[Federal Register Volume 85, Number 214 (Wednesday, November 4, 2020)]
[Rules and Regulations]
[Pages 70240-70295]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-21580]



[[Page 70239]]

Vol. 85

Wednesday,

No. 214

November 4, 2020

Part II





 Securities and Exchange Commission





-----------------------------------------------------------------------





17 CFR Part 240





Procedural Requirements and Resubmission Thresholds Under Exchange Act 
Rule 14a-8; Final Rule

  Federal Register / Vol. 85 , No. 214 / Wednesday, November 4, 2020 / 
Rules and Regulations  

[[Page 70240]]


-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 240

[Release No. 34-89964; File No. S7-23-19]
RIN 3235-AM49


Procedural Requirements and Resubmission Thresholds Under 
Exchange Act Rule 14a-8

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: We are adopting amendments to certain procedural requirements 
and the provision relating to resubmitted proposals under the 
shareholder-proposal rule in order to modernize and enhance the 
efficiency and integrity of the shareholder-proposal process for the 
benefit of all shareholders. The amendments to the procedural rules: 
Amend the current ownership requirements to incorporate a tiered 
approach that provides three options for demonstrating a sufficient 
ownership stake in a company--through a combination of amount of 
securities owned and length of time held--to be eligible to submit a 
proposal; require certain documentation to be provided when a proposal 
is submitted on behalf of a shareholder-proponent; require shareholder-
proponents to identify specific dates and times they can meet with the 
company in person or via teleconference to engage with the company with 
respect to the proposal; and provide that a person may submit no more 
than one proposal, directly or indirectly, for the same shareholders' 
meeting. The amendments to the resubmission thresholds revise the 
levels of shareholder support a proposal must receive to be eligible 
for resubmission at the same company's future shareholders' meetings 
from 3, 6, and 10 percent to 5, 15, and 25 percent, respectively.

DATES: The final rules are effective January 4, 2021, except for 
amendatory instruction 2.b adding Sec.  240.14a-8(b)(3), which is 
effective January 4, 2021 through January 1, 2023. See Section III for 
further information on transitioning to the final rules.

FOR FURTHER INFORMATION CONTACT: Matt McNair, Senior Special Counsel in 
the Office of Chief Counsel, at (202) 551-3500, Division of Corporation 
Finance, U.S. Securities and Exchange Commission, 100 F Street NE, 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to 17 CFR 
240.14a-8 (``Rule 14a-8'') under the Securities Exchange Act of 1934 
[15 U.S.C. 78a et seq.] (``Exchange Act'').

Table of Contents

I. Introduction
    A. Background
II. Final Amendments
    A. Ownership Requirements
    1. Proposed Rule Amendments
    2. Comments on the Proposed Rule Amendments
    3. Final Rule Amendments
    B. Proposals Submitted on Behalf of Shareholders
    1. Proposed Rule Amendment
    2. Comments on the Proposed Rule Amendment
    3. Final Rule Amendment
    C. The Role of the Shareholder-Proposal Process in Shareholder 
Engagement
    1. Proposed Rule Amendment
    2. Comments on the Proposed Rule Amendment
    3. Final Rule Amendment
    D. One-Proposal Limit
    1. Proposed Rule Amendment
    2. Comments on the Proposed Rule Amendment
    3. Final Rule Amendment
    E. Resubmission Thresholds
    1. Proposed Rule Amendment
    2. Comments on the Proposed Rule Amendment
    3. Final Rule Amendment
    F. Momentum Requirement
    1. Proposed Rule Amendment
    2. Comments on the Proposed Rule Amendment
    3. Final Rule Amendment
    G. Other Matters
    1. Response to Constitutional Objections
    2. Proposals Submitted to Open-End Investment Companies
    3. Commission and Staff Role in the Rule 14a-8 Process
III. Transition Matters
IV. Other Matters
V. Economic Analysis
    A. Introduction
    B. Economic Baseline
    1. Companies
    2. Non-Proponent Shareholders
    3. Proponents of Shareholder Proposals
    C. Estimated Reduction in the Number of Shareholder Proposals
    D. Analysis of Costs and Benefits and Effects on Efficiency, 
Competition, and Capital Formation of the Final Rule Amendments
    1. Companies
    2. Non-Proponent Shareholders
    3. Proponents of Shareholder Proposals
    E. Other Potential Effects of the Amendments
    1. Effects of the Rule Amendments on Excludable Proposals by 
Type of Proposal, Proponent, and Company
    2. Economic Effects of Final Rule Amendments on the Quality of 
Shareholder Proposals
    3. Comments Regarding Voting Support and Economic Effects of the 
Rule Amendments
    F. Reasonable Alternatives
    1. Alternative Amendments to Rule 14a-8(b) and Rule 14a-8(c)
    2. Alternative Amendments to Rule 14a-8(i)(12)
VI. Paperwork Reduction Act
    A. Background
    B. Summary of Comment Letters and Revisions to PRA Estimates
    C. Summary of the Amendments' Impact on Collections of 
Information
    D. Incremental and Aggregate Burden and Cost Estimates for the 
Final Amendments
VII. Final Regulatory Flexibility Act Analysis
    A. Need for, and Objectives of, the Final Amendments
    B. Significant Issues Raised by Public Comments
    C. Small Entities Subject to the Final Amendments
    D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements
    E. Agency Action to Minimize Effect on Small Entities
VIII. Statutory Authority

I. Introduction

A. Background

    Rule 14a-8 requires companies that are subject to the federal proxy 
rules to include shareholder proposals in companies' proxy statements 
to shareholders, subject to certain procedural and substantive 
requirements.\1\ By giving any shareholder-proponent the ability to 
have a proposal included in the company's proxy statement to all 
shareholders, Rule 14a-8 enables eligible shareholder-proponents to 
easily present their proposals to all other shareholders, and to have 
proxies solicited for their proposals, at little or no expense to 
themselves.
---------------------------------------------------------------------------

    \1\ Unless otherwise noted, references to ``shareholder 
proposal,'' ``shareholder proposals,'' ``proposal,'' or 
``proposals'' refer to submissions made in reliance on Rule 14a-8.
---------------------------------------------------------------------------

    This form of engagement among shareholder-proponents, other 
shareholders, and companies has benefits for shareholder-proponents as 
well as companies and their shareholders. However, the costs of 
processing, analyzing, and voting on the proponent's proposal largely 
are borne by the company and its shareholders. Accordingly, the 
mechanism for shareholder-proponents to require inclusion of their 
proposals in companies' proxy materials is not without limits. Rule 
14a-8 permits a company to exclude a shareholder proposal from its 
proxy statement if the proposal fails to meet any of several specified 
procedural or substantive requirements, or if the shareholder-proponent 
does not satisfy certain eligibility or procedural requirements. All of 
these requirements are generally designed to ensure that the ability 
under Rule 14a-8 for a shareholder to have a

[[Page 70241]]

proposal included alongside management's in the company's proxy 
materials--and thus to draw on resources and to command the time and 
attention of the company and other shareholders--is not inappropriately 
used. Over the years, the Commission has amended the shareholder-
proposal rule as necessary to protect against such use and protect the 
integrity of the process.\2\ The most recent significant amendments 
were adopted over 35 years ago in 1983.
---------------------------------------------------------------------------

    \2\ The Commission has expressed concern over the years that 
Rule 14a-8 is susceptible to misuse. In 1948, the Commission adopted 
three new bases for exclusion to ``relieve the management of 
harassment in cases where [shareholder] proposals are submitted for 
the purpose of achieving personal ends rather than for the common 
good of the issuer and its security holders.'' See Notice of 
Proposal to Amend Proxy Rules, Release No. 34-4114 (July 6, 1948) 
[13 FR 3973 (July 14, 1948)], at 3974. In 1953, the Commission 
amended the shareholder-proposal rule to allow companies to omit the 
name and address of the shareholder-proponent to ``discourage the 
use of this rule by persons who are motivated by a desire for 
publicity rather than the interests of the company and its security 
holders.'' See Notice of Proposed Amendments to Proxy Rules, Release 
No. 34-4950 (Oct. 9, 1953) [18 FR 6646 (Oct. 20, 1953)], at 6647. In 
amending the resubmission basis for exclusion in 1983, the 
Commission noted that commenters ``felt that it was an appropriate 
response to counter the abuse of the security holder proposal 
process by certain proponents who make minor changes in proposals 
each year so that they can keep raising the same issue despite the 
fact that other shareholders have indicated by their votes that they 
are not interested in that issue.'' See Amendments to Rule 14a-8 
Under the Securities Exchange Act of 1934 Relating to Proposals by 
Security Holders, Release No. 34-20091 (Aug. 16, 1983) [48 FR 38218 
(Aug. 23, 1983)], at 38221 (``1983 Adopting Release''). In 
addressing the personal-grievance basis for exclusion in 1982, the 
Commission noted that ``[t]here has been an increase in the number 
of proposals used to harass issuers into giving the proponent some 
particular benefit or to accomplish objectives particular to the 
proponent.'' See Proposed Amendments to Rule 14a-8, Release No. 34-
19135 (Oct. 14, 1982) [47 FR 47420 (Oct. 26, 1982)], at 47427 
(``1982 Proposing Release'').
---------------------------------------------------------------------------

    On November 5, 2019, we proposed amendments to the procedural 
requirements and resubmission thresholds under Rule 14a-8 as part of 
our ongoing focus on modernizing and improving the proxy voting 
process.\3\ We noted at that time concerns with certain aspects of the 
shareholder-proposal rule, which had not been reviewed by the 
Commission in more than 20 years.\4\ We also noted that shareholders' 
ability to communicate with issuers and other shareholders through 
various channels has evolved significantly in response to technological 
advancements and developing market practices. As a result of these 
developments, shareholders now have more tools at their disposal to 
engage with a company's board and management in a manner that may be 
more efficient and less costly for all parties than the Rule 14a-8 
process.
---------------------------------------------------------------------------

    \3\ See Procedural Requirements and Resubmission Thresholds 
under Exchange Act Rule 14a-8, Release No. 34-87458 (Nov. 5, 2019) 
[84 FR 66458 (Dec. 4, 2019)] (``Proposing Release'').
    \4\ See Amendments To Rules On Shareholder Proposals, Release 
No. 34-40018 (May 21, 1998) [63 FR 29106 (May 28, 1998)] (``1998 
Adopting Release'').
---------------------------------------------------------------------------

    In light of the above, we proposed amendments to the shareholder-
proposal rule to: (1) Amend the criteria that a shareholder must 
satisfy to be eligible to have a proposal included in a company's proxy 
statement; (2) modify the rule limiting the number of proposals that 
may be submitted for a particular company's shareholders' meeting (the 
``one-proposal rule'') to establish that a single person may not submit 
multiple proposals at the same shareholders' meeting, whether the 
person submits a proposal as a shareholder or as a representative of a 
shareholder; and (3) revise the levels of shareholder support a 
proposal must receive to be eligible for resubmission at the same 
company's future shareholders' meetings.\5\
---------------------------------------------------------------------------

    \5\ See Proposing Release, supra note 3.
---------------------------------------------------------------------------

    We received many comment letters in response to the Proposing 
Release.\6\ After taking into consideration these public comments, as 
well as the feedback received as part of the Commission's 2018 
Roundtable on the Proxy Process (the ``Proxy Process Roundtable''),\7\ 
we are adopting the amendments substantially as proposed with the 
exception of the Momentum Requirement (defined below), which we are not 
adopting. The amendments are intended to modernize and enhance the 
efficiency and integrity of the shareholder-proposal process for the 
benefit of all shareholders, including to help ensure that a 
shareholder-proponent has demonstrated a meaningful ``economic stake or 
investment interest'' in a company before the shareholder may draw on 
company resources to require the inclusion of a proposal in the 
company's proxy statement, and before the shareholder may use the 
company's proxy statement to command the attention of other 
shareholders to consider and vote on the proposal.\8\
---------------------------------------------------------------------------

    \6\ See generally letters submitted in connection with the 
Proposing Release, available at https://www.sec.gov/comments/s7-23-19/s72319.htm. Unless otherwise specified, all references in this 
release to comment letters are to those relating to the Proposing 
Release.
    \7\ On November 15, 2018, Commission staff held a roundtable on 
the proxy process, which included a panel discussion on Rule 14a-8 
and the shareholder-proposal process. The shareholder-proposal 
panelists expressed their views on the application of Rule 14a-8 and 
shared their experiences with shareholder proposals and the related 
benefits and costs involved for companies and shareholders. In 
connection with the Proxy Process Roundtable, the staff invited 
members of the public to provide their views on the proxy process 
via written comments, which are available at https://www.sec.gov/comments/4-725/4-725.htm.
    \8\ See 1983 Adopting Release, supra note 2.
---------------------------------------------------------------------------

II. Final Amendments

A. Ownership Requirements

1. Proposed Rule Amendments
i. Ownership Thresholds
    Rule 14a-8(b) requires a shareholder that wishes to have a proposal 
included in a company's proxy materials to have continuously held at 
least $2,000 in market value, or 1 percent, of a company's securities 
entitled to vote on the proposal for at least one year as of the date 
the shareholder submits the proposal.
    In the Proposing Release, we proposed to modify the current one-
year minimum holding period associated with the $2,000 ownership 
threshold to require continuous ownership for at least three years and 
to add two alternative ownership thresholds. As proposed, a shareholder 
would be eligible to submit a proposal if the shareholder had 
continuously held at least:
     $2,000 of the company's securities entitled to vote on the 
proposal for at least three years;
     $15,000 of the company's securities entitled to vote on 
the proposal for at least two years; or
     $25,000 of the company's securities entitled to vote on 
the proposal for at least one year.
    Under the proposed amendment, a shareholder could satisfy any one 
of these thresholds to be eligible to submit a proposal.
ii. Percentage Test
    We also proposed to eliminate the one-percent test in the rule 
because this test has not historically been utilized. In addition, we 
understand that the vast majority of shareholders who use Rule 14a-8 do 
not hold one percent or more of a company's shares.\9\
---------------------------------------------------------------------------

    \9\ See Proposing Release at 66464 n.58.
---------------------------------------------------------------------------

iii. Aggregation
    We also proposed to amend the rule to prohibit shareholders from 
aggregating their securities with other shareholders for the purpose of 
meeting the applicable minimum ownership thresholds to submit a Rule 
14a-8 proposal. Under the proposal, shareholders would continue to be 
permitted to co-file or co-sponsor shareholder proposals as a group if 
each shareholder-proponent in the group met

[[Page 70242]]

one of the proposed eligibility requirements.
iv. Lead-Filer Designation
    The Proposing Release also addressed whether co-filers, or co-
sponsors, should be required to identify a lead filer and specify 
whether such lead filer is authorized to negotiate with the company and 
withdraw the proposal on behalf of the other co-filers. Although we did 
not propose to require this practice in our rules, we requested comment 
on whether we should revise the rules to require co-filers to identify 
a lead filer and authorize the lead filer to negotiate the withdrawal 
of the proposal on behalf of the other co-filers.
2. Comments on the Proposed Rule Amendments
i. Ownership Thresholds
    The proposal generated a wide range of responses among commenters. 
Commenters that supported the revised ownership thresholds generally 
indicated that a tiered approach would help address concerns related to 
the shareholder-proposal process while maintaining an avenue of 
communication for shareholders of various investment sizes.\10\ Several 
commenters also indicated that satisfaction of the proposed thresholds 
would help demonstrate that a shareholder-proponent has a meaningful 
ownership interest in the company that will receive the proposal.\11\
---------------------------------------------------------------------------

    \10\ See, e.g., letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Senator Kevin Cramer dated 
July 28, 2020; Energy Infrastructure Council dated February 3, 2020; 
Exxon Mobil Corporation dated February 3, 2020; International 
Bancshares Corporation dated January 23, 2020; Investment Company 
Institute dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020.
    \11\ See letters from Center for Capital Markets Competitiveness 
dated January 31, 2020; Fidelity Management & Research LLC dated 
February 3, 2020; International Bancshares Corporation dated January 
23, 2020.
---------------------------------------------------------------------------

    Many commenters questioned the need and/or rationale for the 
proposed amendment to the ownership requirements.\12\ For example, 
several commenters disagreed with the discussion in the Proposing 
Release \13\ positing that an investor's holding period is a meaningful 
indicator of a shareholder's interest in a company, or that a longer 
holding period may make it more likely that a proposal will reflect a 
greater interest in the company and its shareholders rather than 
promote a personal interest or publicize a general cause.\14\ Other 
commenters questioned whether the proposed thresholds were commensurate 
with the rate of inflation or appreciation in the capital markets.\15\
---------------------------------------------------------------------------

    \12\ See, e.g., letters from CalSTRS dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; First 
Affirmative Financial Network, LLC dated January 24, 2020; RK Invest 
Law, PBC dated February 3, 2020; UAW Retiree Medical Benefits Trust 
dated January 30, 2020.
    \13\ See Proposing Release at 66463.
    \14\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; RK Invest Law, PBC dated February 3, 2020.
    \15\ See, e.g., letters from CalPERS dated February 3, 2020; UAW 
Retiree Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Many commenters that opposed the proposed ownership thresholds 
expressed concern about their potential effect on the ability of 
shareholders with smaller investments to submit proposals.\16\ Several 
commenters also expressed the view that shareholders with smaller 
investments play an important role in the shareholder-proposal process 
and may submit proposals that other shareholders support.\17\ In 
addition, some expressed concern about these investors' ability to 
satisfy the proposed ownership thresholds without compromising 
portfolio diversification.\18\
---------------------------------------------------------------------------

    \16\ See, e.g., letters from Benedictine Sisters of Chicago 
dated January 23, 2020; Senator Sherrod Brown dated August 21, 2020; 
John Chevedden dated January 31, 2020; Christian Brothers Investment 
Services, Inc. dated January 21, 2020; Connecticut State Treasurer 
dated January 31, 2020; Council of Institutional Investors et al. 
dated July 29, 2020; Senator Tammy Duckworth dated January 30, 2020; 
James McRitchie dated November 5, 2019; James McRitchie dated July 
21, 2020; Shareholder Rights Group dated June 10, 2020.
    \17\ See, e.g., letters from John Chevedden dated July 13, 2020; 
John Chevedden dated July 20, 2020; Christian Brothers Investment 
Services, Inc. dated January 21, 2020; Council of Institutional 
Investors et al. dated July 29, 2020; Senator Tammy Duckworth dated 
January 30, 2020; Form Letter Type A; Illinois State Treasurer dated 
January 16, 2020; James McRitchie dated July 21, 2020.
    \18\ See, e.g., Council of Institutional Investors dated January 
30, 2020; NorthStar Asset Management, Inc. dated February 3, 2020; 
Shareholder Commons dated January 31, 2020; Shareholder Rights Group 
dated February 3, 2020; US SIF dated January 31, 2020. See also 
Recommendation of the SEC Investor Advisory Committee (IAC) Relating 
to SEC Guidance and Rule Proposals on Proxy Advisors and Shareholder 
Proposals dated January 24, 2020 (``Recommendation of the IAC'').
---------------------------------------------------------------------------

    Some commenters expressed the view that, while shareholders that 
are unable to submit proposals are able to pursue alternative avenues 
of engagement with management and other shareholders, these 
alternatives are not as effective as shareholder proposals.\19\ For 
example, these commenters suggested that there are inherent weaknesses 
with using social media as a method of engagement,\20\ or that 
alternative engagement methods do not allow shareholders to solicit the 
views of the entire shareholder base.\21\
---------------------------------------------------------------------------

    \19\ See, e.g., letters from Lucian A. Bebchuk dated February 3, 
2020; Council of Institutional Investors dated January 30, 2020; 
Council of Institutional Investors et al. dated July 29, 2020; James 
McRitchie dated February 2, 2020; New York State Comptroller dated 
February 3, 2020; NorthStar Asset Management, Inc. dated February 3, 
2020.
    \20\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; James McRitchie dated February 2, 2020; New 
York State Comptroller dated February 3, 2020.
    \21\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; James McRitchie dated February 2, 2020.
---------------------------------------------------------------------------

    A number of commenters suggested adjustments or alternative 
approaches to the proposed ownership requirements. Some commenters that 
were supportive of the proposed tiered approach recommended raising the 
initial $2,000 threshold for inflation and/or periodically adjusting 
each of the proposed ownership thresholds for inflation going 
forward.\22\ Several commenters that opposed the proposed ownership 
requirements indicated that they would not object to adjusting the 
existing $2,000 threshold for inflation.\23\ Other commenters expressed 
support for a single threshold at an amount higher than $2,000.\24\ One 
commenter suggested adopting thresholds of $5,000, $10,000, and 
$15,000, depending on the holding period.\25\ Another commenter 
suggested tying eligibility to the size of an investor's total 
investment portfolio by applying the existing thresholds to investors 
with a total investment portfolio of less than $1 million and the 
proposed thresholds to those with a total investment portfolio in 
excess of $1 million.\26\ Another commenter found merit to a tiered 
approach, but suggested an alternative in which shareholders meeting a 
three-year holding period would be permitted to submit a proposal 
regardless of investment amount.\27\
---------------------------------------------------------------------------

    \22\ See letters from Business Roundtable dated February 3, 
2020; Exxon Mobil Corporation dated February 3, 2020; FedEx 
Corporation dated February 3, 2020; Nasdaq, Inc. dated February 3, 
2020; Society for Corporate Governance dated February 3, 2020.
    \23\ See letters from CalPERS dated February 3, 2020; CFA 
Institute dated February 3, 2020; Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; James McRitchie dated February 2, 2020; 
Shareholder Rights Group dated February 3, 2020.
    \24\ See letters from CT Hagberg LLC dated February 3, 2020 
(suggesting a single threshold of $5,000); Jing Zhao dated February 
3, 2020 (suggesting a single threshold of $2,500).
    \25\ See letter from Van Brenner dated November 21, 2019.
    \26\ See letter from John Taylor dated November 14, 2019.
    \27\ See letter from Josh Feldblyum dated November 30, 2019.
---------------------------------------------------------------------------

