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Investor Group Urges SEC To Press Pause On Shareholder Proposal Reforms

A group of investors is urging the SEC not to move forward with plans to overhaul the ways shareholders can submit proposals to companies in the U.S.

The Shareholder Rights Group, an association of 15 asset management companies that includes Arjuna Capital LLC, Trillium Asset Management LLC and Boston Common Asset Management LLC, pressed SEC Chairman Jay Clayton in an Oct. 25 letter to maintain the existing support thresholds that shareholders need to achieve in order to put a proposal up for a vote at a company's annual meeting. Today, a shareholder proposal being submitted for the first time will be put up for a vote as long as it is supported by at least 3% of the company's investor base. That threshold gradually rises to 6% and 10% in the second and third respective years it is submitted.

However, the SEC is currently floating the idea of raising those figures to as much as 6%, 15% and 30% in the first, second and third years the proposal is submitted, according to a recent report from the Financial Times. But doing that could "hobble a wide array of investors," according to the Shareholder Rights Group.

"Major changes to submission or resubmission thresholds under consideration could place the right to file shareholder proposals out of reach of true Main Street and retail investors," wrote Sanford Lewis, founder and director of the Shareholder Rights Group.

For several months, the SEC has been considering reforms to how shareholder proposals are handled. That review came as part of a broader initiative to gauge how well the entire proxy process in the U.S. operates. Executives and business organizations say the current thresholds required for shareholder proposals to be considered at a company's annual meeting are so low that activist investors are easily able to push their political and personal beliefs onto the company for consideration. On the other hand, the Shareholder Rights Group and other investors say the current levels are appropriate, as they allow shareholders to raise issues with management teams that may otherwise go unnoticed — such as those related to environmental, social and governance factors.

The SEC will vote Nov. 5 on whether to consider raising the shareholder proposal thresholds, according to the Financial Times' report. However, the vote would not immediately make those changes effective, as it would simply begin a lengthy review process through which industry participants can submit comments to the SEC about the matter.

An SEC spokesperson did not respond to S&P Global Market Intelligence's request for comment on the Shareholder Rights Group's letter or the Times' report.

Lewis, responding to the Times' report, wrote that it appeared that Clayton "may have been misled by the advocates for amendments to the shareholder proposal rule." Lewis added that the letter was designed to "ensure that the commission has adequate information before initiating an unnecessarily costly, contentious and harmful rulemaking."

"If you lead the commission to increase the filing threshold significantly, you risk depreciating the bundle of rights associated with share ownership," Lewis wrote. "Those rights include the right to file proposals."