By Yin Wilczek
July 28 — A watchdog group has called on the Securities and Exchange Commission to reject a rulemaking petition asking that thresholds be raised for when shareholder proposals that are rejected by shareholders may be resubmitted for inclusion in corporate proxy materials.
The petition was issued in April by nine business groups, including the U.S. Chamber of Commerce, the Financial Services Roundtable and the American Petroleum Institute.
In a July 23 letter to SEC Chairman Mary Jo White, Citizens for Responsibility and Ethics in Washington (CREW) argued that the higher thresholds recommended by the petition would block shareholders from voting on resolutions involving corporate political expenditures.
“These proposals may receive low levels of support the first time they are voted on, but garner more support as shareholders increasingly demand greater disclosure,” CREW's letter said. “Further, the Chamber's proposed rule would create an incentive for corporate officers and executives to use deceptive tactics to depress support for shareholder proposals they oppose, allowing them to stave off future votes on the proposals for years.”
The SEC's shareholder proposal process has come under increased scrutiny, including by the agency's former and current members. Commissioner Daniel Gallagher, a frequent critic, has called on the commission to extensively revise its shareholder proposal rule—1934 Securities Exchange Act Rule 14a-8—to ensure the process is not “hijacked” by activists and corporate gadflies.
Commissioner Kara Stein also has faulted the process, suggesting that the guidelines for staff no-action review “are not as clear as they should be”.
In their rulemaking petition, the business groups argued that the current thresholds in the SEC's resubmission rule—Rule 14a-8(i)(12)—increase the likelihood of shareholders having to plow through “a profusion of repetitive” resolutions that have little or no relevance for them.
The rulemaking petition is “not going to go anywhere with the commission,” said Brandon Rees, deputy director of the AFL-CIO's Office of Investment. “The commission is not interested in limiting the right of stockholders to bring shareholder resolutions through a process that is largely working.”
In May, more than 65 institutional investors who are active proponents said they would strongly oppose any changes to the process.
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CREW's letter is available at http://www.sec.gov/comments/4-675/4675-2.pdf.
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