    Several commenters offered views that were specific to the proposed 
holding periods. One commenter urged us to ``consider changing the 
duration of the ownership requirement so as to

[[Page 70243]]

better reflect the significant changes to holding periods during the 
years since the one-year requirement was established.'' \28\ Another 
commenter expressed the view that the current one-year holding period 
is appropriate in light of the average holding periods of individual 
and institutional investors.\29\ Another commenter recommended adopting 
a three-year holding period for all shareholder-proponents because, in 
the commenter's view, such a holding period ``would demonstrate a 
serious commitment to a company's long-term success and should 
discourage proposals focused on short-term changes.'' \30\ Other 
commenters suggested that the holding period should be aligned with the 
Internal Revenue Code, which treats an asset as a long-term capital 
asset if held for more than one year and is thus taxed at capital gain 
rather than ordinary tax rates.\31\ Other commenters expressed the view 
that a shareholder's holding period may not accurately capture the 
nature of an investor's investment stake as the length of time held may 
not necessarily be indicative of the shareholder's future investment 
intent.\32\ One of these commenters suggested that the Commission 
instead explore a requirement that a shareholder-proponent ``attest 
that the holder will maintain ownership of at least $2,000 of shares . 
. . for at least one year after the annual meeting,'' or a requirement 
that companies disclose a shareholder-proponent's name and holdings 
``so that shareholders could make their own determinations if they 
believe a stake is too small.'' \33\ Another commenter supported the 
proposed three-year holding requirement at the $2,000 threshold, but 
stated that further study was necessary to understand the implications 
of the $25,000 ownership requirement.\34\
---------------------------------------------------------------------------

    \28\ See letter from CalPERS dated February 3, 2020 (stating 
that ``the average stock holding period spanned several years'' when 
the Commission first adopted an ownership requirement, whereas today 
``the average stock holding period in the U.S. is under nine 
months'') (citing Ted Maloney & Robert Almeida, Jr., Lengthening the 
Investment Time Horizon (MFS Investment Management 2019), available 
at https://www.mfs.com/content/dam/mfs-enterprise/mfscom/insights/2019/November/mfse_time_wp/mfse_time_wp.pdf).
    \29\ See letter from AFL-CIO dated February 3, 2020.
    \30\ See letter from The Vanguard Group, Inc. dated February 3, 
2020.
    \31\ See letters from Jantz Management LLC dated January 21, 
2020; James McRitchie dated December 28, 2019; James McRitchie dated 
December 29, 2019; James McRitchie dated January 21, 2020; James 
McRitchie dated July 21, 2020; Tom Shaffner dated December 17, 2019.
    \32\ See letters from Council of Institutional Investors dated 
January 30, 2020; Pension Investment Association of Canada dated 
January 23, 2020.
    \33\ See letter from Council of Institutional Investors dated 
January 30, 2020.
    \34\ See letter from Washington State Investment Board dated 
January 22, 2020.
---------------------------------------------------------------------------

    One commenter sought clarification as to whether share lending 
would be deemed to interrupt the period of continuous ownership.\35\
---------------------------------------------------------------------------

    \35\ See letter from Baillie Gifford & Co. dated February 3, 
2020.
---------------------------------------------------------------------------

ii. Percentage Test
    Several commenters supported \36\ and two opposed \37\ eliminating 
the one-percent ownership test. In addition, one commenter opposed the 
adoption of an ownership requirement based solely on a percentage of 
shares owned,\38\ while another supported such a requirement.\39\
---------------------------------------------------------------------------

    \36\ See letters from CFA Institute dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Manhattan 
Institute for Policy Research dated February 3, 2020; James 
McRitchie dated February 2, 2020; National Association of 
Manufacturers dated February 3, 2020; John Taylor dated November 14, 
2019.
    \37\ See letters from Local Authority Pension Fund Forum dated 
February 3, 2020; Jena Martin dated February 3, 2020.
    \38\ See letter from John Taylor dated November 14, 2019.
    \39\ See letter from Don E. Sprague dated November 15, 2019.
---------------------------------------------------------------------------

iii. Aggregation
    Several commenters supported the proposed amendment related to 
shareholders' ability to aggregate their holdings,\40\ while others 
opposed it.\41\ One commenter stated that the proposed amendment would 
be premature without first studying the effects of any newly adopted 
ownership thresholds.\42\ This commenter also suggested that a 
prohibition on aggregation would be inconsistent with the Commission's 
beneficial ownership rules as well as certain other state law 
provisions.\43\ The commenters that supported the proposed amendment 
stated that allowing aggregation would undermine the principle 
underlying the ownership requirements.\44\ Many commenters that opposed 
the proposed amendment stated that such a limitation would have a more 
pronounced effect on shareholders with smaller investments.\45\ One of 
these commenters stated that aggregation among shareholders is an 
indication of their long-term investment interest.\46\ Another of these 
commenters suggested that a group of shareholders that collectively 
satisfies an ownership requirement is not functionally different than a 
single shareholder that satisfies the requirement.\47\ This commenter 
also stated the view that a proposal submitted by a group of 
shareholders aggregating their holdings may be ``more worthy of 
consideration'' than a proposal submitted by a single shareholder 
because it ``involves coordination of support [among] multiple 
shareholders.'' \48\ Another commenter said that up to five

[[Page 70244]]

shareholders should be allowed to aggregate their holdings.\49\
---------------------------------------------------------------------------

    \40\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Exxon Mobil Corporation dated February 3, 2020; International 
Bancshares Corporation dated January 23, 2020; Manhattan Institute 
for Policy Research dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020.
    \41\ See, e.g., letters from Amazon Employees for Climate 
Justice dated February 3, 2020; American Baptist Home Mission 
Societies dated January 31, 2020; Baillie Gifford & Co. dated 
February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; 
Christian Brothers Investment Services, Inc. dated January 21, 2020; 
Church Investor Group dated January 29, 2020; CT Hagberg LLC dated 
February 3, 2020; First Affirmative Financial Network, LLC dated 
January 24, 2020; Franciscan Sisters of Allegany, NY dated January 
29, 2020; International Corporate Governance Network dated December 
4, 2019; North American Securities Administrators Association, Inc. 
dated February 3, 2020; Oneida Trust Enrollment Committee dated 
February 3, 2020; Tom Shaffner dated December 17, 2019; Singing 
Field Foundation dated January 31, 2020; Sisters of St. Ursula dated 
January 23, 2020; Sisters of the Order of St. Dominic dated January 
24, 2020; State Board of Administration of Florida dated February 3, 
2020.
    \42\ See letter from Professor James D. Cox et al. dated 
February 2, 2020.
    \43\ Id. Another commenter also expressed the view that the 
proposed rule would be inconsistent with ``other SEC rules that 
allow (and sometimes require) aggregation of shares held by 
different shareholders'' in the context of different regulatory 
objectives such as when shareholders collectively owning more than 
five percent of a class of equity securities of a registrant act as 
a ``group'' for purposes of the disclosure requirements of Section 
13(d) of the Exchange Act. See letter from Council of Institutional 
Investors et al. dated July 29, 2020.
    \44\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Exxon Mobil Corporation dated February 3, 2020; International 
Bancshares Corporation dated January 23, 2020; Manhattan Institute 
for Policy Research dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020.
    \45\ See, e.g., letters from Amazon Employees for Climate 
Justice dated February 3, 2020; American Baptist Home Mission 
Societies dated January 31, 2020; Baillie Gifford & Co. dated 
February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; 
Christian Brothers Investment Services, Inc. dated January 21, 2020; 
Church Investor Group dated January 29, 2020; CT Hagberg LLC dated 
February 3, 2020; First Affirmative Financial Network, LLC dated 
January 24, 2020; Franciscan Sisters of Allegany, NY dated January 
29, 2020; International Corporate Governance Network dated December 
4, 2019; North American Securities Administrators Association, Inc. 
dated February 3, 2020; Oneida Trust Enrollment Committee dated 
February 3, 2020; Tom Shaffner dated December 17, 2019; Singing 
Field Foundation dated January 31, 2020; Sisters of St. Ursula dated 
January 23, 2020; Sisters of the Order of St. Dominic dated January 
24, 2020.
    \46\ See letter from First Affirmative Financial Network, LLC 
dated January 24, 2020.
    \47\ See letter from Tom Shaffner dated December 17, 2019.
    \48\ Id.
    \49\ See letter from State Board of Administration of Florida 
dated February 3, 2020.
---------------------------------------------------------------------------

iv. Lead-Filer Designation
    Several commenters supported a rule requiring the designation of a 
lead filer where co-filers submit a proposal.\50\ Of these commenters, 
several supported a requirement that co-filers delegate to the lead 
filer the ability to negotiate with respect to, and withdraw, the 
proposal to reduce administrative burdens on companies.\51\
---------------------------------------------------------------------------

    \50\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Council of Institutional Investors dated January 30, 2020; 
Exxon Mobil Corporation dated February 3, 2020; General Motors 
Company dated February 25, 2020; James McRitchie dated February 2, 
2020; National Association of Manufacturers dated February 3, 2020; 
Society for Corporate Governance dated February 3, 2020; State Board 
of Administration of Florida dated February 3, 2020.
    \51\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Exxon Mobil Corporation dated February 3, 2020; National 
Association of Manufacturers dated February 3, 2020; Society for 
Corporate Governance dated February 3, 2020.
---------------------------------------------------------------------------

    Other commenters opposed the idea of requiring the designation of a 
lead filer.\52\ Two of these commenters explained that such a 
requirement is unnecessary as co-filers already tend to designate a 
lead filer.\53\ One of the commenters indicated that such a requirement 
could lead to more shareholder proposal submissions and suggested that, 
if such a requirement were adopted, companies should be required to 
disclose the lead filer and all co-filers in their proxy statements to 
foster engagement and provide investors with additional information 
related to their vote.\54\
---------------------------------------------------------------------------

    \52\ See letters from Local Authority Pension Fund Forum dated 
February 3, 2020; New York State Comptroller dated February 3, 2020; 
John Taylor dated November 14, 2019.
    \53\ See letters from Local Authority Pension Fund Forum dated 
February 3, 2020; New York State Comptroller dated February 3, 2020.
    \54\ See letter from New York State Comptroller dated February 
3, 2020.
---------------------------------------------------------------------------

3. Final Rule Amendments
i. Ownership Thresholds
    After considering the comments received, we are adopting the 
amendments as proposed. Under new Rule 14a-8(b), a shareholder will be 
eligible to submit a Rule 14a-8 proposal if the shareholder 
demonstrates continuous ownership of at least:
     $2,000 of the company's securities entitled to vote on the 
proposal for at least three years;
     $15,000 of the company's securities entitled to vote on 
the proposal for at least two years; or
     $25,000 of the company's securities entitled to vote on 
the proposal for at least one year.\55\
---------------------------------------------------------------------------

    \55\ Due to market fluctuations, the value of a shareholder's 
investment in a company may vary throughout the applicable holding 
period before the shareholder submits the proposal. In order to 
determine whether the shareholder satisfies the relevant ownership 
threshold, the shareholder should look at whether, on any date 
within the 60 calendar days before the date the shareholder submits 
the proposal, the shareholder's investment is valued at the relevant 
threshold or greater. See 1983 Adopting Release, supra note 2. For 
these purposes, companies and shareholders should determine the 
market value by multiplying the number of securities the shareholder 
continuously held for the relevant period by the highest selling 
price during the 60 calendar days before the shareholder submitted 
the proposal. For purposes of this calculation, it is important to 
note that a security's highest selling price is not necessarily the 
same as its highest closing price.
---------------------------------------------------------------------------

    The Commission has previously indicated that the required dollar 
amount and holding period should be calibrated such that a shareholder 
has some meaningful ``economic stake or investment interest'' in a 
company--and therefore is more likely to put forth proposals reflecting 
an interest in the company and its shareholders than to use the proxy 
process to promote a personal interest or general cause--before the 
shareholder may draw on company and shareholder resources to require 
the inclusion of a proposal in the company's proxy statement, and 
before the shareholder may use the company's proxy statement to command 
the time and attention of other shareholders to consider and vote on 
the proposal.\56\ We believe this longstanding statement of the 
Commission's perspective continues to appropriately capture the various 
interests that should be considered when calibrating the eligibility of 
shareholder-proponents to access the proxy statement at little or no 
cost to themselves.
---------------------------------------------------------------------------

    \56\ See 1983 Adopting Release, supra note 2.
---------------------------------------------------------------------------

    As we explained in the Proposing Release, we believe that holding 
$2,000 worth of a company's stock for a single year, a threshold that 
was last substantively reviewed and updated by the Commission in 
1998,\57\ does not appropriately ensure that the shareholder has a 
sufficiently meaningful stake in a company today. As the table below 
demonstrates, the $2,000 threshold, adjusted for inflation, is 
equivalent to $3,183 in 2020 dollars.\58\ Moreover, using the 
cumulative growth of the Russell 3000 Index as a proxy for the average 
increase in companies' market values, a $2,000 investment in that index 
in 1998 would be worth approximately $9,489 today.\59\ Furthermore, we 
estimate that the market capitalization of the largest 100 issuers in 
the S&P 500 Index (the companies that on a per-issuer basis receive a 
disproportionate number of shareholder proposals \60\) has grown by 164 
percent since 1998, and a $2,000 stake would be worth approximately 
$5,280 today.\61\ We believe that the increases in inflation and market 
value have contributed, in part, to the need to revisit the $2,000/one-
year ownership threshold and to recalibrate the relationship between 
the amount of stock owned and the requisite holding period to reflect a 
more appropriate economic stake or investment interest.
---------------------------------------------------------------------------

    \57\ See 1998 Adopting Release.
    \58\ $3,183 = $2,000 x 1.5915 (cumulative rate of inflation 
between May 1998 and July 2020, using the CPI inflation calculator, 
available at https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11%2C600.00&year1=201011&year2=201906).
    \59\ $9,489 = $2,000 x 4.744 (cumulative rate of growth of the 
Russell 3000 index between May 1998 and July 2020, which is the most 
recent date with available data, assuming dividends are reinvested). 
Data is retrieved from Compustat Daily Updates--Index Prices.
    \60\ In 2019, out of a total of 371 shareholder proposals voted 
on, see Sullivan & Cromwell, 2019 Proxy Season Review, Part I (July 
13, 2019), available at https://www.sullcrom.com/files/upload/SC-Publication-2019-Proxy-Season-Review-Part-1-Rule-14a-8-Shareholder-Proposals.pdf (``Sullivan & Cromwell Report''), 187 were voted on at 
S&P 100 companies, see David Bell, Silicon Valley and S&P 100: A 
Comparison of 2019 Proxy Season Results, Dec. 27, 2019, available at 
https://corpgov.law.harvard.edu/2019/12/07/silicon-valley-and-sp-100-a-comparison-of-2019-proxy-season-results/.
    \61\ $5,280 = $2,000 x (1+1.64) (cumulative rate of growth in 
the market capitalization of the largest 100 issuers in the S&P 500 
Index between May 1998 and May 2019, which is the most recent date 
with available data). Data is retrieved from Compustat Annual 
Updates--Security Monthly.

                                                             Ownership Threshold Comparison
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                    Change in largest 100 issuers in S&P
    Threshold established in 1998      1998 Threshold adjusted for inflation      Change in Russell 3000 Index                    500 Index
--------------------------------------------------------------------------------------------------------------------------------------------------------
                          $2,000                                 $3,183                                 $9,489                                $5,280
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 70245]]

    In making this assessment and recalibration, we recognize that the 
amount of stock owned is not the only way to demonstrate an interest in 
a company, particularly for smaller investors. In many cases, the 
length of time owning the company's securities may be a more meaningful 
indicator that a shareholder has a sufficient interest that warrants 
use of the company's proxy statement. A shareholder's demonstrated 
long-term investment interest in a company may make it more likely that 
the shareholder's proposal will reflect a greater interest in the 
company and its shareholders, rather than an intention to use the 
company and the proxy process to promote a personal interest or 
publicize a general cause. We believe having a longer holding period is 
particularly important if the dollar value of the ownership interest is 
minimal, including in terms of a company's market capitalization, and 
may help address concerns related to misuse of the shareholder-proposal 
process, while ensuring that smaller investors have access to the proxy 
statements of companies in which they have a demonstrated continuing 
interest.
    We also recognize that shareholders' ability to communicate with 
issuers and other shareholders has evolved in response to technological 
advancements and developing market practices since our rules were last 
amended. As a result, shareholders now have more tools at their 
disposal to engage with a company's board and/or management, as well as 
their fellow shareholders, in a manner that may be more efficient and 
less costly for all parties than the Rule 14a-8 process. Thus, 
shareholders that do not meet the relevant one-, two-, or three-year 
holding period (and related $25,000, $15,000, or $2,000 continuous 
ownership threshold), and for some limited period of time would not be 
eligible to require a company to include a proposal in its proxy 
statement, can nevertheless raise important issues with companies and 
other shareholders through alternative avenues with greater ease than 
in the past.
    In establishing the amended thresholds, we also have considered the 
costs to the company and its shareholders associated with management's 
consideration of a proposal and/or its inclusion in the company's proxy 
statement, as well as the direct costs to other shareholders. In the 
Proposing Release, we cited several cost estimates for companies 
provided by market participants ranging from $50,000 to $150,000 per 
proposal associated with this process and estimated that the proposed 
amendments to the ownership thresholds could result in aggregate annual 
cost savings of up to $69.8 million per year for all Russell 3000 
companies.\62\ In response to the Proposing Release, several commenters 
provided us with estimates of the costs associated with a company's 
receipt of a shareholder proposal ranging from approximately $20,000 to 
$150,000.\63\ The costs to non-proponent shareholders of considering 
shareholder proposals are difficult to quantify but in aggregate are 
estimated to be significant, including in comparison to the costs borne 
by shareholder-proponents.\64\ Because Rule 14a-8 enables individual 
shareholders to shift to the company and other shareholders the 
significant cost of processing, analyzing, and voting their proposals, 
we believe the Commission's longstanding perspective that ownership 
thresholds should be calibrated so that a shareholder-proponent's 
economic stake or investment interest in the company is more likely to 
demonstrate an alignment of interest with the company's other 
shareholders continues to be appropriate.
---------------------------------------------------------------------------

    \62\ See Proposing Release at 66502.
    \63\ See letters from Business Roundtable dated February 3, 2020 
(noting that ``[a]lthough many member companies reported that it was 
difficult to quantify the costs of shareholder proposals, several 
reported costs ranging from $50,000 to $100,000 or more per 
proposal. In addition, a number of companies noted that their costs 
for first-time proposals are generally higher than those incurred 
for resubmitted proposals''); CalPERS dated February 3, 2020 
(``Fortunately, the most substantial shareholder proposal work 
product is included in the no-action correspondence on the SEC's 
website and does not reflect a value anywhere near $150,000 per 
submission. During no-action fights, many proposals are disposed of 
fairly quickly and easily by referencing the appropriate exclusion. 
Companies actually pay less than $20,000 in marginal costs for the 
work product displayed on the SEC website.''); Center for Capital 
Markets Competitiveness dated January 31, 2020 (noting that ``[t]he 
Commission cited commenters who estimated that the average cost of 
responding to a proposal for inclusion in the company's proxy 
statement can cost anywhere from $87,000 to $150,000 per proposal. 
Our members report that this is a fair estimate for a typical 
proposal, though some outliers (such as ones involving multiple 
rounds of correspondence with a proponent and the Commission) may 
exceed the high end of the range.''); John Coates and Barbara Roper 
dated January 30, 2020 (noting that the Commission's paperwork 
burden analysis uses ``a much lower figure, based on direct company 
information: `A July 2009 survey of Business Roundtable companies, 
in which 67 companies responded . . . indicated that the average 
burden for a company associated with printing and mailing a single 
shareholder proposal is 20 hours with associated costs of $18,982.' 
While this much lower estimate may not comprehensively reflect all 
costs, it is a relevant datum for estimating cost savings, and is at 
least in tension with the SEC's assertion that $50,000 is a `lower 
bound' on costs.''); Exxon Mobil Corporation dated February 3, 2020 
(estimating the direct cost of each shareholder proposal included in 
its proxy statement ``to be at least $100,000''); General Motors 
Company dated February 25, 2020 (stating that a cost estimate of 
$87,000 to $150,000 is ``directionally accurate''); Society for 
Corporate Governance dated February 3, 2020 (providing the results 
of a survey of its members in which one respondent reported a cost 
of $109,792 (including the cost of seeking no-action relief) with 
respect to a proposal received in 2018 that was ultimately 
withdrawn, and a cost of $133,587 with respect to a proposal in 2019 
that was ultimately included in the company's proxy statement). For 
additional discussion of these cost estimates, see infra note 332 
and accompanying text.
    \64\ See infra Section V.D.2.
---------------------------------------------------------------------------

    Taking into account the above factors, the new thresholds will 
require a more appropriate demonstrated ``economic stake or investment 
interest'' in a company before the shareholder may draw on company and 
shareholder resources to require the inclusion of a proposal in the 
company's proxy statement, and before the shareholder-proponent may use 
the company's proxy statement to command the time and attention of 
other shareholders to analyze and vote on the proposal.\65\ Each of 
these factors is described in greater detail below.
---------------------------------------------------------------------------

    \65\ One commenter sought clarification regarding the effect of 
share lending. See letter from Baillie Gifford & Co. dated February 
3, 2020. The rule will not prohibit share lending or otherwise 
require investors to maintain a net-long position. We note that the 
rule has not historically imposed such a requirement, and we are not 
aware of any concerns with respect to these practices by 
shareholder-proponents at this time.
---------------------------------------------------------------------------

    While the current $2,000 threshold will remain the same to preserve 
the ability of long-term shareholders owning a relatively small amount 
of shares to continue to utilize Rule 14a-8, these investors will be 
required to hold the securities for at least three years to be eligible 
to submit a proposal. In light of the smaller investment amount 
required under this ownership tier, we believe that a longer holding 
period is warranted to demonstrate a sufficient investment interest in 
a company before being able to draw on company and shareholder 
resources for the purpose of including a proposal in the company's 
proxy statement. Investors who currently are eligible to submit 
proposals under the current $2,000 threshold/one-year minimum holding 
period, but currently do not satisfy the new requirements, will 
continue to be eligible to submit proposals through the expiration of 
the transition period that extends for all annual or special meetings 
held prior to January 1, 2023, provided they continue to hold at least 
$2,000 of a company's securities.
    To help put these thresholds in context, the following table shows 
them as a percentage of market value as of April 2020 for the S&P 500 
Index

[[Page 70246]]

constituents and May 2020 for the Russell 3000 Index constituents: \66\
---------------------------------------------------------------------------

    \66\ Data for the S&P 500 constituents is retrieved from CRSP 
and data for the Russell 3000 constituents is retrieved from Market 
Capitalization Ranges, FTSE Russell Market, https://www.ftserussell.com/research-insights/russell-reconstitution/market-capitalization-ranges (last visited Jun. 17, 2020). The largest 
registrant in the Russel 3000 index is the same as in the S&P 500 
Index.

