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SEC Rescinds Certain Proxy Voting Advice Rules and Proposes Amendments to Shareholder Proposal Rules

On July 13, 2022, the Securities and Exchange Commission (the “SEC”) rescinded certain rules governing proxy voting advice and also proposed changes to shareholder proposal rules.

Rescission of proxy voting advice rules:

Unwinding rules adopted in 2020, the SEC rescinded Rule 14a-2(b)(9)(ii) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), removing the requirements that (i) proxy advisor firms make available to registrants proxy voting advice regarding such registrant in a timely manner; and (ii) that clients of proxy voting advice businesses are provided with a means of becoming aware of any written responses by registrants to proxy voting advice. The SEC cited concerns raised by institutional investors and other clients of proxy voting advice businesses that these conditions impair the ability of proxy voting advice businesses to provide independent and timely advice and increase compliance costs. The amendments also eliminated a note to Rule 14a-9 of the Exchange Act that created confusion about its applicability to proxy voting advice. In adopting the amendments, the SEC affirmed that proxy voting advice is generally subject to the proxy rules.

The amendments are summarized in the SEC’s Fact Sheet. The final amendments will become effective 60 days after publication in the Federal Register.

Proposed amendments to shareholder proposal rules:

The proposed rules seek to amend Rule 14a-8 of the Exchange Act which addresses the inclusion of shareholder proposals in a company’s proxy statement. Rule 14a-8 provides several bases to rely on to exclude shareholder proposals from the proxy statement, subject to certain procedural and substantive requirements. The proposed amendments, if adopted, would revise three of the bases for exclusion as follows:

  • A company could exclude a shareholder proposal based on substantial implementation if the company already implemented the “essential elements” of the proposal.
  • A shareholder proposal may be excluded if it substantially duplicates another proposal previously submitted for the same shareholder meeting that “addresses the same subject matter and seeks the same objective by the same means.”
  • A shareholder proposal may be excluded if it substantially duplicates another proposal that was previously submitted for the same company’s prior shareholder meetings that “addresses the same subject matter and seeks the same objective by the same means.”

The SEC believes the proposed amendments to Rule 14a-8 will promote more consistency regarding the exclusion of shareholder proposals.

The proposed amendments are summarized in the SEC’s Fact Sheet. The public comment period will be open for 60 days following publication of the proposed rules on the SEC’s website or 30 days following publication of the proposed rules in the Federal Register, whichever period is longer.

We will continue to monitor SEC rulemaking, including the proposed amendments. If you have any questions, please contact a member of Harter Secrest & Emery’s Securities and Capital Markets group at 585.232.6500 or 716.853.1616.

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