC voted 3-2 to put out for public comment, 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.

Tom Quaadman, an official with the US Chamber of Commerce, praised the proposals, saying they would “help improve communication between investors and businesses”.

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.

On Tuesday, the SEC’s two Democratic commissioners opposed the plans, saying they would help shield executives from accountability. “These policy choices, if adopted, would shift power away from shareholders towards management,” said Allison Lee, who was appointed a commissioner earlier this year.

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 twice before issuing it to investors, and include a link to any response by the company in their advice.


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