----------------------------------------------------------------------------------------------------------------
                                        $2,000 threshold as a    $15,000 threshold as a   $25,000 threshold as a
              Registrant                 percentage of market     percentage of market     percentage of market
                                                value                    value                    value
----------------------------------------------------------------------------------------------------------------
Largest Registrant in the S&P 500                    0.0000002                0.0000012                0.0000020
 Index...............................
Smallest Registrant in the S&P 500                      0.0001                   0.0009                   0.0015
 Index...............................
Smallest Registrant in the Russell                      0.0021                    0.016                    0.026
 3000 Index..........................
----------------------------------------------------------------------------------------------------------------

    Although the ownership thresholds are still very low as a 
percentage of market value, we believe that maintaining the $2,000 
threshold and extending the holding period to three years, and adding 
new thresholds with one- and two-year holding periods, provides for a 
framework that is more effectively calibrated to the potentially 
varying interests of shareholder-proponents, companies, and other 
shareholders and, as a result, a shareholder-proponent that meets one 
of them will have demonstrated a sufficient ``economic stake or 
investment interest'' in a company before being able to draw on company 
and other shareholder resources for the purpose of including a proposal 
in the company's proxy statement. While we considered the alternative 
of simply raising the dollar amount of securities required to be held 
for one year, we were cognizant of the effect such an increase may have 
on investors with smaller investments, including those with a 
demonstrated long-term economic stake or investment interest in the 
company. We also considered adopting a single ownership threshold with 
a three-year holding period, but we believe that shorter holding 
periods are appropriate where a shareholder-proponent's demonstrated 
investment interest is greater in amount. Accordingly, we are retaining 
a $2,000 ownership threshold while adjusting the related holding period 
and adopting alternative thresholds for investors that have held their 
shares for shorter periods of time.
    For the reasons discussed above and in the Proposing Release, such 
as the costs incurred by other shareholders and companies and the 
availability of alternative communication channels, we do not believe 
that a one-year holding period is indicative of a sufficient investment 
interest where the amount invested is less than $25,000. We also do not 
find commenters' analogy to the Internal Revenue Code's treatment of 
capital assets compelling in light of the differing objectives of the 
Internal Revenue Code and the shareholder-proposal rule.\67\ At the 
same time, we also do not find compelling the suggestion of a different 
commenter that a three-year holding period for all shareholder-
proponents is necessary to demonstrate a ``serious commitment to a 
company's long-term success.'' \68\ We believe that holding periods of 
less than three years are sufficient where the economic stake is 
greater.
---------------------------------------------------------------------------

    \67\ See letters from Jantz Management LLC dated January 21, 
2020; James McRitchie dated December 28, 2019; James McRitchie dated 
December 29, 2019; James McRitchie dated January 21, 2020; James 
McRitchie dated July 21, 2020; Tom Shaffner dated December 17, 2019.
    \68\ See letter from The Vanguard Group, Inc. dated February 3, 
2020.
---------------------------------------------------------------------------

    Two commenters suggested that any adjustments to the one-year 
holding period should be informed by the holding periods of investors 
generally.\69\ In the Proposing Release, we noted our review of 
academic studies and other data on share ownership duration 
generally.\70\ In establishing the amended holding periods, and in 
response to these commenters, we further reviewed holding period 
data.\71\ We note, however, that academic studies and data regarding 
holding periods for smaller investors reflect a static assessment of 
general eligibility in the context of the current one-year minimum 
holding period and, therefore, do not account for changes in investment 
amounts and holding periods for the historically limited group of 
smaller investors that are interested in submitting proposals that may 
result from the amendments.\72\ We believe that where the amount 
invested is relatively small, an investor's holding period provides a 
meaningful indicator of the shareholder-proponent's investment interest 
in the company. As such, where the amount invested is less than $25,000 
but greater than $15,000, we believe that a holding period of two years 
is appropriate. Where the amount invested is less than $15,000 but 
greater than $2,000, we believe that the three-year holding period is 
appropriate.\73\
---------------------------------------------------------------------------

    \69\ See supra notes 28 and 29.
    \70\ See Proposing Release at 66490 n.195.
    \71\ See infra note 320 and accompanying text.
    \72\ The ratio of shareholder-proponents whose proposals 
appeared in proxy statements during 2018 (i.e., 170) to the number 
of direct and indirect investors in companies subject to the proxy 
rules (i.e., 65 million) is roughly equal to three shareholder-
proponents per million investors.
    \73\ There may be a relation between duration of ownership and 
the propensity of a shareholder to submit a proposal.
---------------------------------------------------------------------------

    Although we agree with the view of certain commenters that the 
length of time a shareholder has held a company's securities may not 
necessarily determine future investment intent,\74\ we believe that it 
provides a meaningful indication as to the nature of the investment. 
Thus, we believe that it is appropriate to place greater emphasis on 
the length of continuous stock ownership when the economic stake is 
less and vice versa. Moreover, in response to a commenter, we 
considered whether to adopt an eligibility requirement based on a 
shareholder-proponent's statement that it will maintain a minimum 
investment in the company's securities for some period of time after 
the shareholders' meeting for which a proposal is submitted.\75\ 
However, we believe that a shareholder-proponent with a limited 
economic stake should first demonstrate a meaningful investment 
interest in a company before drawing on company and shareholder 
resources to require the inclusion of a proposal in the company's proxy 
statement, and before using the company's proxy statement to command 
the time and attention of other shareholders to consider and vote on 
the proposal. In our view, requiring

[[Page 70247]]

a company to include a shareholder proposal in its proxy statement 
before a proponent has demonstrated a sufficient economic stake or 
investment interest would be inconsistent with the purpose of the 
ownership requirement and could render the shareholder-proposal process 
subject to abuse. Accordingly, we do not believe that such an approach 
is appropriate.
---------------------------------------------------------------------------

    \74\ See letters from Council of Institutional Investors dated 
January 30, 2020; Pension Investment Association of Canada dated 
January 23, 2020.
    \75\ See letter from Council of Institutional Investors dated 
January 30, 2020 (``[T]he SEC should explore benefits and costs of a 
forward-looking regime, for example requiring the shareholder to 
attest that the holder will maintain ownership of at least $2,000 of 
shares (as valued at submission date) for at least one year after 
the annual meeting.'').
---------------------------------------------------------------------------

    In response to the same commenter, we also considered whether to 
eliminate the ownership threshold and adopt a requirement that 
companies disclose a shareholder-proponent's name and holdings ``so 
that shareholders could make their own determinations if they believe a 
stake is too small.'' \76\ Because a determination by shareholders 
regarding a proponent's investment stake would occur only after a 
proposal had been included in the company's proxy statement and voted 
upon, companies and their shareholders could bear the burdens 
associated with a proposal submitted by a proponent whose stake is 
ultimately determined to be too small by the company's shareholders. 
For this reason, we believe that such an approach would be inconsistent 
with the purpose of the ownership requirement and could render the 
shareholder-proposal process subject to abuse. Accordingly, we are not 
adopting such an approach.
---------------------------------------------------------------------------

    \76\ Id.
---------------------------------------------------------------------------

    In establishing the amended thresholds, we also gave careful 
consideration to the effects any new thresholds may have on the ability 
of shareholders with smaller investments to submit proposals. We 
acknowledge, as several commenters asserted, that smaller shareholders 
can raise issues that other shareholders support.\77\ The amendments we 
are adopting today do not preclude smaller shareholders from 
participating in the shareholder-proposal process.\78\ As discussed 
above, the rule will continue to be available to shareholders that own 
at least $2,000 of a company's securities. We recognize, however, that 
the increased holding period will likely have some effect on the timing 
of submissions by those shareholders who could have relied on the 
current $2,000/one-year ownership threshold if they do not yet meet the 
three-year holding period (or the alternative eligibility thresholds). 
Specifically, shareholders that crossed the $2,000 ownership threshold 
for more than one year but less than three years (and do not satisfy 
the $15,000/two-year or $25,000/one-year thresholds) will need to 
postpone submitting a shareholder proposal until they have satisfied 
the requisite three-year holding requirement (or the alternative 
eligibility thresholds). We do not consider this increase in the 
holding period to be an undue burden on the ability to participate in 
the shareholder-proposal process, especially in light of the 
significant costs for other shareholders and the company involved in 
this method of shareholder engagement.\79\
---------------------------------------------------------------------------

    \77\ See, e.g., letters from Christian Brothers Investment 
Services, Inc. dated January 21, 2020; Council of Institutional 
Investors et al. dated July 29, 2020; Senator Tammy Duckworth dated 
January 30, 2020; Form Letter Type A; Illinois State Treasurer dated 
January 16, 2020; James McRitchie dated July 21, 2020.
    \78\ Cf. letter from Fidelity Management & Research LLC dated 
February 3, 2020 (noting that the commenter ``reviewed all 
shareholder proposals received by and voted on by Fidelity mutual 
funds for the past six years and found that the vast majority of 
these proposals would still have satisfied the eligibility criteria 
under the new tiered submission thresholds'').
    \79\ See infra Section V.D.
---------------------------------------------------------------------------

    We also note that, while these shareholder-proponents will be 
unable to require a company to include a proposal in its proxy 
statement until the shareholder has held the securities for the 
requisite three-year period, they will not be precluded from raising 
matters that are important to them through alternative avenues of 
engagement. Today's investors are able to engage with companies and 
other investors in a variety of ways, including via email, video 
conference calls, one-on-one ``sunny day'' meetings, shareholder 
surveys, and e-forums.\80\ Although we recognize these alternative 
channels are different than a shareholder proposal, we understand that 
companies today are more responsive to shareholder requests to engage 
through alternative channels than when our rules were last amended.\81\ 
Moreover, raising these issues through one-on-one engagement with 
management may produce better outcomes than submitting shareholder 
proposals.\82\ In addition, we note that shareholders engage directly 
with each other through various channels, and, accordingly, an issue 
that is sufficiently important to the broader shareholder base could be 
brought to the company's attention by other shareholders, including 
those that are eligible to submit a shareholder proposal. We also note 
that the proxy rules allow shareholders, including those that have held 
shares for less than one year, to conduct their own proxy solicitations 
in accordance with those rules.
---------------------------------------------------------------------------

    \80\ See Matteo Tonello & Matteo Gatti, Board-Shareholder 
Engagement Practices, Harvard L. Sch. F. on Corp. Governance (Dec. 
30, 2019), available at https://corpgov.law.harvard.edu/2019/12/30/board-shareholder-engagement-practices/; Cleary Gottlieb Steen & 
Hamilton LLP, Shareholder Engagement Trends and Considerations (Jan. 
10, 2020), available at https://www.clearygottlieb.com/news-and-insights/publication-listing/shareholder-engagement-trends-and-considerations; Donna Fuscaldo, Say Gives Retail Investors A Voice 
And Tesla Listens, FORBES (Feb. 19, 2019), https://www.forbes.com/sites/donnafuscaldo/2019/02/19/say-gives-retail-investors-a-voice-and-tesla-listens/. See also letter from Business Roundtable dated 
February 3, 2020.
    \81\ See, e.g., letter from Business Roundtable dated February 
3, 2020.
    \82\ See T.Rowe Price, Sustainable Investing (April 2020), 
available at https://www.troweprice.com/content/dam/trowecorp/Pdfs/ESG_2019_AnnualReport-Global_30_April_2020_Final.pdf (``Our 
experience after many years of assessing ESG issues as part of our 
investment process is that direct, one-on-one engagement with 
companies produces better outcomes than shareholder resolutions.'').
---------------------------------------------------------------------------

    For the reasons discussed above, we believe that the amended 
thresholds appropriately capture the various interests that should be 
considered when calibrating the eligibility of shareholder-proponents 
to access a company's proxy statement at little or no cost to the 
shareholder-proponent. As such, we are not incorporating the 
suggestions of certain commenters, such as adjusting the thresholds to 
$5,000, $10,000, or $15,000; \83\ eliminating a minimum dollar 
investment for shareholders meeting a three-year holding period; \84\ 
establishing thresholds that are contingent on the size of an 
investor's total investment portfolio; \85\ or subjecting the 
thresholds to future inflation adjustments.\86\ Although we recognize 
that a minimum amount of stock owned is not the only way to demonstrate 
a current and continued investment interest in a company, we do not 
believe that eliminating a minimum dollar investment for shareholders 
meeting a three-year holding period would be consistent with the 
concept of demonstrating a meaningful economic stake or investment 
interest in a company prior to submitting a shareholder proposal. In 
addition, although we appreciate that the thresholds will represent 
different proportional investments relative to each shareholder's total 
investment portfolio--e.g., they will represent a larger proportional 
investment where portfolio size is smaller and vice versa--we believe 
thresholds that vary based on the size of an investor's total 
investment

[[Page 70248]]

portfolio would be difficult to administer. For example, such a 
requirement could necessitate a shareholder's submission and a 
company's verification of voluminous amounts of documentation for the 
purpose of demonstrating and ascertaining the size of the shareholder's 
total investment portfolio in order to ascertain the applicable 
ownership threshold. Thus, we are not adopting thresholds that vary 
based on the size of a proponent's total investment portfolio. We also 
are not adopting a provision that would require periodic future 
inflation adjustments. We believe that such a mechanism is unnecessary 
at this time in light of the tiered approach being adopted.
---------------------------------------------------------------------------

    \83\ See letter from Van Brenner dated November 21, 2019.
    \84\ See letter from Josh Feldblyum dated November 30, 2019.
    \85\ See letter from John Taylor dated November 14, 2019.
    \86\ See letters from Business Roundtable dated February 3, 
2020; Exxon Mobil Corporation dated February 3, 2020; FedEx 
Corporation dated February 3, 2020; Nasdaq, Inc. dated February 3, 
2020; Society for Corporate Governance dated February 3, 2020.
---------------------------------------------------------------------------

    Although some commenters raised concerns about the effects the new 
thresholds could have on portfolio diversification, they did not 
provide data about costs or the likelihood of occurrence. They also did 
not provide data addressing the percentage of smaller investors that 
maintain a diversified portfolio or the diversification of holdings of 
the relatively smaller subset of such investors that submit shareholder 
proposals. While we acknowledge that, in theory, some shareholders may 
not be able to satisfy the three-year ownership requirement without 
affecting portfolio diversification decisions to some degree, we 
believe the appropriate allocation of capital, taking into account 
various factors, including portfolio diversification and the importance 
of submitting a proposal for inclusion in a company's proxy statement, 
is something for the investor to determine. We also note that the three 
different ownership thresholds in the final rules will afford 
shareholders some flexibility in determining how to allocate capital 
while considering whether qualifying to submit a proposal in a shorter 
timeframe is in the shareholder-proponent's interest. In those 
situations where a shareholder decides not to alter portfolio 
diversification, we note that an issue that is sufficiently important 
to the broader shareholder base may be brought to the company's 
attention by other shareholders, including those that are eligible to 
submit a shareholder proposal.
ii. Percentage Test
    As proposed, the amended rule will not include a component based on 
a percentage of shares owned. We believe that each of the revised 
thresholds represents a meaningful economic stake or investment 
interest such that a separate percentage-based threshold is 
unnecessary. We also believe that shareholders would be unlikely to 
rely on such a threshold in light of the new thresholds and that the 
amendment will avoid administrative complexities that could result from 
a percentage-based test. We also note that commenters who addressed it 
generally supported eliminating the current percentage ownership 
test.\87\ Accordingly, we are not adopting a percentage-based 
component.
---------------------------------------------------------------------------

    \87\ See letters from CFA Institute dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Manhattan 
Institute for Policy Research dated February 3, 2020; James 
McRitchie dated February 2, 2020; National Association of 
Manufacturers dated February 3, 2020; John Taylor dated November 14, 
2019.
---------------------------------------------------------------------------

iii. Aggregation
    As proposed, aggregation of holdings for purposes of meeting the 
ownership requirements will not be permitted. Instead, each shareholder 
must satisfy one of the three ownership thresholds to be eligible to 
submit or co-file a proposal.\88\ Although the Commission allowed 
shareholders to aggregate their holdings when it first adopted 
ownership thresholds in 1983, it did not provide reasons for doing so. 
Consistent with the views of several commenters, we believe that 
allowing shareholders to aggregate their securities to meet the new 
thresholds would undermine the goal of ensuring that each shareholder 
who wishes to use a company's proxy statement to advance a proposal has 
a sufficient economic stake or investment interest in the company.\89\ 
We recognize this limitation could affect the ability of shareholders 
with smaller investments to submit shareholder proposals, but as 
explained above, we believe each shareholder-proponent should have a 
meaningful ownership stake in a company before being permitted to draw 
on company resources to include a proposal in the company's proxy 
statement as well as draw on the time, attention, and other resources 
of non-proponent shareholders.\90\
---------------------------------------------------------------------------

    \88\ Shareholders whose shares are held in joint tenancy may 
submit proposals individually or jointly. However, the one-proposal 
limit will apply collectively to all persons having an interest in 
the same shares. See Adoption of Amendments Relating to Proposals by 
Security Holders, Release No. 34-12999 (Nov. 22, 1976) [41 FR 52994 
(Dec. 3, 1976)] (``1976 Adopting Release'').
    \89\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Exxon Mobil Corporation dated February 3, 2020; International 
Bancshares Corporation dated January 23, 2020; Manhattan Institute 
for Policy Research dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020.
    \90\ In articulating the need for an ownership requirement in 
prior releases, the Commission has explained that shareholders who 
submit proposals should have a specified ``economic stake'' or 
``investment interest'' in the company. See 1983 Adopting Release, 
supra note 2. See also Amendments to Rules on Shareholder Proposals, 
Release No. 34-39093 (Sep. 18, 1997) [62 FR 50682 (Sep. 26, 1997)] 
(noting that ``[o]ne purpose of the requirement is to curtail abuse 
of the rule by requiring that those who put the company and other 
shareholders to the expense of including a proposal in proxy 
materials have had a continuous investment interest in the 
company.''). In parts of this release, we use ``ownership stake'' in 
lieu of ``economic stake'' because we believe an ownership stake 
represents a type of economic stake.
---------------------------------------------------------------------------

    Moreover, we do not agree with the commenter who suggested that a 
group of shareholders that collectively, but not individually, 
satisfies an ownership requirement is functionally the same as a single 
shareholder that satisfies the requirement.\91\ Although the total 
dollar amount may be the same under either scenario, we do not believe 
that group ownership (where each member of the group does not 
individually satisfy one of the ownership requirements) represents an 
equivalent economic stake or investment interest as a single 
shareholder who satisfies the ownership requirements. Accordingly, we 
do not believe a group comprising shareholders, where each member of 
the group does not individually satisfy one of the ownership 
requirements, will have demonstrated a sufficient ownership interest to 
be eligible to submit a proposal. For similar reasons, we do not agree 
with commenters who suggested that aggregated holdings are indicative 
of a long-term investment interest,\92\ or that a proposal submitted by 
a group of shareholders aggregating their holdings is ``more worthy of 
consideration'' than a proposal submitted by a single shareholder.\93\ 
In our view, the more relevant consideration for these purposes is not 
the number of shareholder-proponents, but rather, whether each such 
proponent has a meaningful economic stake in the company. Accordingly, 
aggregation will not be permitted under the final amendments.\94\
---------------------------------------------------------------------------

    \91\ See letter from Tom Shaffner dated December 17, 2019.
    \92\ See letter from First Affirmative Financial Network, LLC 
dated January 24, 2020.
    \93\ See letter from Tom Shaffner dated December 17, 2019.
    \94\ We do not agree with the commenter who suggested that the 
amendment is premature and that we should first study the effects of 
the new ownership thresholds. See letter from Professor James D. Cox 
et al. dated February 2, 2020. As stated above, we do not believe 
that group ownership (where the group comprises shareholders none of 
whom individually meets one of the ownership requirements) 
represents a sufficient economic or investment interest to require 
inclusion of a proposal in a company's proxy statement. This view 
applies regardless of how frequently shareholders might elect to 
aggregate and, therefore, we do not believe it is necessary to first 
study the effects of the new ownership thresholds prior to adopting 
the amendment. We also do not agree with this and another 
commenter's suggestion that the amendment is at odds with other 
aspects of corporate and/or securities laws under which aggregation 
of holdings is permitted or required. We note that the primary 
examples cited by the commenter were the subject of a 5% ownership 
requirement, whereas the ownership requirements under the amended 
thresholds are considerably lower--i.e., $2,000, $15,000, and 
$25,000. In light of the relatively low ownership requirements under 
the amendment, we do not believe the ability to aggregate is 
necessary or appropriate. As previously stated, aggregate holdings 
at these ownership levels would not represent a sufficient economic 
or investment interest and could undermine the purpose of the 
ownership requirement. In addition, we do not agree with the 
commenter's suggestion that the amendment is inconsistent with the 
beneficial ownership provisions under the federal securities laws, 
which, among other things, require any ``group'' of beneficial 
holders owning more than five percent of a security registered under 
Section 12 of the Exchange Act to file a Schedule 13D or Schedule 
13G. We note that the objectives of the beneficial ownership 
reporting requirements fundamentally differ from those of the 
shareholder-proposal rule.

