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The US Securities and Exchange Commission on Monday said it would allow companies to exclude shareholder proposals from proxy materials, as Wall Street’s top regulator increasingly moves to limit investor activism.
Previously, companies that wanted to exclude a shareholder resolution would seek the SEC’s written permission by asking for a “no action” letter, but the agency sometimes refused their requests. Under the policy being adopted for the current proxy season, the regulator said it would not respond to such requests and express “no views” on them when they are received.
“The SEC has essentially announced that it will not enforce its own rules,” said Sanford Lewis, director and general counsel of Shareholder Rights Group, an investor advocacy association. “The ‘no action’ process and staff determinations regarding whether or not a proposal is excludable is a long-standing SEC rule.”
The move follows the regulator’s decision in February to rescind guidance issued by Joe Biden’s administration that made it easier for shareholders to submit environmental and social proposals. The withdrawal of that guidance resulted in a rise of omitted resolutions, contributing to a significant decline in shareholder proposals compared to the previous proxy season.
The policy could reshape the current proxy season by making it harder for shareholders to demand changes at companies.
The SEC in September allowed companies to limit the risk of shareholder lawsuits by allowing the disputes to be heard privately. The regulator also approved ExxonMobil’s plan to build an automated voting system for retail investors that will automate voting in line with board of director positions.
Shareholder advocates have objected to the moves. The International Corporate Governance Network, a group of global investors with assets under management of $90tn, warned in a letter to the regulator in October that the changes could lower governance standards in the US, thereby risking the “attractiveness of US capital markets”.
The SEC said companies that intend to exclude shareholder proposals from proxy materials must notify the commission, but there is “no requirement” that they must seek the staff’s view and that no response from the regulator is required. It cited a large volume of filings and current “resource and timing considerations” following the government shutdown in deciding it would express “no views” on a group’s decision to exclude resolutions.
Still, the new changes could make companies vulnerable to legal risk from shareholders. “There is a higher legal burden on the company side now because they don’t get to rely on the SEC,” said Ariane Marchis-Mouren, a senior researcher at The Conference Board’s ESG centre.
If a company wishes to receive a response for any proposal that it intends to exclude, the SEC will respond with a letter indicating that it will not object to the omission, the regulator said.