The US Securities and Exchange Commission is set to propose new limits on shareholders’ ability to agitate for change at companies, handing a win to pro-business lobby groups.
The SEC, led by chairman Jay Clayton, is expected to vote to propose rules that would require proxy adviser firms to give companies two chances to review proxy voting materials before they are sent to shareholders, according to people familiar with the plans.
The SEC will also vote to increase the resubmission thresholds for motions that shareholders file at companies on issues ranging from executive compensation to climate change disclosures, the people added. The thresholds set what level of shareholder support is needed to keep a proposal alive.
The commission is expected to vote to put the changes out for comment on November 5, according to the people, who cautioned that the plans and the timing were still in flux and could change before the vote next month.
If ultimately passed, the rules would be a blow to proxy adviser firms Institutional Shareholder Services (ISS) and Glass Lewis, and a significant win for business lobby groups such as the US Business Roundtable, which has argued that proxy adviser firms wield too much influence in corporate governance battles. The firms give investors advice on how to vote on various corporate issues, including climate change disclosures and executive compensation.
The resubmission changes would increase the thresholds that shareholders need to reach in order to force change at big corporations. Currently, proposals need to win support from 3 per cent of a company’s shareholder base in the first year they are submitted, rising to 6 per cent and 10 per cent in the second and third years respectively.
Under the new proposal, the thresholds would rise to 6 per cent, 15 per cent and 30 per cent, the people said. If a shareholder proposal failed to hit those levels, it would be barred for three years before it could be resubmitted.
In 2018, the Business Roundtable said proxy advisory firms should give companies their draft reports so companies can correct inaccurate information and make any significant comments. The group also called for shareholder proposal resubmission thresholds to be increased to 6 per cent, 15 per cent and 30 per cent over three years.
The proposals mark the SEC’s latest regulatory effort to rein in the proxy adviser firms. In August, the SEC voted to publish guidance clarifying that proxy advisers are subject to anti-fraud rules concerning materially false or misleading statements. Previous SEC guidance was vague on whether proxy advisers must adhere to anti-fraud provisions, the agency said.
The changes would be subject to public comment for several months before the SEC would consider finalising them, giving ISS and Glass Lewis time to mount a challenge against the commission. Representatives from ISS and Glass Lewis declined to comment.
The SEC’s two Republican commissioners and Mr Clayton, an independent, are expected to approve the proposals. The agency’s two Democratic commissioners are expected to vote against the rule changes.
A SEC spokeswoman declined to comment.