---------------------------------------------------------------------------

[[Page 70249]]

iv. Lead-Filer Designation
    Although shareholders will not be able to aggregate their holdings 
under the amendment, they will continue to be permitted to co-file 
proposals as a group if each shareholder-proponent in the group meets 
an eligibility requirement.\95\ However, we are not adopting rules 
requiring co-filers to identify a lead filer or specify whether the 
lead filer is authorized to negotiate a withdrawal on behalf of the co-
filers. As several commenters observed, such a requirement does not 
appear necessary at this time as co-filers already tend to designate a 
lead filer.\96\ Nevertheless, we continue to believe that, as a best 
practice, co-filers should clearly state in their initial submittal 
letter to the company that they are co-filing the proposal with other 
proponents and identify the lead filer, specifying whether such lead 
filer is authorized to negotiate with the company and withdraw the 
proposal on behalf of the other co-filers.\97\
---------------------------------------------------------------------------

    \95\ Under Section 13(d) and Section 13(g), a ``group'' is 
formed when two or more persons act together for the purpose of 
acquiring, holding, voting, or disposing of the securities. Congress 
created the ``group'' concept to prevent persons who seek to pool 
their voting or other interests in the securities of an issuer from 
evading the Section 13(d) or 13(g) obligations because no one person 
owns more than five percent of the securities. To the extent co-
filers are acting together (or in concert with others) for the 
purpose of voting in favor of their proposals they should consider 
whether such activity constitutes a ``group'' for purposes of 
Section 13(d) and Section 13(g).
    \96\ See letters from Local Authority Pension Fund Forum dated 
February 3, 2020; New York State Comptroller dated February 3, 2020.
    \97\ We remind co-filers that ambiguities in the nature of 
coordination on a proposal's submission could prompt companies to 
seek exclusion under Rule 14a-8(i)(11). Specifically, if two or more 
shareholder-proponents submit substantially duplicative proposals 
but fail to clearly indicate that they intend to co-file or co-
sponsor the proposal, the later-received proposal may be susceptible 
to exclusion under Rule 14a-8(i)(11).
---------------------------------------------------------------------------

B. Proposals Submitted on Behalf of Shareholders

1. Proposed Rule Amendment
    We proposed to add a new eligibility requirement to Rule 14a-8 that 
would require shareholders that use a representative to submit a 
proposal for inclusion in a company's proxy statement to provide 
documentation that:
     Identifies the company to which the proposal is directed;
     Identifies the annual or special meeting for which the 
proposal is submitted;
     Identifies the shareholder-proponent and the designated 
representative;
     Includes the shareholder's statement authorizing the 
designated representative to submit the proposal and/or otherwise act 
on the shareholder's behalf;
     Identifies the specific proposal to be submitted;
     Includes the shareholder's statement supporting the 
proposal; and
     Is signed and dated by the shareholder.
2. Comments on the Proposed Rule Amendment
    The proposed amendment generated a wide range of responses. Some 
commenters expressed the view that the proposed requirements were 
appropriate,\98\ while others opposed them.\99\ Several commenters 
stated that the proposed representations would help clarify the 
relationship between the shareholder-proponent and the representative 
with minimal burden to shareholders.\100\ Other commenters recommended 
adding additional informational requirements regarding a shareholder-
proponent's motives for submitting a proposal.\101\ One of these 
commenters suggested revisions to the rule text that would require: (i) 
The proposal text to be embedded in the authorization letter, (ii) the 
shareholder-proponent to sign the authorization letter no later than 
the date the proposal is submitted, and (iii) the authorization letter 
to specify that the representative is authorized to revise the proposal 
and/or supporting statement.\102\ Several commenters stated that 
representatives should not be permitted to submit proposals on behalf 
of shareholders, although two of these commenters seemed supportive of 
the proposed requirements in the absence of such a prohibition.\103\
---------------------------------------------------------------------------

    \98\ See letters from British Columbia Investment Management 
Corporation dated February 3, 2020; Business Roundtable dated 
February 3, 2020; Center for Capital Markets Competitiveness dated 
January 31, 2020; CFA Institute dated February 3, 2020; Corporate 
Governance Coalition for Investor Value dated February 3, 2020; 
Exxon Mobil Corporation dated February 3, 2020; General Motors 
Company dated February 25, 2020; Nareit dated February 3, 2020; 
Nasdaq, Inc. dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020; School Sisters of Notre Dame 
Cooperative Investment Fund received January 24, 2020; Tom Shaffner 
dated December 17, 2019; Sisters of the Order of St. Dominic dated 
January 24, 2020; Southwestern Energy Company dated February 3, 
2020.
    \99\ See letters from AFL-CIO dated February 3, 2020; Boston 
Trust Walden et al. dated January 27, 2020; CalPERS dated February 
3, 2020; Council of Institutional Investors dated January 30, 2020; 
Figure 8 Investment Strategies dated January 31, 2020; Illinois 
State Treasurer dated January 16, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; Local Authority Pension Fund Forum 
dated February 3, 2020; James McRitchie dated February 2, 2020; Paul 
M. Neuhauser dated February 3, 2020; New York City Comptroller dated 
February 3, 2020; North Berkeley Wealth Management dated January 31, 
2020; Shareholder Rights Group dated March 18, 2020; State Board of 
Administration of Florida dated February 3, 2020; John Taylor dated 
November 14, 2019; Trillium Asset Management dated February 3, 2020; 
Worker Owner Council of the Northwest dated February 3, 2020.
    \100\ See letters from Business Roundtable dated February 3, 
2020; CFA Institute dated February 3, 2020; Nasdaq, Inc. dated 
February 3, 2020.
    \101\ See letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Corporate Governance 
Coalition for Investor Value dated February 3, 2020; Nareit dated 
February 3, 2020; Southwestern Energy Company dated February 3, 
2020.
    \102\ See letter from Southwestern Energy Company dated February 
3, 2020.
    \103\ See letters from CT Hagberg LLC dated February 3, 2020; 
Exxon Mobil Corporation dated February 3, 2020; Nasdaq, Inc. dated 
February 3, 2020.
---------------------------------------------------------------------------

    Of commenters that were opposed to the proposed amendment, several 
expressed the view that the proposed informational requirements could 
interfere with the principles of agency under state law and/or a 
representative's ability to carry out its fiduciary duties.\104\ For 
example, some commenters expressed concern that the proposed amendment 
would intrude on the agency relationship by requiring the shareholder-
proponent to pre-authorize the form and content of a shareholder 
proposal prior to its submission,\105\ or by requiring written 
authorization that

[[Page 70250]]

is not required under state law.\106\ Some commenters also stated that 
an amendment requiring this information is unnecessary because the 
information is often already provided.\107\ Commenters also raised 
concerns about the effects the proposed requirements could have on 
entities, such as asset managers, that must act through agents.\108\
---------------------------------------------------------------------------

    \104\ See, e.g., letters from AFL-CIO dated February 3, 2020; As 
You Sow dated February 3, 2020; CalPERS dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Figure 8 
Investment Strategies dated January 31, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020; International 
Brotherhood of Teamsters dated February 3, 2020; Worker Owner 
Council of the Northwest dated February 3, 2020.
    \105\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Boston Trust Walden et al. dated January 27, 2020; Shareholder 
Rights Group dated March 18, 2020.
    \106\ See, e.g., letter from AFL-CIO dated February 3, 2020.
    \107\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
CalPERS dated February 3, 2020; James McRitchie dated February 2, 
2020.
    \108\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
International Brotherhood of Teamsters dated February 3, 2020; 
International Corporate Governance Network dated December 4, 2019; 
Paul M. Neuhauser dated February 3, 2020; New York City Comptroller 
dated February 3, 2020.
---------------------------------------------------------------------------

    In response to a request for comment, two commenters stated that a 
representative's ability to deliver evidence of the shareholder-
proponent's ownership sufficiently demonstrates the representative's 
authority to submit a proposal on a shareholder's behalf,\109\ while 
two others stated that it does not sufficiently demonstrate such 
authorization.\110\
---------------------------------------------------------------------------

    \109\ See letters from Council of Institutional Investors dated 
January 30, 2020; James McRitchie dated February 2, 2020.
    \110\ See letters from Exxon Mobil Corporation dated February 3, 
2020; Southwestern Energy Company dated February 3, 2020.
---------------------------------------------------------------------------

3. Final Rule Amendment
    We are adopting the amendment as proposed, but with a modification 
in response to commenters that clarifies that the shareholder-proponent 
must identify the specific topic of the proposal, rather than the 
specific language of the proposal, to be submitted. The rule will 
require shareholders that use a representative to submit a proposal for 
inclusion in a company's proxy statement to provide documentation that:
     Identifies the company to which the proposal is directed;
     Identifies the annual or special meeting for which the 
proposal is submitted;
     Identifies the shareholder submitting the proposal and the 
shareholder's designated representative;
     Includes the shareholder's statement authorizing the 
designated representative to submit the proposal and otherwise act on 
the shareholder's behalf;
     Identifies the specific topic of the proposal to be 
submitted;
     Includes the shareholder's statement supporting the 
proposal; and
     Is signed and dated by the shareholder.
    As discussed in the Proposing Release, companies receive proposals 
under Rule 14a-8 from individuals and entities that may not qualify to 
submit proposals at a particular company in their own name, but arrange 
to serve as a representative to submit a proposal on behalf of 
individuals or entities that have held a sufficient number of shares 
for the requisite amount of time.\111\
---------------------------------------------------------------------------

    \111\ See Proposing Release at 66465-66466.
---------------------------------------------------------------------------

    We also understand that shareholders may wish to use a 
representative for a number of reasons, including to obtain assistance 
from someone who has more experience with the shareholder-proposal 
process or as a matter of administrative convenience. Often, the 
shareholder has an established relationship with the representative 
(e.g., the shareholder has previously used the representative to submit 
proposals on his or her behalf, or the representative serves as the 
shareholder's investment adviser). In practice, the representative 
typically submits the proposal to the company on the shareholder's 
behalf along with necessary documentation, including evidence of 
ownership (typically in the form of a broker letter) and the 
shareholder's written authorization for the representative to submit 
the proposal and act on the shareholder's behalf. After the initial 
submission, the representative often speaks for and acts on the 
shareholder's behalf in connection with the matter. When a 
representative speaks and acts for a shareholder, there may be a 
question as to whether the shareholder has a genuine and meaningful 
interest in the proposal, or whether the proposal is instead primarily 
of interest to the representative, with only an acquiescent interest by 
the shareholder.\112\
---------------------------------------------------------------------------

    \112\ See, e.g., Baker Hughes Inc., SEC No-Action Letter 2016 WL 
722853 (Feb. 22, 2016) (investment adviser failed to provide 
documentation sufficient to ascertain the shareholder's identity, 
role, or interest in the proposal); Chevron Corp., SEC No-Action 
Letter 2014 WL 262988 (Apr. 4, 2014) (same).
---------------------------------------------------------------------------

    We believe that these amendments will help safeguard the integrity 
of the shareholder-proposal process and the eligibility restrictions by 
making clear that representatives are authorized to so act, and by 
providing a meaningful degree of assurance as to the shareholder-
proponent's identity, role, and interest in a proposal that is 
submitted for inclusion in a company's proxy statement. We also believe 
that these requirements will reduce some of the administrative burdens 
associated with confirming a shareholder's role in the shareholder-
proposal process and that the burden on shareholder-proponents of 
providing this information will be minimal; in fact, we note that much 
of it is often already provided.
    Although much of this information is already provided in accordance 
with staff guidance,\113\ we do not agree with commenters who suggested 
that current practices obviate the need for an amendment.\114\ We 
believe that an amendment will promote consistency among shareholder-
proponents and provide greater clarity to those seeking to rely on the 
rule. In addition, we believe it is important that the documentation 
include the shareholder's statement authorizing the designated 
representative to submit the proposal and otherwise act on the 
shareholder's behalf, as well as the shareholder's statement supporting 
the proposal, neither of which is addressed in staff guidance. At this 
time, however, we do not believe that any of the additional 
informational requirements suggested by commenters are necessary to 
demonstrate a shareholder-proponent's identity, role, and interest in a 
proposal and, accordingly, we are not adding any additional 
requirements.
---------------------------------------------------------------------------

    \113\ See Staff Legal Bulletin No. 14I (Nov. 1, 2017).
    \114\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
CalPERS dated February 3, 2020; James McRitchie dated February 2, 
2020.
---------------------------------------------------------------------------

    We do not expect these requirements will interfere with a 
shareholder-proponent's ability to use an agent, or prevent 
representatives who act as fiduciaries from carrying out their 
fiduciary duties. Although shareholder-proponents who elect to submit a 
proposal through a representative will be required to provide 
additional information about their submissions, the rule will not 
prevent them from using representatives in accordance with state law. 
Moreover, the rule's requirement to disclose this information is only a 
condition on the ability of a shareholder-proponent, under federal law, 
to submit a proposal for inclusion in a company's proxy statement. The 
rule does not substantively alter the agency relationship between a 
shareholder and a representative. Thus, we do not agree with the 
commenter who stated that the proposed amendment ``interferes with 
state agency law by requiring that shareholders provide express and 
specific authorization of the designated representative to submit a 
shareholder proposal.'' \115\ Furthermore, in response to commenters 
who suggested that the amendment would intrude on a shareholder-
proponent's ability to use an agent by requiring the shareholder-

[[Page 70251]]

proponent to pre-authorize the form and content of a shareholder 
proposal prior to its submission,\116\ we have revised the rule text to 
state that the shareholder-proponent must identify the specific topic 
(as opposed to the text) of the proposal to be submitted. Likewise, we 
do not believe that the rule will interfere with a representative's 
ability to act as a fiduciary or satisfy any applicable fiduciary 
obligations. Rather, the rule is intended to help shareholders and 
companies more clearly understand the nature and scope of the 
relationship between a shareholder-proponent and his or her 
representative.
---------------------------------------------------------------------------

    \115\ See letter from AFL-CIO dated February 3, 2020.
    \116\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Boston Trust Walden et al. dated January 27, 2020; Shareholder 
Rights Group dated March 18, 2020.
---------------------------------------------------------------------------

    In addition, we agree with those commenters who expressed the view 
that a representative's ability to obtain a broker letter from the 
shareholder's broker does not offer a sufficient degree of assurance as 
to the shareholder-proponent's identity, role, and interest in a 
proposal.\117\ Although the ability to obtain a broker letter will 
generally require the shareholder's authorization, the scope of such 
authorization may not be evident. In this situation, it may be unclear 
whether a shareholder is aware of or has authorized the submission of 
the specific proposal to a particular company. The new requirements 
will provide a greater degree of certainty with respect to these issues 
with minimal burden on the shareholder-proponent.
---------------------------------------------------------------------------

    \117\ See letters from Exxon Mobil Corporation dated February 3, 
2020; Southwestern Energy Company dated February 3, 2020.
---------------------------------------------------------------------------

    Furthermore, we are clarifying in response to commenters \118\ 
that, where a shareholder-proponent is an entity, and thus can act only 
through an agent, compliance with the amendment will not be necessary 
if the agent's authority to act is apparent and self-evident such that 
a reasonable person would understand that the agent has authority to 
act. For example, compliance generally would not be necessary where a 
corporation's CEO submits a proposal on behalf of the corporation, 
where an elected or appointed official who is the custodian of state or 
local trust funds submits a proposal on behalf of one or more such 
funds, where a partnership's general partner submits a proposal on 
behalf of the partnership, or where an adviser to an investment company 
submits a proposal on behalf of an investment company. On the other 
hand, compliance would be required where the agency relationship is not 
apparent and self-evident. For example, compliance would be required 
where an investment adviser submits a proposal on behalf of a client 
that is a shareholder. A private relationship between a third-party 
investment adviser and the adviser's client would not be apparent or 
self-evident because these private relationships are generally governed 
by private contractual arrangements where the scope of the principal-
agent relationship does not as a matter of course extend to 
representation with respect to the submission of proposals. 
Additionally, there are inherent difficulties in ascertaining the scope 
of such a relationship, as investment advisers can provide a wide range 
of services to their clients,\119\ which may or may not include 
shareholder advocacy on the client's behalf.\120\
---------------------------------------------------------------------------

    \118\ See letters from AFL-CIO dated February 3, 2020; 
International Brotherhood of Teamsters dated February 3, 2020; 
International Corporate Governance Network dated December 4, 2019; 
Paul M. Neuhauser dated February 3, 2020; New York City Comptroller 
dated February 3, 2020.
    \119\ See Regulation Best Interest: The Broker-Dealer Standard 
of Conduct, Release No. 34-86031 (June 5, 2019) [84 FR 33318 (July 
12, 2019)], at 33319.
    \120\ An investment adviser may advise multiple clients who 
submit their own shareholder proposals, as long as the adviser 
complies with the one-proposal limitation. See infra Section II.D.3.
---------------------------------------------------------------------------

C. The Role of the Shareholder-Proposal Process in Shareholder 
Engagement

1. Proposed Rule Amendment
    We proposed to amend Rule 14a-8(b) to add a shareholder engagement 
component to the current eligibility criteria, which would require a 
statement from each shareholder-proponent that he or she is able to 
meet with the company in person or via teleconference no less than 10 
calendar days, nor more than 30 calendar days, after submission of the 
shareholder proposal. Under the proposal, shareholders would also be 
required to include their contact information as well as business days 
and specific times that they are available to discuss the proposal with 
the company.
2. Comments on the Proposed Rule Amendment
    We received numerous comments on the proposed amendment regarding a 
shareholder-proponent's statement of ability to engage with the 
company. Some commenters supported the proposed amendment,\121\ while 
others opposed such a requirement.\122\ Of those that opposed the 
proposed amendment, several expressed the view that such a requirement 
would not make companies more likely to engage with shareholders.\123\ 
Some commenters also questioned the basis for and appropriateness of 
the 10 to 30 calendar-day window,\124\ or suggested that requiring a 
statement of availability would impose a burden on shareholders.\125\
---------------------------------------------------------------------------

    \121\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; CFA Institute dated February 3, 2020; Church Investor Group 
dated January 29, 2020; Energy Infrastructure Council dated February 
3, 2020; International Corporate Governance Network dated December 
4, 2019; Nareit dated February 3, 2020; Nasdaq, Inc. dated February 
3, 2020; National Association of Manufacturers dated February 3, 
2020; Pension Investment Association of Canada dated January 23, 
2020; Robeco dated January 16, 2020; Society for Corporate 
Governance dated February 3, 2020.
    \122\ See, e.g., letters from AFL-CIO dated February 3, 2020; As 
You Sow dated February 3, 2020; Boston Common Asset Management dated 
February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; 
CalPERS dated February 3, 2020; Ceres et al. dated February 3, 2020; 
John Chevedden dated January 30, 2020; Christian Brothers Investment 
Services, Inc. dated January 21, 2020; Council of Institutional 
Investors dated January 30, 2002; Figure 8 Investment Strategies 
dated January 31, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; Harrington Investments, Inc. dated February 
3, 2020; Interfaith Center on Corporate Responsibility dated January 
27, 2020; International Brotherhood of Teamsters dated February 3, 
2020; Local Authority Pension Fund Forum dated February 3, 2020; 
Maryknoll Sisters of St. Dominic, Inc. dated January 17, 2020; Paul 
M. Neuhauser dated February 3, 2020; New York City Comptroller dated 
February 3, 2020; New York State Comptroller dated February 3, 2020; 
Nia Impact Capital dated February 2, 2020; NorthStar Asset 
Management, Inc. dated February 3, 2020; Pension Investment 
Association of Canada dated January 23, 2020; Paul Rissman dated 
January 15, 2020; Rockefeller Asset Management dated January 31, 
2020; Segal Marco Advisors dated February 3, 2020; Shareholder 
Rights Group dated February 3, 2020; Singing Field Foundation dated 
January 31, 2020; State Board of Administration of Florida dated 
February 3, 2020; John Taylor dated November 14, 2019; Trillium 
Asset Management dated February 3, 2020; UAW Retiree Medical 
Benefits Trust dated January 30, 2020; Worker Owner Council of the 
Northwest dated February 3, 2020.
    \123\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; Local Authority Pension Fund Forum dated 
February 3, 2020; New York State Comptroller dated February 3, 2020; 
UAW Retiree Medical Benefits Trust dated January 30, 2020.
    \124\ See, e.g., letters from As You Sow dated February 3, 2020; 
Boston Trust Walden et al. dated January 27, 2020; Council of 
Institutional Investors dated January 30, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020.
    \125\ See, e.g., letters from Boston Trust Walden et al. dated 
January 27, 2020; John Chevedden dated January 30, 2020; UAW Retiree 
Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Several commenters raised questions about certain technical aspects 
of the proposal, such as whether the times specified for engagement 
should be during the company's normal business hours,\126\ and when the 
10 to 30

[[Page 70252]]

calendar-day period starts to run where co-filers submit their 
proposals on different dates.\127\ One commenter stated that 
shareholder-proponents should be available to discuss the proposal, but 
encouraged the Commission to provide clarity as to whether the 
shareholder-proponent must identify a minimum number of dates and/or 
times that the proponent would be available to discuss the proposal, or 
whether the dates and/or times offered must be convenient to the 
company.\128\ This commenter also suggested that a lack of clarity on 
these points could result in unnecessary no-action requests.\129\
---------------------------------------------------------------------------

    \126\ See letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Council of Institutional 
Investors dated January 30, 2020; Society for Corporate Governance 
dated February 3, 2020.
    \127\ See letter from Council of Institutional Investors dated 
January 30, 2020.
    \128\ See letter from International Corporate Governance Network 
dated December 4, 2019. Another commenter also sought clarification 
on the ramifications of a shareholder being unable to meet on one of 
the dates the shareholder identifies. See letter from Boston Trust 
Walden et al. dated January 27, 2020.
    \129\ See letter from International Corporate Governance Network 
dated December 4, 2019.
---------------------------------------------------------------------------

    A number of commenters stated that companies also should be 
required to be available to engage with the shareholder-proponent and/
or to state that they attempted to engage with the proponent prior to 
submitting a no-action request.\130\ Two commenters that were 
supportive of an engagement-related mechanism suggested that, instead 
of stating their availability to engage, shareholder-proponents should 
include a statement with their submission as to whether they attempted 
to engage with the company prior to submitting the proposal.\131\ 
Another commenter indicated that a statement of general availability 
would be preferable.\132\ Other commenters expressed the view that 
shareholder-proponents should be required to make a good-faith effort 
to meet with a company after stating their availability to engage,\133\ 
or that there should be a penalty for failing to engage.\134\ Another 
commenter suggested that where the shareholder-proponent is different 
from the lead filer, the lead filer should be required to participate 
in the engagement.\135\
---------------------------------------------------------------------------

    \130\ See letters from AFL-CIO dated February 3, 2020; CalPERS 
dated February 3, 2020; Ceres et al. dated February 3, 2020; Church 
Investor Group dated January 29, 2020; Council of Institutional 
Investors dated January 30, 2020; First Affirmative Financial 
Network, LLC dated January 24, 2020; Illinois State Treasurer dated 
January 16, 2020; International Brotherhood of Teamsters dated 
February 3, 2020; International Corporate Governance Network dated 
December 4, 2019; Local Authority Pension Fund Forum dated February 
3, 2020; Loring, Wolcott & Coolidge dated January 31, 2020; James 
McRitchie dated February 2, 2020; Mercy Investment Services dated 
January 31, 2020; New York City Comptroller dated February 3, 2020; 
NorthStar Asset Management, Inc. dated February 3, 2020; Pension 
Investment Association of Canada dated January 23, 2020; Tom 
Shaffner dated December 17, 2019; Shareholder Rights Group dated 
February 3, 2020; State Board of Administration of Florida dated 
February 3, 2020; Trillium Asset Management dated February 3, 2020; 
US SIF dated January 31, 2020; Worker Owner Council of the Northwest 
dated February 3, 2020.
    \131\ See letters from Baillie Gifford & Co. dated February 3, 
2020; Stewart Investors dated January 30, 2020.
    \132\ See letter from James McRitchie dated February 2, 2020.
    \133\ See letter from National Association of Manufacturers 
dated February 2, 2020.
    \134\ See letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Nasdaq, Inc. dated February 
3, 2020.
    \135\ See letter from Society for Corporate Governance dated 
February 3, 2020.
---------------------------------------------------------------------------

    A number of commenters expressed concern about the requirement that 
the contact information and availability be the shareholder-
proponent's, and not that of the shareholder's representative (if the 
shareholder uses a representative).\136\ Some of these commenters 
suggested that this requirement would disadvantage shareholder-
proponents who require a representative's assistance in utilizing and/
or navigating the shareholder-proposal process.\137\ Other commenters 
suggested that this requirement could have a chilling effect on 
shareholder-proposal submissions because shareholder-proponents may not 
feel comfortable engaging with companies themselves.\138\ One commenter 
also expressed concern about a shareholder's private telephone number 
or email address being made public through the no-action process.\139\ 
Another commenter indicated that the proposed amendment could 
indirectly raise costs on shareholders.\140\
---------------------------------------------------------------------------

    \136\ See letters from Emily Aldridge dated January 31, 2020; 
Jennifer Astone dated January 17, 2020; Kate Barron-Alicante dated 
January 31, 2020; Jane Bulnes-Fowles dated February 3, 2020; Brian 
Canning January 31, 2020; Harvey Christensen dated January 28, 2020; 
Christian Brothers Investment Services, Inc. dated January 21, 2020; 
Clean Yield Asset Management dated February 3, 2020; Sara Culotta 
dated February 3, 2020; Daughters of Charity of St. Vincent de Paul 
dated January 30, 2020; John Eing dated January 31, 2020; Nancy 
Faris dated January 27, 2020; First Affirmative Financial Network, 
LLC dated January 24, 2020; Global Affairs Associates, LLC dated 
February 3, 2020; Gorge Sustainable Investing dated December 27, 
2019; Green America et al. dated January 29, 2020; Patricia Hathaway 
dated January 31, 2020; Andrew Howard dated December 14, 2019; Neela 
Hummel dated January 31, 2020; Andrew Ish dated February 2, 2020; 
Brent Kessel dated January 31, 2020; Laird Norton Family Foundation 
dated January 28, 2020; Lynnea C. Lane dated February 3, 2020; James 
McRitchie dated February 2, 2020; Margaret Miars dated December 13, 
2019; Thomas Miars dated December 13, 2019; Anne Miller dated 
January 23, 2020; Laura Morganelli dated January 31, 2020; Oneida 
Trust Enrollment Committee dated February 3, 2020; Pension 
Investment Association of Canada dated January 23, 2020; Rhia 
Ventures dated January 31, 2020; Cheryl Ritenbaugh dated January 17, 
2020; Rockefeller Asset Management dated January 31, 2020; The Arntz 
Family Foundation dated January 14, 2020; The Pension Board--United 
Church of Christ, Inc. dated January 29, 2020; Upcyclers Network 
dated January 17, 2020; US SIF dated January 31, 2020; Luci Walker 
dated December 9, 2019; Barbara J. Wolf dated January 31, 2020; Ann 
W. Woll dated January 18, 2020.
    \137\ See, e.g., letters from Boston Trust Walden et al. dated 
January 27, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Singing Field Foundation dated January 31, 
2020.
    \138\ See, e.g., letters from As You Sow dated February 3, 2020; 
Paul Rissman dated January 15, 2020.
    \139\ See letter from James McRitchie dated February 2, 2020.
    \140\ See Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

3. Final Rule Amendment
    We are adopting the amendment largely as proposed, but with some 
modifications in response to comments received. We believe that 
encouraging company-shareholder engagement through this new requirement 
will be beneficial both to shareholders and to companies. As we 
explained in the Proposing Release, while Rule 14a-8 provides a means 
for shareholder-proponents to advance proposals and solicit proxies 
from other shareholders, the rule is only one of many mechanisms for 
shareholders to engage with companies and their fellow shareholders and 
to advocate for the measures they propose. While other forms of 
engagement may sometimes accomplish a shareholder's interest in 
communicating with a company and its other shareholders without the 
burdens associated with including a proposal in a company's proxy 
statement, we understand that shareholder proposals are at times used 
as the sole method of engaging with companies even if the company is 
willing to discuss, and possibly resolve, the matter with the 
shareholder.\141\ In those cases, Rule 14a-8 may result in a 
shareholder burdening other shareholders and the company with a proxy 
vote that may have been avoided had meaningful prior engagement taken 
place.\142\ We believe that having shareholder-proponents state their 
availability to discuss their proposal will facilitate dialogue between 
shareholders and companies in

[[Page 70253]]

the shareholder-proposal process, and may lead to more efficient and 
less costly resolution of these matters. Company-shareholder engagement 
can thus be an efficient alternative to the shareholder-proposal 
process. We understand that proactive company engagement with 
shareholders has increased in recent years,\143\ and that shareholders 
frequently do not submit, or ultimately withdraw, their proposals as a 
result of company-shareholder engagement.\144\
---------------------------------------------------------------------------

    \141\ We recognize that some shareholder-proponents use a 
shareholder proposal as a way to open a dialogue with management and 
not with the objective of having the matter go to a vote. See 
Transcript of the Roundtable on the Proxy Process (Nov. 15, 2018) 
(``Roundtable Transcript''), available at https://www.sec.gov/files/proxy-round-table-transcript-111518.pdf, comments of Michael 
Garland, Assistant Comptroller, Corporate Governance and Responsible 
Investment, Office of the Comptroller, New York City.
    \142\ We acknowledge that engagement outside the shareholder-
proposal process can also result in burdens on companies, but our 
rules do not mandate that such activity occur.
    \143\ See letters in response to the Proxy Process Roundtable 
from Business Roundtable dated June 3, 2019; Chevron Corporation 
dated August 20, 2019; Society for Corporate Governance dated 
November 9, 2018.
    \144\ Company-shareholder engagement with respect to shareholder 
proposals frequently leads to withdrawn proposals. See, e.g., 
letters in response to the Proxy Process Roundtable from Everence 
Financial dated December 6, 2018 (``[A]n increasing number of 
resolutions end up being withdrawn by the proponent because of 
conversations between [the proponent] and the company.''); Praxis 
Mutual Funds dated December 6, 2018 (same); Principles for 
Responsible Investment dated November 14, 2018 (``[A] growing number 
of shareholder proposals are withdrawn due to corporate management 
developing workable solutions with investors.''). See also Proposing 
Release at 66478 fig.2.
---------------------------------------------------------------------------

    Under the amendment, shareholder-proponents will be required to 
provide the company with a written statement that they are able to meet 
with the company in person or via teleconference at specified dates and 
times that are no less than 10 calendar days, nor more than 30 calendar 
days, after submission of the proposal.\145\ For example, for a 
proposal submitted on October 1, the shareholder-proponent would be 
required to identify dates of availability between October 11 and 
October 31.\146\ Although some commenters questioned the basis for this 
window of availability,\147\ we believe that it is appropriate for 
several reasons. While we recognize the point made by commenters that 
some companies may choose not to engage until after the deadline for 
submitting proposals or later,\148\ we believe that encouraging 
engagement shortly after submission can lead to swifter resolution of 
these matters and obviate the need for a no-action request. In this 
regard, we note that where a proposal is submitted at or near a 
company's deadline for receiving proposals, the company will have a 
relatively short amount of time to prepare and submit a no-action 
request.\149\ Thus, early engagement may help avoid the time and 
expense of the no-action process. Nevertheless, the amended rule will 
not permit shareholders to identify availability earlier than 10 days 
after the proposal's submission, so that the company will have 
sufficient time to consider the proposal prior to engagement taking 
place.\150\ In addition, shareholders may have a better sense of what 
their availability will be 10 to 30 days after submitting the proposal 
compared with longer periods. Moreover, shareholders have some degree 
of flexibility in choosing when to submit a proposal prior to the 
submission deadline and therefore can do so when they are more likely 
to have greater availability.
---------------------------------------------------------------------------

    \145\ The contact information and availability will have to be 
the shareholder's, and not that of the shareholder's representative 
(if the shareholder uses a representative). The amendment, however, 
does not preclude a representative from participating in any 
discussions between the company and the shareholder. The proposal's 
date of submission is the date the proposal is postmarked or 
transmitted electronically. In the event the proposal is hand 
delivered, the submission date would be the date of hand delivery.
    \146\ Companies that intend to seek exclusion under Rule 14a-
8(b) based on a shareholder-proponent's failure to provide some or 
all of this information must notify the proponent of the specific 
defect(s) within 14 calendar days of receiving the proposal so that 
the shareholder-proponent has an opportunity to cure the defect(s), 
and the shareholder-proponent is required to respond to this notice 
within 14 days. See 17 CFR 240.14a-8(f)(1). Where a company sends a 
deficiency notice for the purpose of requesting identification of a 
shareholder-proponent's availability to engage, the shareholder-
proponent must identify dates of the shareholder-proponent's 
availability that are within the remaining 10- to 30-day window. For 
example, where a proposal is submitted on October 1, the company's 
deficiency notice is received by the shareholder-proponent on 
October 15, and the shareholder-proponent responds to the deficiency 
notice by email on October 20, the shareholder-proponent would be 
required to identify business days between October 21 and October 31 
that the shareholder-proponent is available to discuss the proposal.
    \147\ See, e.g., letters from As You Sow dated February 3, 2020; 
Boston Trust Walden et al. dated January 27, 2020; Council of 
Institutional Investors dated January 30, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020; New York City 
Comptroller dated February 3, 2020.
    \148\ See, e.g., letters from Boston Trust Walden et al. dated 
January 27, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; UAW Retiree Medical Benefits Trust dated 
January 30, 2020.
    \149\ For a regularly-scheduled meeting, the deadline for 
submitting proposals is ``120 calendar days before the date of the 
company's proxy statement released to shareholders in connection 
with the previous year's annual meeting.'' See 17 CFR 240.14a-
8(e)(2). A company that intends to exclude a proposal ``must file 
its reasons with the Commission no later than 80 calendar days 
before it files its definitive proxy statement and form of proxy 
with the Commission.'' If a proposal is received at or near the 120-
day deadline and the company intends to file its definitive proxy 
statement at or near the anniversary of the prior year's proxy 
filing date, the company will generally have approximately 40 days 
from receiving the proposal to notify the Commission of its 
intention to exclude the proposal.
    \150\ Although the rule will require shareholder-proponents to 
identify their availability within the 10- to 30-day window, the 
parties can arrange to engage on a date that is not within that 
window.
---------------------------------------------------------------------------

    Shareholder-proponents will also be required to provide their 
contact information \151\ and identify specific business days and times 
(i.e., more than one date and time) that they are available to discuss 
the proposal.\152\ In response to commenters, we are modifying the 
final rule to clarify that the times specified should be during the 
regular business hours of the company's principal executive 
offices.\153\ If these hours are not disclosed in the company's proxy 
statement,\154\ the shareholder-proponent should identify times between 
9:00 a.m. and 5:30 p.m. on business days in the time zone of the 
company's principal executive offices. If a company is not available to 
engage with the shareholder-proponent on the specific date(s) or 
time(s) originally identified by the shareholder-proponent, engagement 
may take place at a different date and/or time, provided that it is 
acceptable to both the shareholder-proponent and company. If the 
shareholder-proponent's availability changes, the company should be 
notified and alternative date(s) and time(s) should be provided to the 
company.
---------------------------------------------------------------------------

    \151\ In response to one commenter's concern regarding the 
potential for a shareholder's private contact information to be made 
publicly available through the no-action process, see letter from 
James McRitchie dated February 2, 2020, we note that Commission 
staff removes personally identifiable information from no-action 
requests and related correspondence before making these materials 
publicly available on the Commission's website.
    \152\ Where shareholders elect to co-file a proposal, all co-
filers must either: (1) Agree to the same dates and times of 
availability or (2) identify a single lead filer who will provide 
dates and times of the lead filer's availability to engage on behalf 
of all co-filers.
    \153\ See letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Council of Institutional 
Investors dated January 30, 2020; Society for Corporate Governance 
dated February 3, 2020.
    \154\ The Commission's proxy rules do not require issuers to 
disclose this information, but companies may choose to do so to 
facilitate shareholder engagement with respect to shareholder 
proposals. If an issuer chooses to disclose this information, we 
suggest that it appear alongside the deadline for submitting 
proposals.
---------------------------------------------------------------------------

    We do not agree with the commenter who suggested that providing a 
general statement of the shareholder-proponent's availability would be 
preferable to identifying specific dates and times.\155\ While a 
general statement of availability could indicate a shareholder-
proponent's willingness to engage, the identification of specific dates 
and times would add certainty as to the shareholder-proponent's 
availability, and we believe that engagement may be more likely to 
occur where the company knows the

[[Page 70254]]

shareholder-proponent's availability in advance.
---------------------------------------------------------------------------

    \155\ See letter from James McRitchie dated February 2, 2020.
---------------------------------------------------------------------------

    The contact information and availability must be the shareholder-
proponent's, and not that of the shareholder's representative, if 
any.\156\ We do not agree with commenters who suggested that this 
requirement will disadvantage shareholder-proponents who require a 
representative's assistance in navigating the shareholder-proposal 
process.\157\ We believe that a shareholder-proponent who elects to 
require a company to include a proposal in its proxy statement, 
requiring the company and other shareholders to bear the related costs, 
should be willing and available to discuss the proposal with the 
company and not simply rely on its representative to do so. At least 
one commenter suggested that shareholders could incur greater costs as 
a result of the proposed amendment,\158\ but we believe any cost will 
be de minimis given that engagement can take place through inexpensive 
means, such as teleconference calls.
---------------------------------------------------------------------------

    \156\ Where a shareholder-proponent is an entity, and thus can 
act only through an agent, and the agent's authority to act is 
apparent and self-evident such that a reasonable person would 
understand that the agent has authority to act on the entity's 
behalf, the contact information and availability may be that of the 
agent. Cf. supra Section II.B.3.
    \157\ See, e.g., letters from Boston Trust Walden et al. dated 
January 27, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Singing Field Foundation dated January 31, 
2020.
    \158\ See Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

    We also believe that the ability to engage directly with the 
shareholder-proponent may encourage greater dialogue between the 
shareholder and the company, and may lead to more efficient and less 
costly resolution of these matters. As explained in the Proposing 
Release, however, shareholder-proponents may seek assistance and advice 
from lawyers, investment advisers, or others to help them draft 
shareholder proposals and navigate the shareholder-proposal 
process.\159\ The shareholder-proponent's representative also may 
participate in any discussions between the company and the 
shareholder.\160\ Thus, shareholder-proponents will be able to continue 
to seek and utilize the assistance of a representative.
---------------------------------------------------------------------------

    \159\ See Proposing Release at 66468.
    \160\ See supra note 145.
---------------------------------------------------------------------------

    Other than providing the clarifications discussed above, we are not 
making any changes to what we proposed. For example, we are not 
adopting a requirement suggested by commenters that shareholder-
proponents include a statement with their submission as to whether they 
attempted to engage with the company prior to submitting the 
proposal.\161\ The company will already know whether the shareholder 
attempted to engage prior to submission and the statement suggested by 
the commenter would not be available to other shareholders. Thus, there 
would be minimal value associated with providing such a statement.\162\ 
To the extent engagement takes place prior to a proposal's submission, 
the new rule will encourage further dialogue between the shareholder-
proponent and company after submission. In addition, although some 
commenters stated that shareholders should be required to make a good-
faith effort to meet with a company after stating their availability to 
engage,\163\ or that there should be a penalty for failing to 
engage,\164\ the rule will not impose requirements governing specific 
engagement activities between the shareholder-proponent and the 
company.
---------------------------------------------------------------------------

    \161\ See letters from Baillie Gifford & Co. dated February 3, 
2020; Stewart Investors dated January 30, 2020.
    \162\ One commenter expressed the view that this information 
``would allow other shareholders to assess the attitude of the 
proponent and the company to the issue and to engagement 
generally.'' See letter from Baillie Gifford & Co. dated February 3, 
2020. However, it is unclear how other shareholders would learn of 
this information absent imposing a new disclosure requirement on 
issuers, which we are not inclined to do at this time.
    \163\ See letter from National Association of Manufacturers 
dated February 2, 2020.
    \164\ See letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; Nasdaq, Inc. dated February 
3, 2020.
---------------------------------------------------------------------------

    Under the new rule, companies will not be required to engage with a 
shareholder-proponent or to state that they attempted to engage with 
the shareholder-proponent prior to submitting a no-action request, as 
some commenters suggested.\165\ Because companies and their 
shareholders bear the burdens associated with including a shareholder 
proposal in their proxy materials, or seeking no-action relief to 
exclude such proposals, we believe companies are sufficiently 
incentivized to pursue less costly forms of engagement.
---------------------------------------------------------------------------

    \165\ See letters from AFL-CIO dated February 3, 2020; CalPERS 
dated February 3, 2020; Ceres et al. dated February 3, 2020; Church 
Investor Group dated January 29, 2020; Council of Institutional 
Investors dated January 30, 2020; First Affirmative Financial 
Network, LLC dated January 24, 2020; Illinois State Treasurer dated 
January 16, 2020; International Brotherhood of Teamsters dated 
February 3, 2020; International Corporate Governance Network dated 
December 4, 2019; Local Authority Pension Fund Forum dated February 
3, 2020; Loring, Wolcott & Coolidge dated January 31, 2020; James 
McRitchie dated February 2, 2020; Mercy Investment Services dated 
January 31, 2020; New York City Comptroller dated February 3, 2020; 
NorthStar Asset Management, Inc. dated February 3, 2020; Pension 
Investment Association of Canada dated January 23, 2020; Tom 
Shaffner dated December 17, 2019; Shareholder Rights Group dated 
February 3, 2020; State Board of Administration of Florida dated 
February 3, 2020; Trillium Asset Management dated February 3, 2020; 
US SIF dated January 31, 2020; Worker Owner Council of the Northwest 
dated February 3, 2020.
---------------------------------------------------------------------------

    In light of a shareholder-proponent's election to use a company's 
proxy statement and other resources to solicit proxies for his or her 
proposal, we believe it is appropriate to require shareholder-
proponents to state their availability to discuss the proposal with the 
company. Although some commenters questioned whether such a requirement 
would make it more likely that companies would choose to engage with 
shareholders,\166\ we believe that the amendment is likely to eliminate 
certain frictions in the engagement process, thereby making it easier 
for companies to contact shareholders and, in turn, increasing the 
likelihood that engagement will occur.
---------------------------------------------------------------------------

    \166\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; Local Authority Pension Fund Forum dated 
February 3, 2020; New York State Comptroller dated February 3, 2020.
---------------------------------------------------------------------------

D. One-Proposal Limit

1. Proposed Rule Amendment
    We proposed an amendment to Rule 14a-8(c) to apply the one-proposal 
rule to ``each person'' rather than ``each shareholder'' who submits a 
proposal, so that the amended rule would state, ``Each person may 
submit no more than one proposal, directly or indirectly, to a company 
for a particular shareholders' meeting. A person may not rely on the 
securities holdings of another person for the purpose of meeting the 
eligibility requirements and submitting multiple proposals for a 
particular shareholders' meeting.'' In the Proposing Release, we 
explained that under the proposed amendment, a shareholder-proponent 
would not be permitted to submit one proposal in its own name and 
simultaneously serve as a representative to submit a different proposal 
on another shareholder's behalf for consideration at the same meeting. 
Similarly, we explained that a representative would not be permitted to 
submit more than one proposal to be considered at the same meeting, 
even if the representative were to submit each proposal on behalf of 
different shareholders.
2. Comments on the Proposed Rule Amendment
    We received a number of comments on the proposed rule amendment. 
Commenters that expressed support for the proposed amendment indicated 
that such an amendment is necessary to

[[Page 70255]]

prevent proponents from avoiding the one-proposal limit by submitting 
proposals on behalf of other shareholders.\167\ However, a number of 
commenters that opposed the proposed amendment stated that it would 
interfere with a shareholder's ability to use a representative under 
state law and/or interfere with a representative's ability to 
effectively represent its clients.\168\ For example, some of these 
commenters stated that the proposed amendment could prevent a 
shareholder-proponent from using his or her preferred representative if 
that representative has already submitted a proposal to the same 
company on behalf of another client,\169\ prevent a representative from 
being able to represent a client in the shareholder-proposal 
process,\170\ raise costs for shareholder-proponents,\171\ or affect 
the competitive advantage of representatives that specialize in active 
engagement.\172\ Another commenter stated that the proposed amendment 
``may limit the ability of institutional investors to select the agent 
of their own choosing to represent them for shareholder engagement 
purposes.'' \173\
---------------------------------------------------------------------------

    \167\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Senator Kevin Cramer dated July 28, 2020; Energy 
Infrastructure Council dated February 3, 2020; Exxon Mobil 
Corporation dated February 3, 2020; General Motors Company dated 
February 25, 2020; International Bancshares Corporation dated 
January 23, 2020; Manhattan Institute for Policy Research dated 
February 3, 2020; Nareit dated February 3, 2020; Nasdaq, Inc. dated 
February 3, 2020; National Association of Manufacturers dated 
February 3, 2020; Robeco dated January 16, 2002; Society for 
Corporate Governance dated February 3, 2020.
    \168\ See letters from AFL-CIO dated February 3, 2020; Emily 
Aldridge dated January 31, 2020; American Baptist Home Mission 
Societies dated January 31, 2020; Jennifer Astone dated January 17, 
2020; As You Sow dated February 3, 2020; Kate Barron-Alicante dated 
January 31, 2020; Boston Trust Walden et al. dated January 31, 2020; 
Boston Trust Walden et al. dated January 27, 2020; British Columbia 
Investment Management Corporation dated February 3, 2020; Jane 
Bulnes-Fowles dated February 3, 2020; CalPERS dated February 3, 
2020; Brian Canning dated January 31, 2020; Ceres et al. dated 
February 3, 2020; Christian Brothers Investment Services, Inc. dated 
January 21, 2020; Colorado Public Employees' Retirement Association 
dated February 3, 2020; Professor James D. Cox, et al. dated 
February 2, 2020; East Bay Municipal Utility District Employees' 
Retirement System dated January 15, 2020; John Eing dated January 
31, 2020; Harold Erdman dated February 3, 2020; Figure 8 Investment 
Strategies dated January 31, 2020; Franciscan Sisters of Allegany, 
NY dated January 29, 2020; Global Affairs Associates, LLC dated 
February 3, 2020; Harrington Investments, Inc. dated February 3, 
2020; Neela Hummel dated January 31, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020; International 
Brotherhood of Teamsters dated February 3, 2020; Andrew Ish dated 
February 2, 2020; Jayce Jordan dated January 17, 2020; Brent Kessel 
dated January 31, 2020; Laird Norton Family Foundation dated January 
28, 2020; Local Authority Pension Fund Forum dated February 3, 2020; 
James McRitchie dated February 2, 2020; James McRitchie dated July 
21, 2020; Mercy Investment Services, Inc. dated January 31, 2020; 
Laura Morganelli dated January 31, 2020; National Conference on 
Public Employee Retirement Systems dated February 3, 2020; Paul M. 
Neuhauser dated February 3, 2020; North American Securities 
Administrators Association, Inc. dated February 3, 2020; Pension 
Investment Association of Canada dated January 23, 2020; PNM 
Shareholders for a Responsible Future dated February 3, 2020; Paul 
Rissman dated January 15, 2020; Cheryl Ritenbaugh dated January 17, 
2020; School Sisters of Notre Dame Cooperative Investment Fund 
received January 24, 2020; Segal Marco Advisors dated February 3, 
2020; Shareholder Rights Group dated February 3, 2020; Sisters of 
St. Ursula dated January 23, 2020; Sisters of the Order of St. 
Dominic dated January 24, 2020; State Board of Administration of 
Florida dated February 3, 2020; The Arntz Family Foundation dated 
January 15, 2020; The Pension Board--United Church of Christ, Inc. 
dated January 29, 2020; Trillium Asset Management dated February 3, 
2020; Upcyclers Network dated January 17, 2020; Barbara J. Wolf 
dated January 31, 2020; Ann W. Woll dated January 18, 2020. See also 
Recommendation of the IAC, supra note 18.
    \169\ See letters from AFL-CIO dated February 3, 2020; Boston 
Trust Walden et al. dated January 27, 2020; Professor James D. Cox 
et al. dated February 2, 2020; James McRitchie dated February 2, 
2020; Paul M. Neuhauser dated February 3, 2020; Shareholder Rights 
Group dated June 10, 2020.
    \170\ See letters from Segal Marco Advisors dated February 3, 
2020; Trillium Asset Management dated February 3, 2020.
    \171\ See letters from Tom Shaffner dated December 17, 2019; 
Trillium Asset Management dated February 3, 2020. See also 
Recommendation of the IAC, supra note 18.
    \172\ See letter from Shareholder Rights Group dated February 3, 
2020.
    \173\ See Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

    Other commenters sought clarification with respect to the proposed 
rule's intended operation, or suggested modifications to the proposed 
amendments. For example, some commenters questioned whether the 
proposal would affect a representative's ability to present proposals 
on behalf of multiple shareholder-proponents at the shareholder 
meeting.\174\ One of these commenters also sought clarification on 
whether the proposed rule's reference to ``person'' means a natural 
person or encompasses discrete entities made up of or employing 
multiple natural persons, and whether co-filers of a single proposal 
would be precluded from using the same representative.\175\ Another 
commenter suggested a modification to the proposed amendment that would 
require shareholders to certify that a proposal was submitted of their 
own accord and not at the request or solicitation of a representative 
that already submitted (or is considering submitting) a proposal to the 
same company.\176\ This commenter stated that ``[s]uch a certification 
would provide greater assurance that representatives are not actively 
soliciting multiple proposals and reduce the chances for abuse.'' \177\
---------------------------------------------------------------------------

    \174\ See letters from AFL-CIO dated February 3, 2020; As You 
Sow dated February 3, 2020; Boston Trust et al. Walden dated January 
31, 2020; CalPERS dated February 3, 2020; Domini Impact Investments 
dated February 3, 2020; New York City Comptroller dated February 3, 
2020; New York State Comptroller dated February 3, 2020; PNM 
Shareholders for a Responsible Future dated February 3, 2020; 
Shareholder Rights Group dated February 3, 2020; Unitarian 
Universalist Association dated January 28, 2020.
    \175\ See letter from Boston Trust Walden et al. dated January 
27, 2020.
    \176\ See letter from Society for Corporate Governance dated 
February 3, 2020.
    \177\ Id.
---------------------------------------------------------------------------

3. Final Rule Amendment
    We are adopting the amendment as proposed. As the Commission 
explained when it adopted the one-proposal restriction in 1976, the 
submission of multiple proposals by a single proponent ``constitute[s] 
an unreasonable exercise of the right to submit proposals at the 
expense of other shareholders'' and also may ``tend to obscure other 
material matters in the proxy statement of issuers, thereby reducing 
the effectiveness of such documents.'' \178\ At the time the one-
proposal limitation was adopted, the Commission explained that it was 
``aware of the possibility that some proponents may attempt to evade 
the new limitations through various maneuvers, such as having other 
persons whose securities they control submit . . . proposals each in 
their own names.'' \179\ To combat this type of abuse, the Commission 
clarified that the limitation ``will apply collectively to all persons 
having an interest in the same securities (e.g., the record owner and 
the beneficial owner, and joint tenants).'' \180\
---------------------------------------------------------------------------

    \178\ See 1976 Adopting Release, supra note 88.
    \179\ Id.
    \180\ Id. This limitation will continue to apply under the 
adopted amendments.
---------------------------------------------------------------------------

    We continue to believe that this one-proposal limit is appropriate. 
In our view, the Commission's stated reasoning for the one-proposal 
limit applies equally to representatives who submit proposals on behalf 
of shareholders they represent. We believe permitting representatives 
to submit multiple proposals for the same shareholders' meeting can 
give rise to the same concerns about the expense and obscuring effect 
of including multiple proposals in the company's proxy materials, 
thereby undermining the purpose of the one-proposal limit.
    Accordingly, the new rule will state that each person may submit no 
more than one proposal, directly or indirectly, to a company for a 
particular shareholders' meeting. It also will state that a person may 
not rely on the securities holdings of another person for

[[Page 70256]]

the purpose of meeting the eligibility requirements and submitting 
multiple proposals for a particular shareholders' meeting. Under the 
new rule, a shareholder-proponent will not be permitted to submit one 
proposal in his or her own name and simultaneously serve as a 
representative to submit a different proposal on another shareholder's 
behalf for consideration at the same meeting. Likewise, a 
representative will not be permitted to submit more than one proposal 
to be considered at the same meeting, even if the representative were 
to submit each proposal on behalf of different shareholders. Using the 
rule in this way undermines the one-proposal limit. The amended rule 
text will more effectively apply the one-proposal limit to shareholders 
and representatives of shareholders.
    While some commenters expressed concern about the effect the 
amended rule could have on a shareholder's ability to use a 
representative or a representative's ability to effectively represent 
its clients,\181\ the amendment is not intended to prevent shareholders 
from seeking assistance and advice from lawyers, investment advisers, 
or others to help them draft shareholder proposals and navigate the 
shareholder-proposal process, nor do we believe it would interfere with 
a representative's ability to effectively represent its clients. The 
ability to provide such assistance to more than one shareholder is not 
affected. However, to the extent that the provider of such services 
submits a proposal, either as a proponent or as a representative, it 
will be subject to the one-proposal limit and will not be permitted to 
submit more than one proposal in total to the same company for the same 
meeting. In addition, we do not believe, as suggested by 
commenters,\182\ that the amended rule will raise costs to a meaningful 
degree for shareholder-proponents or otherwise unduly restrict their 
options in selecting a representative because, while in some cases 
shareholder-proponents may need to submit a proposal on their own, they 
can otherwise enjoy all of the benefits of being represented by a 
representative of their choosing. For example, if a shareholder's 
representative of choice is unable to submit a proposal for the 
shareholder, because it has already made a submission on behalf of 
another client, the representative could still assist the shareholder 
with drafting the proposal, advising on steps in the submission 
process, and engaging with the company. For similar reasons, we do not 
agree that the rule will affect the competitive advantage of 
representatives that specialize in active engagement.\183\ Nor do we 
agree that state agency law should govern the number of proposals a 
representative may submit on behalf of proponents when proponents and 
agents seek to make use of the opportunities afforded by the federal 
proxy rules.\184\
---------------------------------------------------------------------------

    \181\ See supra note 168.
    \182\ See letter from Trillium Asset Management dated February 
3, 2020. See also Recommendation of the IAC, supra note 18.
    \183\ Cf. letter from Shareholder Rights Group dated February 3, 
2020.
    \184\ See letter from CalPERS dated February 3, 2020.
---------------------------------------------------------------------------

    Some commenters questioned whether the amendment, which addresses 
the submission of proposals, would affect a representative's ability to 
present proposals on behalf of multiple shareholder-proponents at the 
same shareholders' meeting.\185\ In order for shareholder-proponents 
who have submitted a proposal for inclusion in a company's proxy 
statement to remain eligible to do so at the same company within the 
following two years, shareholder-proponents must appear at the meeting 
and present their proposal.\186\ However, a shareholder-proponent may 
satisfy this requirement by employing a representative who is qualified 
under state law to present the proposal on the proponent's behalf. The 
amendment is not intended to limit a representative's ability to 
present proposals on behalf of multiple shareholders at the same 
shareholders' meeting. The conduct of shareholder meetings, including 
how proposals are presented, is generally governed by state law, and 
does not raise the same concerns that are raised by a proponent's use 
of a company's proxy statement under the federal proxy rules. We 
believe that compliance with the substantive eligibility requirements 
of amended Rule 14a-8(c) will appropriately address the concerns we 
have with respect to the one-proposal limit, and we do not believe that 
the designation of a representative for the purpose of presenting a 
proposal at the shareholder meeting raises similar concerns.\187\
---------------------------------------------------------------------------

    \185\ See letters from AFL-CIO dated February 3, 2020; As You 
Sow dated February 3, 2020; Boston Trust Walden et al. dated January 
31, 2020; CalPERS dated February 3, 2020; Domini Impact Investments 
dated February 3, 2020; New York City Comptroller dated February 3, 
2020; New York State Comptroller dated February 3, 2020; PNM 
Shareholders for a Responsible Future dated February 3, 2020; 
Shareholder Rights Group dated February 3, 2020; Unitarian 
Universalist Association dated January 28, 2020.
    \186\ 17 CFR 240.14a-8(h).
    \187\ The Commission has previously stated that allowing a 
representative to present a proposal on a shareholder's behalf 
``should provide greater assurance that the proposal will be 
presented at the meeting and that the proposal will be presented by 
a well-informed person.'' See 1982 Proposing Release, supra note 2. 
Thus, it may be important at a shareholders' meeting to ensure that 
a proposal is presented in accordance with state law by a well-
informed person, and the use of a representative for this purpose 
with respect to multiple proposals does not ``constitute an 
unreasonable exercise of the right to submit proposals at the 
expense of other shareholders'' or ``tend to obscure other material 
matters in the proxy statement of issuers, thereby reducing the 
effectiveness of such documents.'' Cf. 1976 Adopting Release, supra 
note 88.
---------------------------------------------------------------------------

    In response to certain commenters,\188\ we note that under the 
final amendment, entities and all persons under their control, 
including employees, will be treated as a ``person'' for purposes of 
the amendment. As such, if an investment adviser at Advisory Firm A 
submits a proposal on behalf of a shareholder-proponent to Company Y, 
neither that investment adviser nor any other adviser at Advisory Firm 
A would be permitted to submit a proposal on behalf of a different 
shareholder-proponent at Company Y for the same meeting. However, the 
amendment will not prohibit a single representative from representing 
multiple co-filers in connection with the submission of a single 
shareholder proposal. Where multiple shareholders co-file a proposal, 
the company receives only one proposal and, therefore, the submission 
does not raise the types of concerns that Rule 14a-8(c) is intended to 
address.
---------------------------------------------------------------------------

    \188\ See letter from Boston Trust Walden et al. dated January 
27, 2020. See also Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

    We are not adopting a commenter's suggestion to require 
shareholders to certify that the proposal has been submitted of their 
own accord and not at the request or solicitation of a representative 
that already has submitted (or is considering submitting) a proposal to 
the same company.\189\ We believe that the representations in Rule 14a-
8(b)(1)(iv) will provide a meaningful degree of assurance as to the 
shareholder-proponent's identity, role, and interest in a proposal that 
is submitted for inclusion in a company's proxy statement and that, 
therefore, the certification suggested by the commenter is unnecessary.
---------------------------------------------------------------------------

    \189\ See letter from Society for Corporate Governance dated 
February 3, 2020.
---------------------------------------------------------------------------

E. Resubmission Thresholds

1. Proposed Rule Amendment
    We proposed to amend the resubmission thresholds under Rule 14a-
8(i)(12); specifically, we proposed to replace the thresholds of 3, 6, 
and 10 percent with thresholds of 5, 15, and 25 percent, respectively. 
Under the

[[Page 70257]]

proposed amendment, a shareholder proposal would be excludable from a 
company's proxy materials if it addressed substantially the same 
subject matter as a proposal, or proposals, previously included in the 
company's proxy materials within the preceding five calendar years if 
the most recent vote occurred within the preceding three calendar years 
and the most recent vote was:
     Less than 5 percent of the votes cast if previously voted 
on once;
     Less than 15 percent of the votes cast if previously voted 
on twice; or
     Less than 25 percent of the votes cast if previously voted 
on three or more times.
    We did not propose changes to the ``substantially the same subject 
matter'' test, which focuses on the substantive concerns addressed by a 
proposal rather than the ``specific language or actions proposed to 
deal with those concerns,'' \190\ or the duration of the cooling-off 
period. We did, however, seek comment on whether a change to the 
``substantially the same subject matter'' standard was necessary or 
appropriate in light of the proposed amendments to the resubmission 
thresholds and whether to amend the duration of the cooling-off 
period.\191\
---------------------------------------------------------------------------

    \190\ See Proposing Release at 66471 n.115 (citing 1983 Adopting 
Release).
    \191\ See Proposing Release at 66473.
---------------------------------------------------------------------------

2. Comments on the Proposed Rule Amendment
    Commenters expressed a wide range of views on the proposed rule 
amendment. Commenters that expressed support for the proposed amendment 
indicated that it would reduce the burden on shareholders and companies 
associated with resubmitted proposals and allow for exclusion of 
proposals that are unlikely to earn majority support in the near 
term.\192\ Several commenters that were supportive of the proposed 
amendment expressed a preference for resubmission thresholds that are 
higher than those that were proposed.\193\ A few of these commenters 
indicated that higher thresholds would be preferable in light of the 
influence proxy voting advice businesses have in the shareholder voting 
process.\194\
---------------------------------------------------------------------------

    \192\ See letters from American Securities Association dated 
February 3, 2020; Business Roundtable dated February 3, 2020; Center 
for Capital Markets Competitiveness dated January 31, 2020; Senator 
Kevin Cramer dated July 28, 2020; Energy Infrastructure Council 
dated February 3, 2020; Exxon Mobil Corporation dated February 3, 
2020; FedEx Corporation dated February 3, 2020; Fidelity Management 
& Research LLC dated February 3, 2020; Senator Phil Gramm dated 
January 29, 2020; International Bancshares Corporation dated 
February 3, 2020; Investment Company Institute dated February 3, 
2020; Manhattan Institute for Policy Research dated February 3, 
2020; Nareit dated February 3, 2020; Nasdaq, Inc. dated February 3, 
2020; National Association of Manufacturers dated February 3, 2020; 
Society for Corporate Governance dated February 3, 2020.
    \193\ See letters from Business Roundtable dated February 3, 
2020 (supporting thresholds at 6%, 15%, and 30%); Exxon Mobil 
Corporation dated February 3, 2020 (supporting thresholds at 10%, 
25%, and 50%); FedEx Corporation dated February 3, 2020 (supporting 
thresholds at 6%, 15%, and 30%); General Motors Company dated 
February 25, 2020 (supporting thresholds at 6%, 15%, and 30%); 
Nasdaq, Inc. dated February 3, 2020 (supporting thresholds at 6%, 
15%, and 30%); Society for Corporate Governance dated February 3, 
2020 (supporting thresholds at 6%, 15%, and 30%).
    \194\ See letters from Business Roundtable dated February 3, 
2020; Exxon Mobil Corporation dated February 3, 2020; Society for 
Corporate Governance dated February 3, 2020.
---------------------------------------------------------------------------

    A number of commenters expressed concern that the new thresholds 
would stifle or delay adoption of shareholder-initiated reforms to the 
extent shareholder support develops gradually over time.\195\ Other 
commenters expressed the view that the current resubmission thresholds 
are effective even though they may not have the same effect on 
resubmissions as when initially adopted.\196\
---------------------------------------------------------------------------

    \195\ See, e.g., letters from ACTIAM dated November 21, 2019; 
AFL-CIO dated February 3, 2020; ARGA Investment Management dated 
December 12, 2019; BC Target Benefit Pension Plan dated November 28, 
2019; Senator Sherrod Brown dated August 21, 2020; CalPERS dated 
February 3, 2020; Congregation of St. Basil dated December 15, 2019; 
Council of Institutional Investors et al. dated July 29, 2020; 
Dominican Sisters of Springfield Illinois dated January 9, 2020; 
Form Letter Type A; Franciscan Sisters of Allegany, NY dated 
December 9, 2019; Franciscan Sisters of Perpetual Adoration dated 
December 6, 2019; International Corporate Governance Network dated 
December 4, 2019; Jesuit Conference of Canada and the United Stated 
dated December 2, 2019; Lancaster Theological Seminary dated 
November 19, 2019; Maryknoll Fathers and Brothers dated December 5, 
2019; Maryland and USA Northeast Province of the Society of Jesus 
dated December 19, 2019; Miller/Howard Investments dated January 3, 
2020; New York State Comptroller dated February 3, 2020; Northwest 
Coalition for Responsible Investment dated January 27, 2020; 
Province of St. Joseph of the Capuchin Order dated December 9, 2019; 
Shareholder Rights Group dated January 6, 2020; Shareholder Rights 
Group dated June 10, 2020; Sisters of Bon Secours USA dated January 
10, 2020; Sisters of Charity of the Blessed Virgin Mary dated 
November 21, 2019; Sisters of Mount St. Scholastica dated November 
26, 2019; Sisters of the Precious Blood dated November 25, 2019; 
Ursuline Convent of the Sacred Heart, Toledo, OH dated November 26, 
2019; Zevin Asset Management dated November 27, 2019. Some of these 
commenters cited proposals dealing with board declassification, 
climate change, and human rights risks as examples of proposals that 
took time to garner broader shareholder support. See, e.g., letters 
from ACTIAM dated November 21, 2019; BC Target Benefit Pension Plan 
dated November 28, 2019; Congregation of St. Basil dated December 
15, 2019; Franciscan Sisters of Perpetual Adoration dated December 
6, 2019; Lancaster Theological Seminary dated November 19, 2019; 
Maryknoll Fathers and Brothers dated December 5, 2019; Province of 
St. Joseph of the Capuchin Order dated December 9, 2019; Sisters of 
Bon Secours USA dated January 10, 2020; Sisters of Charity of the 
Blessed Virgin Mary dated November 21, 2019; Sisters of Mount St. 
Scholastica dated November 26, 2019; Sisters of the Precious Blood 
dated November 25, 2019; Zevin Asset Management dated November 27, 
2019. For example, some commenters noted that proposals addressing 
declassified boards received less than 10% support in 1987 and 81% 
in 2012, and proposals addressing climate change received less than 
5% support in 1998 and now receive ``substantial, and even majority 
shareholder votes.'' See, e.g., letters from ACTIAM dated November 
21, 2019; AEquo et al. dated January 28, 2020; Church Investment 
Group dated January 29, 2020; Rockefeller Asset Management dated 
January 31, 2020.
    \196\ See, e.g., letter from Segal Marco Advisors dated February 
3, 2020. See also Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

    Two commenters that expressed concern about the effects of the 
proposed thresholds suggested alternative thresholds of 3, 10, and 15 
percent or 5, 10, and 15 percent, respectively, if the Commission 
decided to revise the thresholds.\197\ Another commenter stated that 
thresholds of 5, 7, and 10 percent would be preferable to the proposed 
thresholds.\198\
---------------------------------------------------------------------------

    \197\ See letters from CalPERS dated February 3, 2020; 
Washington State Investment Board dated January 22, 2020.
    \198\ See letter from British Columbia Investment Management 
Corporation dated February 3, 2020.
---------------------------------------------------------------------------

    A number of commenters expressed the view that the proposed 
amendment would have a more pronounced effect at companies with dual-
class voting structures,\199\ and several commenters recommended 
adopting alternative vote-counting methodologies for companies with 
these voting structures.\200\
---------------------------------------------------------------------------

    \199\ See letters from AFL-CIO dated February 3, 2020; Boston 
Trust Walden et al. dated January 31, 2020; CFA Institute dated 
February 3, 2020; Connecticut State Treasurer dated January 31, 
2020; Council of Institutional Investors dated January 30, 2020; 
Council of Institutional Investors et al. dated July 29, 2020; 
Representative Bill Foster et al. dated January 31, 2020; Friends 
Fiduciary Corporation dated February 2, 2020; Illinois State 
Treasurer dated January 16, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; International Corporate Governance 
Network dated December 4, 2019; Loring, Wolcott & Coolidge dated 
January 31, 2020; New York State Comptroller dated February 3, 2020; 
Shareholder Association for Research & Education dated January 30, 
2020; Trillium Asset Management dated February 3, 2020.
    \200\ See letters from AFL-CIO dated February 3, 2020; Council 
of Institutional Investors dated January 30, 2020; Interfaith Center 
on Corporate Responsibility dated January 27, 2020; International 
Corporate Governance Network dated December 4, 2019; New York State 
Comptroller dated February 3, 2020; NorthStar Asset Management, Inc. 
dated February 3, 2020.
---------------------------------------------------------------------------

    Several commenters expressed the view that the level of shareholder 
support is not the sole or most appropriate measure or indication of a 
proposal's success.\201\ These

[[Page 70258]]

commenters suggested that a proposal may be considered successful if it 
leads to a settlement with management--regardless of shareholder 
support--or raises management's awareness about an issue.\202\ Two 
commenters suggested adopting an exception that would apply in the 
event of a change in circumstances that would warrant 
resubmission.\203\
---------------------------------------------------------------------------

    \201\ See, e.g., letters from CalPERS dated February 3, 2020; 
Center for Political Accountability dated January 31, 2020; Council 
of Institutional Investors dated January 30, 2020; New York City 
Comptroller dated February 3, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020. See also Recommendation of the IAC, 
supra note 18.
    \202\ Id.
    \203\ See letters from Baillie Gifford & Co. dated February 3, 
2020; Hal S. Scott dated January 6, 2020.
---------------------------------------------------------------------------

3. Final Rule Amendment
    After considering the comments, we are adopting the amendment as 
proposed. Under amended Rule 14a-8(i)(12), a shareholder proposal will 
be excludable from a company's proxy materials if it addresses 
substantially the same subject matter as a proposal, or proposals, 
previously included in the company's proxy materials within the 
preceding five calendar years if the most recent vote occurred within 
the preceding three calendar years and the most recent vote was:
     Less than 5 percent of the votes cast if previously voted 
on once;
     Less than 15 percent of the votes cast if previously voted 
on twice; or
     Less than 25 percent of the votes cast if previously voted 
on three or more times.\204\
---------------------------------------------------------------------------

    \204\ When calculating the voting results for purposes of 
applying this rule, only votes for and against a proposal should be 
included in the calculation. Abstentions and broker non-votes should 
not be included. In addition, voting results should not be rounded 
up for purposes of determining whether the resubmission thresholds 
have been met. For example, a voting result of 4.85% should not be 
rounded up to 5%.
---------------------------------------------------------------------------

    In the Proposing Release, we expressed a concern that the current 
resubmission thresholds of 3, 6, and 10 percent do not adequately 
distinguish between proposals that are more likely to obtain broader or 
majority support upon resubmission and those that are not.\205\ As 
such, we were concerned that the thresholds may not be functioning 
effectively to relieve companies and their shareholders of the 
obligation to consider, and spend resources on, matters that had 
previously been voted on and rejected by a substantial majority of 
shareholders without sufficient indication that a proposal could gain 
traction among the broader shareholder base in the near future. As a 
result, company and shareholder resources may end up being used to 
consider and vote on matters that are unlikely to be supported by 
shareholders. In the Proposing Release, we also noted that ``the 
current thresholds may not have the same effect today on resubmissions 
as they did when they were initially adopted.'' \206\ Several 
commenters questioned the relevance of the rate of exclusion over 
time.\207\ While the resubmission thresholds are not calibrated to 
achieve a specific rate of exclusion, we remain concerned that the 
current resubmission thresholds do not adequately distinguish between 
proposals that have a realistic prospect of obtaining broader or 
majority support in the near term and those that do not. The final 
amendments to the resubmission thresholds are intended to better 
achieve this purpose.
---------------------------------------------------------------------------

    \205\ See Proposing Release at 66470-66471.
    \206\ Id. at 66471.
    \207\ See supra note 196.
---------------------------------------------------------------------------

    We recognize that some proposals may benefit from resubmission, 
among other factors, to obtain broader or majority support. However, we 
do not believe that companies and other shareholders should repeatedly 
bear the costs of proposals that have not demonstrated the potential of 
obtaining broader or majority support in the near term absent a 
significant change in circumstances. Moreover, if a proposal fails to 
generate meaningful support on its first submission, and is unable to 
generate significantly increased support upon resubmission, it is 
unlikely that the proposal will earn the support of a majority of 
shareholders in the near term.\208\ Thus, in our view, a proposal that 
is unable to obtain the support of at least 1 in 20 shareholders on the 
first submission, 3 in 20 on the second submission, or 1 in 4 by the 
third submission should be subject to a temporary cooling-off period to 
help ensure that the inclusion of such proposals does not result in 
undue burdens on shareholders and companies. After the temporary 
cooling-off period, the proposal could once again be submitted to the 
company.
---------------------------------------------------------------------------

    \208\ Based on our review of shareholder proposals that received 
a majority of the votes cast between 2011 and 2018, approximately 
90% received such support on the first submission. Of the remaining 
10%, 60% received 40% or more of the votes cast on the initial 
submission. See Proposing Release at Section IV.B.3.iv.
---------------------------------------------------------------------------

    We recognize that initial levels of shareholder support may not 
always predict how shareholders will vote on an issue in the future. 
Nevertheless, we remain concerned that obtaining support of 3, 6, or 10 
percent on a first, second, or third submission, respectively, does not 
demonstrate sufficient shareholder support, or a sufficient increase 
toward greater support, to warrant resubmission. Under the current 
thresholds, at least 90 percent of proposals remain eligible for 
resubmission.\209\ These resubmitted proposals have been permitted even 
though, according to our analysis, only approximately 6.5 percent of 
proposals that fail to win majority support the first time go on to 
pass in a subsequent attempt.\210\ Accordingly, it appears that under 
the current thresholds, the vast majority of shareholder proposals 
remain eligible for resubmission regardless of their likelihood of 
gaining broader or majority shareholder support, at least in the near 
term, requiring companies and shareholders to continually expend 
resources and consider proposals with minimal likelihood of success. In 
contrast, the new thresholds are designed to serve as better indicators 
of a proposal's path toward potentially greater shareholder support.
---------------------------------------------------------------------------

    \209\ See Proposing Release at tbl.3.
    \210\ One commenter questioned the appropriateness of the 
baseline of 6.5%, stating, ``The willingness of boards to implement 
proposals that a majority of shareholders will support means that 
the total universe of majority vote proposals is unobservable. 
Accordingly, the 6.5 percent of resubmitted proposals that go on to 
receive majority support is the wrong baseline for consideration.'' 
See letter from AFL-CIO dated February 3, 2020. The baseline 
represents observable data and we believe it would be speculative to 
categorize implemented proposals that had not received majority 
support as ``majority vote'' proposals.
---------------------------------------------------------------------------

    We note that some commenters indicated that achieving majority 
support is not the sole or most appropriate way to measure the success 
of a proposal.\211\ In this regard, we believe that the new thresholds 
may also serve as better indicators of the likelihood that a proposal 
will result in an agreement between the company and the shareholder-
proponent or raise management's awareness of an issue. For example, one 
observer posited that ``[t]hirty-percent support is the level at which 
many boards take note of a proposal topic'' and that ``at 50% support, 
if the board is deemed to take insufficient action in response, many 
investors will consider voting against incumbent directors at the next 
annual meeting.'' \212\ We believe a proposal that satisfies the new 
thresholds will more likely be on a path toward broader support and, 
therefore, may be more likely to result in an agreement between the 
company and the shareholder-

[[Page 70259]]

proponent or raise management's awareness of an issue. Moreover, we do 
not believe that a proposal must be resubmitted year after year to gain 
broader shareholder support or result in an agreement between the 
company and the shareholder-proponent.
---------------------------------------------------------------------------

    \211\ See, e.g., letters from CalPERS dated February 3, 2020; 
Center for Political Accountability dated January 31, 2020; Council 
of Institutional Investors dated January 30, 2020; New York City 
Comptroller dated February 3, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020.
    \212\ See Jamie Smith, Five Takeaways from the 2019 Proxy 
Season, EY Center for Board Matters, July 23, 2019, at 7, available 
at https://assets.ey.com/content/dam/ey-sites/ey-com/en_us/topics/cbm/ey-cbm-2019-proxy-season-preview.pdf.
---------------------------------------------------------------------------

    While some commenters suggested higher or lower resubmissions 
thresholds, such that the amendments would potentially exclude more or 
fewer shareholder proposals, and recognizing that, for a particular 
proposal, any generally applicable threshold has the potential to be 
over- or under-inclusive, we believe the proposed amendments 
appropriately calibrate the resubmission criteria, taking into account 
the costs to companies and shareholders of responding to proposals that 
do not garner significant shareholder support and are unlikely to do so 
in the near future and the benefits to companies and their shareholders 
of facilitating an individual shareholder's ability to engage with a 
company and other shareholders on successive occasions through the 
shareholder-proposal process.
    The amendments represent a modest increase to the initial 
resubmission threshold, and more significant increases to the second 
and third thresholds. As a result, there will be a 10 percentage point 
spread between the first and second threshold and between the second 
and third threshold. We believe that the more significant revisions to 
the second and third thresholds are appropriate due to the fact that a 
proposal will have already been considered by shareholders two or three 
times before becoming subject to these thresholds.
    The increase to the initial resubmission threshold from 3 to 5 
percent will allow for exclusion of proposals that are very unlikely to 
earn majority support upon resubmission and is intended to serve as a 
better indicator of proposals that are more likely to obtain majority 
support than the current threshold. Based on our analysis of the 
proposals that ultimately garnered majority support from 2011 to 2018, 
90 percent did so on the first submission, and more than half of the 
proposals that were resubmitted garnered more than 40 percent on the 
first submission.\213\ Of those that did not garner more than 40 
percent on the first submission but subsequently obtained majority 
support, nearly all garnered support of at least 5 percent on the first 
submission.\214\ While we recognize that there have been a few 
instances in which proposals that have failed to receive at least 5 
percent of the votes cast have gone on to garner majority support, 
these instances appear to be infrequent and may be the result of 
factors other than or in addition to the resubmission.\215\
---------------------------------------------------------------------------

    \213\ See Proposing Release at Section IV.B.3.iv.
    \214\ Id.
    \215\ Based on our review of shareholder proposals that received 
a majority of the votes cast on a second or subsequent submission 
between 2011 and 2018, only 2% of the proposals that have failed to 
receive at least 5% of the votes cast have gone on to garner 
majority support. See Proposing Release at Section IV.B.3.iv.
---------------------------------------------------------------------------

    The increase to the second and third resubmission thresholds to 15 
and 25 percent, respectively, are also intended to establish thresholds 
that are better indicators of proposals that have the possibility of 
obtaining broader or majority support in the near term than the current 
thresholds. We believe that proposals receiving these levels of support 
will have better demonstrated a sustained level of shareholder interest 
and a broadening of shareholder support to warrant management and 
shareholder consideration upon resubmission. We note that these 
thresholds are set significantly below the average and median support 
for initial submissions of 34 and 30 percent, respectively.\216\ In 
addition, of resubmitted proposals that ultimately obtain majority 
support, the overwhelming majority garner more than 15 percent on their 
second submission and more than 25 percent on their third submission. 
Based on our review of shareholder proposals that received a majority 
of the votes cast on a second or subsequent submission between 2011 and 
2018, 95 percent received support greater than 15 percent on the second 
submission, and 100 percent received support greater than 25 percent on 
the third or subsequent submission.\217\ In addition, of the 22 
proposals that obtained majority support on their third or subsequent 
submissions, approximately 95 percent received support of over 15 
percent on their second submission, and 100 percent received support of 
over 25 percent on their third or subsequent submission.\218\ Thus, as 
with the initial resubmission threshold, we expect that these 
thresholds will permit exclusion of proposals that are unlikely to 
garner broader or majority support in the near term.
---------------------------------------------------------------------------

    \216\ See Proposing Release at 66472.
    \217\ Id.
    \218\ Id. at n.123.
---------------------------------------------------------------------------

    Overall, we believe that the amended resubmission thresholds would 
reduce the costs associated with management's and shareholders' 
repeated consideration of these proposals and their recurrent inclusion 
in the proxy statement while maintaining shareholders' ability to 
submit proposals and engage with companies on matters of interest to 
shareholders. We also believe that the new resubmission thresholds may 
lead to the submission of proposals that will evoke greater shareholder 
interest in, and foster more meaningful engagement between, management 
and shareholders, as the thresholds will incentivize shareholders to 
submit proposals on matters that resonate with a broader shareholder 
base to avoid exclusion under the rule.
    While we acknowledge the concern expressed by some commenters that 
the new resubmission thresholds could delay consideration of 
shareholder-initiated ideas or reforms,\219\ we do not believe that the 
new thresholds will stifle such activity because failure to achieve 
these levels of support will not act as a permanent bar from the proxy 
statement. Instead, shareholders will be able to resubmit substantially 
similar proposals for inclusion in the proxy statement after a 
temporary cooling-off period. In addition, while shareholder-proponents 
will not be permitted to use a company's proxy statement to require a 
shareholder vote during the cooling-off period, engagement with the 
company and other shareholders can continue during that time, and 
proponents can continue to use other methods to seek to broaden support 
for their ideas.
---------------------------------------------------------------------------

    \219\ See, e.g., letters from ACTIAM dated November 21, 2019; 
AFL-CIO dated February 3, 2020; ARGA Investment Management dated 
December 12, 2019; BC Target Benefit Pension Plan dated November 28, 
2019; CalPERS dated February 3, 2020; Congregation of St. Basil 
dated December 15, 2019; Council of Institutional Investors et al. 
dated July 29, 2020; Dominican Sisters of Springfield Illinois dated 
January 9, 2020; Form Letter Type A; Franciscan Sisters of Allegany, 
NY dated December 9, 2019; Franciscan Sisters of Perpetual Adoration 
dated December 6, 2019; International Corporate Governance Network 
dated December 4, 2019; Jesuit Conference of Canada and the United 
Stated dated December 2, 2019; Lancaster Theological Seminary dated 
November 19, 2019; Maryknoll Fathers and Brothers dated December 5, 
2019; Maryland and USA Northeast Province of the Society of Jesus 
dated December 19, 2019; Miller/Howard Investments dated January 3, 
2020; New York State Comptroller dated February 3, 2020; Northwest 
Coalition for Responsible Investment dated January 27, 2020; 
Province of St. Joseph of the Capuchin Order dated December 9, 2019; 
Shareholder Rights Group dated January 6, 2020; Sisters of Bon 
Secours USA dated January 10, 2020; Sisters of Charity of the 
Blessed Virgin Mary dated November 21, 2019; Sisters of Mount St. 
Scholastica dated November 26, 2019; Sisters of the Precious Blood 
dated November 25, 2019; Ursuline Convent of the Sacred Heart, 
Toledo, OH dated November 26, 2019; Zevin Asset Management dated 
November 27, 2019.
---------------------------------------------------------------------------

    The thresholds reflect a careful and appropriate calibration of the

[[Page 70260]]

resubmission criteria, taking into account the costs to companies and 
shareholders of responding to proposals that do not garner significant 
shareholder support (and are unlikely to do so in the near future) and 
the benefits to companies and their shareholders of facilitating an 
individual shareholder's ability to engage in the shareholder-proposal 
process on successive occasions. We note that, under the new rule, 
those proposals that are least likely to garner broad or majority 
shareholder support will be subject to exclusion, while the vast 
majority of proposals will remain eligible for resubmission.\220\
---------------------------------------------------------------------------

    \220\ Of the proposals resubmitted between 2011 and 2018, we 
estimate that approximately 85% would have been eligible for 
resubmission under the proposed resubmission thresholds. See 
Proposing Release at tbl.9. In 2018 alone, we estimate that the 
final amendments to the resubmission thresholds would have resulted 
in 5% of voted proposals being excludable.
---------------------------------------------------------------------------

    We are not adopting any changes to the vote-counting methodology 
used to determine whether a proposal is eligible for resubmission. We 
believe that it is most appropriate to treat votes in favor of a 
proposal in the same manner as the company when it tabulates votes and 
determines whether a proposal has achieved majority support. 
Calculating votes in this manner will help ensure that other 
shareholders and companies do not continue to bear the burdens 
associated with proposals that are unlikely to obtain majority support 
and/or be implemented by management. In addition, because issuers are 
not required to disclose voting results separately based on affiliate 
status or share class, proponents would be unable to readily ascertain 
whether the relevant resubmission thresholds have been satisfied if 
alternative vote-counting methodologies were adopted.\221\ Accordingly, 
we are not adopting alternative vote-counting methodologies. We also 
are not adopting an exception to the rule that would allow an otherwise 
excludable proposal to be resubmitted if there were material 
developments that suggested a resubmitted proposal may garner 
significantly more votes than when previously voted on. There was 
little support among commenters for this type of mechanism, and we 
believe it would be difficult in many cases to determine how the 
intervening developments would affect shareholders' voting decisions 
and therefore difficult to apply such a provision in practice.
---------------------------------------------------------------------------

    \221\ Cf. Item 5.07 of Form 8-K [17 CFR 249.308] (requiring 
disclosure of votes cast for, against, or withheld (in the case of 
director elections), as well as the number of abstentions and broker 
non-votes as to each matter voted upon); Rule 30e-1(b)(3) [17 CFR 
270.13e-1(b)(3)] (similar).
---------------------------------------------------------------------------

F. Momentum Requirement

1. Proposed Rule Amendment
    In addition to proposing new resubmission thresholds of 5, 15, and 
25 percent, we proposed to add a new provision to Rule 14a-8(i)(12) to 
allow companies to exclude proposals dealing with substantially the 
same subject matter as proposals previously voted on by shareholders 
three or more times in the preceding five calendar years that would not 
otherwise be excludable under the 25 percent threshold if (i) the most 
recently voted on proposal received less than a majority of the votes 
cast and (ii) support declined by 10 percent or more compared to the 
immediately preceding shareholder vote on the matter (the ``Momentum 
Requirement'').
    In the Proposing Release, we explained that this requirement would 
have relieved management and shareholders from having to repeatedly 
consider, and bear the costs related to, matters for which shareholder 
interest had declined.\222\ We also noted that it would have applied 
only to matters that had been previously voted on three or more times 
in the preceding five years, giving shareholder-proponents a number of 
years to advocate for, and the broader shareholder base ample 
opportunity to consider, the matters raised.\223\
---------------------------------------------------------------------------

    \222\ See Proposing Release at 66473.
    \223\ Id.
---------------------------------------------------------------------------

2. Comments on the Proposed Rule Amendment
    We received a number of comments on the proposed amendment. 
Commenters that expressed support for the proposal stated that such a 
requirement would relieve management and shareholders from having to 
repeatedly consider, and bear the costs related to, matters for which 
shareholder interest had declined.\224\
---------------------------------------------------------------------------

    \224\ See letters from American Securities Association dated 
February 3, 2020; Business Roundtable dated February 3, 2020; 
Corporate Governance Coalition for Investor Value dated February 3, 
2020; International Bancshares Corporation dated January 23, 2020; 
Manhattan Institute for Policy Research dated February 3, 2020; 
Nasdaq, Inc. dated February 3, 2020; National Association of 
Manufacturers dated February 3, 2020.
---------------------------------------------------------------------------

    Many commenters objected to the proposed amendment with a number of 
them expressing concern that, under the proposed amendment, a proposal 
that gets higher overall support (e.g., 44 percent) compared to another 
proposal may be excluded if it experiences a decline in support of 10 
percent or more, whereas a proposal receiving lower support (e.g., 27 
percent) that does not experience a decline in support of 10 percent or 
more would not be excludable.\225\ Another commenter indicated that 25 
percent support sends a strong signal that shareholders are concerned 
about an issue and warrants resubmission.\226\ Some commenters also 
stated that the Momentum Requirement would add complexity to the 
rule.\227\ Another commenter called for additional explanation and 
justification for the proposed amendment.\228\
---------------------------------------------------------------------------

    \225\ See letters from 444S Foundation et al. dated January 31, 
2020; AFL-CIO dated February 3, 2020; Zehra R. Asghar dated February 
3, 2020; As You Sow dated February 3, 2020; Kam Bellamy dated 
February 3, 2020; Samuel Bonsey dated February 3, 2020; Boston Trust 
Walden et al. dated January 31, 2020; Ghislaine Boulanger dated 
January 30, 2020; Andrew Boyd dated January 29, 2020; David Bragin 
dated February 1, 2020; Lisa Brick dated January 31, 2020; British 
Columbia Investment Management Corporation dated February 3, 2020; 
Marshall Brooks dated February 5, 2020; Thomas Buckner dated 
February 3, 2020; Laura J. Campos dated January 14, 2020; Canadian 
Coalition for Good Governance dated February 3, 2020; Hilary Clark 
dated February 3, 2020; Delbert Coonce dated January 30, 2020; 
Council of Institutional Investors dated January 30, 2020; Professor 
James D. Cox et al. dated February 2, 2020; Domini Impact 
Investments dated February 3, 2020; Christopher Hormel dated January 
30, 2020; Artemis Joukowsky dated January 29, 2020; Mona Kanin dated 
January 29, 2020; Joyce Kutz dated February 1, 2020; Anna Lefer Kuhn 
dated February 3, 2020; Hanna Mahon dated January 31, 2020; Helene 
B. Marsh dated January 28, 2020; New York State Comptroller dated 
February 3, 2020; Judith Norell dated January 29, 2020; Angela Ocone 
dated February 3, 2020; Hayden Reilly dated January 29, 2020; Sarah 
Rose dated January 29, 2020; Hiroko Sakurazawa dated February 2, 
2020; Elizabeth Schnee dated January 29, 2020; Ellen Seh dated 
January 28, 2020; Sarah Sills dated January 29, 2020; Emmanuel R. 
Sturman dated January 30, 2020; Jed Sturman dated February 1, 2020; 
Marilyn and Emanual Sturman dated January 30, 2020; Richard 
Teitelbaum dated February 2, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020; US SIF dated January 31, 2020; Peter 
Vandermark dated January 29, 2020; Julie & Steve Woodward dated 
January 29, 2020; Wright-Ingraham Institute dated February 3, 2020.
    \226\ See letter from International Corporate Governance Network 
dated December 4, 2019.
    \227\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
CalPERS dated February 3, 2020; Canadian Coalition for Good 
Governance dated February 3, 2020; NorthStar Asset Management, Inc. 
dated February 3, 2020; Stewart Investors dated January 30, 2020; US 
SIF dated January 31, 2020.
    \228\ See Recommendation of the IAC, supra note 18.
---------------------------------------------------------------------------

    Several commenters suggested modifications to the proposed 
amendment. Some commenters recommended requiring a decline in 
shareholder support greater than 10 percent.\229\ Two commenters 
suggested requiring shareholder support to increase for a proposal to 
remain

[[Page 70261]]

eligible for resubmission upon a third or subsequent submission in five 
years,\230\ and another commenter recommended requiring a 10 percent 
increase in shareholder support to remain eligible for 
resubmission.\231\ One commenter that opposed the Momentum Requirement 
stated that the rule, if adopted, should include ``an exception in the 
event of a material change in the company's situation between the 
previous vote and the filing deadline.'' \232\
---------------------------------------------------------------------------

    \229\ See, e.g., letters from Baillie Gifford & Co. dated 
February 3, 2020 (suggesting a 25% decline); Investment Company 
Institute dated February 3, 2020 (suggesting a 30% decline).
    \230\ See letters from General Motors Company dated February 25, 
2020; Society for Corporate Governance dated February 3, 2020.
    \231\ See letter from Exxon Mobil Corporation dated February 3, 
2020.
    \232\ See letter from Council of Institutional Investors dated 
January 30, 2020. See also letters from Baillie Gifford & Co. dated 
February 3, 2020; Hal S. Scott dated January 6, 2020, supra note 
203.
---------------------------------------------------------------------------

3. Final Rule Amendment
    After considering the comments, we are not adopting the proposed 
amendment. We agree with commenters that the Momentum Requirement, as 
proposed, could at least in theory lead to anomalous results because, 
for example, under the proposed amendment, a proposal that gets higher 
overall support (e.g., 44 percent) compared to another proposal may be 
excluded if it experiences a decline in support of 10 percent or more, 
whereas a proposal receiving lower support (e.g., 27 percent) that does 
not experience a decline in support of 10 percent or more would not be 
excludable. In addition, we agree with commenters that the Momentum 
Requirement, as proposed, could render the resubmission basis for 
exclusion unnecessarily complex. Finally, we note that further 
consideration of a momentum requirement may be appropriate once the 
Commission has had an opportunity to evaluate its experience with the 
revised resubmission thresholds.

G. Other Matters

1. Response to Constitutional Objections
    Several commenters raised First Amendment objections to the 
proposed amendments to the rule's procedural requirements.\233\ We do 
not believe their arguments have merit. For decades, Rule 14a-8 has 
provided a procedural mechanism, subject to neutral eligibility 
criteria, for shareholders to submit proposals to companies for the 
company to include in its own proxy statement at the company's expense. 
The amendments do not disturb the basic functioning of this 
longstanding mechanism, but merely enhance existing limits on the 
ability of shareholders to make use of it. Because this mechanism 
``govern[s] speech by a corporation to itself,'' it ``do[es] not limit 
the range of information that the corporation''--or shareholders--``may 
contribute to the public debate.'' \234\ Rather, it simply 
``allocate[s] shareholder property between management and certain 
groups of shareholders.'' \235\ The amendments do not restrict 
shareholders from speaking out on any issue, or from communicating 
their views to management by any means at their own expense. Nor do 
they prevent shareholders from seeking and relying on the assistance of 
others in doing so. Even to the extent a shareholder may have a First 
Amendment right to engage in internal corporate speech with other 
shareholders, any such right would not be infringed by the Commission's 
decision to limit the circumstances in which other shareholders must 
subsidize that speech.\236\
---------------------------------------------------------------------------

    \233\ See letters from CalPERS dated February 3, 2020; 
Shareholder Rights Group dated February 3, 2020; Shareholder Rights 
Group dated March 18, 2020; Ellen L. Weintraub, Commissioner, 
Federal Election Commission dated February 3, 2020.
    \234\ Pacific Gas & Electric Co. v. Public Utilities Comm'n of 
California, 475 U.S. 1, 14 n.10 (1986).
    \235\ Id.
    \236\ Cf. Regan v. Taxation with Representation, 461 U.S. 540, 
549 (1983).
---------------------------------------------------------------------------

    Furthermore, the amendments do not impose content-based or 
viewpoint-based limitations on the kinds of proposals a shareholder may 
submit for inclusion in a company's proxy statement. The amendments 
reasonably limit access to a company's proxy statement based on 
content-neutral and viewpoint-neutral criteria designed to 
appropriately consider the ability of a shareholder-proponent to put 
forth proposals for shareholder consideration, on the one hand, and the 
costs to the company and other shareholders associated with the 
inclusion of such proposals in the company's proxy statement, on the 
other.
2. Proposals Submitted to Open-End Investment Companies
    In the Proposing Release, the Commission requested comment on 
whether any special eligibility provision should be made for 
shareholder proposals submitted to open-end investment companies since, 
unlike other issuers, open-end investment companies generally do not 
hold shareholder meetings annually.\237\ In some cases, years may pass 
between the submission of a shareholder proposal and the next 
shareholder meeting. Due to the passage of time that may occur before 
an open-end investment company holds a shareholder meeting, the 
submission may no longer reflect the interests of the shareholder-
proponent or may be in need of updating, or the proponent may no longer 
own the requisite amount of shares to require the company to include a 
proposal in its proxy statement. In response to these issues, we asked 
whether we should consider any special provisions to the effect that a 
proposal would expire after the passage of a specified amount of time, 
unless the shareholder-proponent reaffirmed the proposal.
---------------------------------------------------------------------------

    \237\ See Proposing Release at 66465.
---------------------------------------------------------------------------

    Several commenters responded to the request for comment. Two 
commenters suggested that a provision such as what was described in the 
request for comment could ease the administrative burden for investment 
companies.\238\ Another commenter stated that it could support a 
requirement for reconfirmation of the proponent's interest, ``as long 
as the procedural requirements are well designed and not geared only to 
suppressing voicing of dissent.'' \239\ A separate commenter expressed 
concern about ``adding additional process requirements'' with respect 
to submissions at open-end investment companies.\240\
---------------------------------------------------------------------------

    \238\ See letters from Fidelity Management & Research LLC dated 
February 3, 2020; Investment Company Institute dated February 3, 
2020.
    \239\ See letter from Council of Institutional Investors dated 
January 30, 2020.
    \240\ See letter from Investors Against Genocide dated February 
14, 2020.
---------------------------------------------------------------------------

    At this time, we are not adopting a requirement that shareholder-
proponents reaffirm their interest in a proposal submitted to an open-
end investment company after the passage of a specified amount of time. 
We note that few commenters supported such a provision. We also 
understand that open-end investment companies currently may seek to 
obtain a shareholder-proponent's reaffirmation in such situations 
before including a proposal in their proxy statements and that where 
they are unable to confirm a shareholder-proponent's continuing 
ownership interest, the staff may agree that such proposals may be 
excluded from the proxy statement.\241\ We may, however, revisit this 
issue in the future if it becomes necessary to do so.
---------------------------------------------------------------------------

    \241\ See, e.g., Fidelity Management & Research Co., SEC No-
Action Letter 2015 WL 4911599 (Aug. 12, 2015).
---------------------------------------------------------------------------

3. Commission and Staff Role in the Rule 14a-8 Process
    In the Proposing Release, we requested comment on whether the Rule 
14a-8 process generally works well and whether the Commission and 
staff's role in the process should be altered.\242\ For

[[Page 70262]]

example, we asked whether the Commission staff should continue to 
review proposals companies wish to exclude, or whether the Commission 
should instead review these proposals. We also asked whether there is a 
different structure that might better serve the interests of companies 
and shareholders, and whether states are better suited to establish a 
framework governing the submission and consideration of shareholder 
proposals.
---------------------------------------------------------------------------

    \242\ See Proposing Release at 66465.
---------------------------------------------------------------------------

    Several commenters responded to these requests for comment.\243\ 
Most commenters seemed generally supportive of the Commission and 
staff's involvement in the process, but several expressed criticism of 
certain aspects of the no-action process.\244\ For example, one 
commenter expressed the view that, while the no-action process 
generally works well and is less costly than alternatives, frequent 
changes in staff positions can increase uncertainty and costs for 
issuers and proponents.\245\ Another commenter argued the rule lacks a 
clear statutory mandate.\246\ Another commenter seemed supportive of 
Commission and staff involvement in the process, but stated that the 
vast majority of its members ``do not believe the [staff's] `no-action' 
letter process is administered in a consistent and transparent 
manner.'' \247\ This commenter suggested that the Commission consider 
alternatives to improve consistency, such as ``considering whether the 
`no-action' letter process should be converted into an SEC advisory 
opinion process, whereby the SEC would issue opinions on major policy 
issues rather than issuing `no-action' letters,'' or revising the no-
action process ``to allow for enhanced review and oversight mechanisms 
to achieve greater consistency.'' \248\ This commenter also suggested 
other modifications to the shareholder-proposal rule.\249\
---------------------------------------------------------------------------

    \243\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Council of Institutional Investors dated January 30, 2020; 
Exxon Mobil Corporation dated February 3, 2020; Local Authority 
Pension Fund Forum dated February 3, 2020; Manhattan Institute for 
Policy Research dated February 3, 2020; James McRitchie dated 
February 2, 2020; National Association of Manufacturers dated 
February 3, 2020; New York State Comptroller dated February 3, 2020; 
State Board of Administration of Florida dated February 3, 2020; 
John Taylor dated November 14, 2019.
    \244\ See letters from Business Roundtable dated February 3, 
2020; Center for Capital Markets Competitiveness dated January 31, 
2020; Council of Institutional Investors dated January 30, 2020; 
Local Authority Pension Fund Forum dated February 3, 2020; James 
McRitchie dated February 2, 2020; National Association of 
Manufacturers dated February 3, 2020; New York State Comptroller 
dated February 3, 2020; John Taylor dated November 14, 2019.
    \245\ See letter from New York State Comptroller dated February 
3, 2020.
    \246\ See letter from Manhattan Institute for Policy Research 
dated February 3, 2020.
    \247\ See letter from Business Roundtable dated February 3, 
2020.
    \248\ Id.
    \249\ Id.
---------------------------------------------------------------------------

    Two commenters suggested that the shareholder-proposal process 
should be allowed to be governed by state law and a company's 
bylaws.\250\ One of these commenters indicated that such a mechanism 
would allow for greater flexibility on a company-by-company basis, 
taking into consideration a company's shareholder base, and that 
dispute resolution at the state-court level could allow a consistent 
body of law to develop ``as opposed to conflicting decisions in 
different federal courts.'' \251\ The other commenter suggested that 
companies should have the option to elect a system governed by state 
law, which could improve market efficiency, but expressed the view that 
``most publicly traded companies would opt for the stable expectations 
of sticking with the SEC default rule'' rather than a state-law option 
at least in the near term.\252\ Another commenter questioned whether 
``state governments are better equipped to establish a framework for 
submission and consideration of shareholder proposals,'' and expressed 
the view that a shareholder-proposal process governed by state law 
would increase administrative and legal costs for shareholders and 
companies, as well as state governments.\253\ A separate commenter also 
objected to the notion of allowing the shareholder-proposal process to 
be governed by state law, and expressed the view that the staff's no-
action process ``is superior to litigation of differences over 
inclusion of shareholder proposals.'' \254\
---------------------------------------------------------------------------

    \250\ See letters from Exxon Mobil Corporation dated February 3, 
2020; Manhattan Institute for Policy Research dated February 3, 
2020.
    \251\ See letter from Exxon Mobil Corporation dated February 3, 
2020.
    \252\ See letter from Manhattan Institute for Policy Research 
dated February 3, 2020.
    \253\ See letter from New York State Comptroller dated February 
3, 2020.
    \254\ See letter from Council of Institutional Investors dated 
January 30, 2020.
---------------------------------------------------------------------------

    The primary purpose of seeking public comment on these issues was 
to gain a better understanding of commenters' views regarding the 
current role of the Commission and staff in the shareholder-proposal 
process and to solicit input with respect to possible areas for 
improvement. While we did not receive many comments in response to the 
requests for comment, the comments received were helpful in evaluating 
at a high level what generally works well and whether the Commission 
and staff's role in the process should be altered.
    We acknowledge commenters' concerns regarding the need for a 
consistent application of Rule 14a-8. As the Commission has previously 
stated, ``the staff's views on certain issues may change from time-to-
time, in light of re-examination, new considerations, or changing 
conditions which indicate that its earlier views are no longer in 
keeping with the objectives of Rule 14a-8.'' \255\ We continue to 
believe that changes in staff views may be necessary on occasion. For 
this reason, and although the staff strives to apply the rule in a 
consistent and transparent manner, participants in the shareholder-
proposal process ``should not consider the prior enforcement positions 
of the staff on proposals submitted to other issuers to be dispositive 
of identical or similar proposals submitted to them.'' \256\
---------------------------------------------------------------------------

    \255\ See Statement of Informal Procedures for the Rendering of 
Staff Advice with Respect to Shareholder Proposals, Release No. 34-
12599 (July 7, 1976) [41 FR 29989 (July 20, 1976)], at 29990 
(``Statement of Informal Procedures'').
    \256\ Id.
---------------------------------------------------------------------------

    As noted above, one commenter suggested that greater oversight by 
the Commission could help with consistency and transparency.\257\ As 
the Commission has previously stated, ``The Commission does not engage 
in any formal proceedings in connection with shareholder proposal 
matters, nor has it adopted any formal procedures in that regard.'' 
\258\ While we are not adopting such formal proceedings at this time, 
we note that the staff may seek the Commission's views on certain 
matters related to Rule 14a-8, including certain changes in staff 
positions.\259\
---------------------------------------------------------------------------

    \257\ See letter from Business Roundtable dated February 3, 
2020.
    \258\ See Statement of Informal Procedures, supra note 255.
    \259\ See 17 CFR 202.1(d).
---------------------------------------------------------------------------

    With respect to the commenters that supported companies' ability to 
elect a shareholder-proposal process governed by state law or a 
company's bylaws, we note that shareholder voting rights are governed 
by state rather than federal law and that shareholder-proponents must 
own shares entitled to vote on their proposals.\260\ We further note 
that a shareholder proposal must be a proper subject for action under 
state law to be eligible for inclusion in a company's proxy 
statement.\261\ Thus, while Rule 14a-8 provides a federal process for 
proxy voting and solicitation with respect to a shareholder proposal, 
matters of corporate organization such as voting rights and whether a 
proposal

[[Page 70263]]

is a proper subject for action remain governed by state law.
---------------------------------------------------------------------------

    \260\ See Rule 14a-8(b)(1).
    \261\ See Rule 14a-8(i)(1).
---------------------------------------------------------------------------

    Although we are not implementing changes in these areas at this 
time, we will consider the comments received in connection with any 
future rulemaking or modifications to the no-action process.

III. Transition Matters

    The final amendments will become effective 60 days after they are 
published in the Federal Register and will apply to any proposal 
submitted for an annual or special meeting to be held on or after 
January 1, 2022. However, a shareholder that has continuously held at 
least $2,000 of a company's securities entitled to vote on the proposal 
for at least one year as of January 4, 2021, and continuously maintains 
at least $2,000 of such securities from January 4, 2021 through the 
date he or she submits a proposal, will be eligible to submit a 
proposal to such company, and need not satisfy the amended share 
ownership thresholds under Rule 14a-8(b)(1)(i)(A)--(C), for an annual 
or special meeting to be held prior to January 1, 2023.\262\ A 
shareholder relying on this transition provision must follow the 
procedures set forth in Rule 14a-8(b)(2) to demonstrate that the 
shareholder (i) continuously held at least $2,000 of the company's 
securities entitled to vote on the proposal for at least one year as of 
January 4, 2021 \263\ and (ii) continuously held at least $2,000 of 
such securities from January 4, 2021 through the date the proposal is 
submitted to the company. The shareholder will also be required to 
provide the company with a written statement that the shareholder 
intends to continue to hold at least $2,000 of such securities through 
the date of the shareholders' meeting at which the proposal will be 
considered. This temporary provision will expire on January 1, 2023.
---------------------------------------------------------------------------

    \262\ See Rule 14a-8(b)(1)(i)(D).
    \263\ To determine whether a shareholder satisfies this 
ownership threshold, the shareholder should look at whether, on any 
date within the 60 calendar days before January 4, 2021, the 
shareholder's investment is valued at $2,000 or greater. See supra 
note 55. Aggregation will not be allowed for purposes of determining 
compliance with this temporary provision.
---------------------------------------------------------------------------

IV. Other Matters

    If any of the provisions of these rules, or the application thereof 
to any person or circumstance, is held to be invalid, such invalidity 
shall not affect other provisions or application of such provisions to 
other persons or circumstances that can be given effect without the 
invalid provision or application.
    Pursuant to the Congressional Review Act,\264\ the Office of 
Information and Regulatory Affairs has designated these amendments as a 
``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \264\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

V. Economic Analysis

    We are mindful of the costs and benefits of the rule amendments. 
The discussion below addresses the economic effects of the amendments, 
including their anticipated costs and benefits, as well as their likely 
effects on efficiency, competition, and capital formation.\265\ We also 
analyze the potential costs and benefits of reasonable alternatives to 
the amendments. Where possible, we have attempted to quantify the 
costs, benefits, and effects on efficiency, competition, and capital 
formation expected to result from the final rule amendments.
---------------------------------------------------------------------------

    \265\ Section 3(f) of the Exchange Act, Section 2(b) of the 
Securities Act of 1933, and Section 2(c) of the Investment Company 
Act require us, when engaging in rulemaking that requires us to 
consider or determine whether an action is necessary or appropriate 
in (or, with respect to the Investment Company Act, consistent with) 
the public interest, to consider, in addition to the protection of 
investors, whether the action will promote efficiency, competition, 
and capital formation. Additionally, Section 23(a)(2) of the 
Exchange Act requires us, when making rules or regulations under the 
Exchange Act, to consider, among other matters, the impact that any 
such rule or regulation will have on competition and states that the 
Commission shall not adopt any such rule or regulation which will 
impose a burden on competition that is not necessary or appropriate 
in furtherance of the Exchange Act.
---------------------------------------------------------------------------

    We have provided both a qualitative assessment and, where feasible, 
quantified estimates of the potential effects of the rule amendments. 
We also have incorporated data and other information provided by 
commenters to assist in the analysis of the economic effects of the 
rule amendments. However, as explained in more detail below, because we 
do not have, have not received, and, in certain cases, do not believe 
we can reasonably obtain data that may inform certain economic effects, 
we are unable to quantify those effects. We further note that even in 
cases where we have some data or have received some data regarding 
certain economic effects, the quantification of these effects is 
particularly challenging due to the number of assumptions that we would 
need to make to estimate the benefits and costs of the rule amendments.
    For example, on August 14, 2020, a preliminary draft analysis 
(``Preliminary Staff Analysis'') conducted by Commission staff in 
October 2019 using certain data obtained from Broadridge Financial 
Solutions, Inc. (``Broadridge'') was placed in the public comment file 
for the Proposing Release.\266\ As noted in the Proposing Release and 
discussed in the memorandum accompanying the Preliminary Staff 
Analysis, the data supplied by Broadridge suffered from significant 
limitations. In noting certain limitations in the Proposing Release, we 
encouraged commenters to submit additional data to the public comment 
file.\267\
---------------------------------------------------------------------------

    \266\ Memorandum Regarding Analysis of Data Provided by 
Broadridge Financial Solutions, Inc. (Aug. 14, 2020) 
(``Memorandum''), Appendix A, available at https://www.sec.gov/comments/s7-23-19/s72319-7645492-222330.pdf.
    \267\ See Proposing Release at 66498 n.245; Memorandum.
---------------------------------------------------------------------------

    We concur with the conclusions of the Commission's Chief Economist 
set forth in the August 14, 2020 memorandum accompanying the 
Preliminary Staff Analysis. Despite the staff's attempts to analyze the 
data set, as a result of its significant limitations, neither the data 
set nor the associated Preliminary Staff Analysis could be used to 
reliably assess the potential impact of our rule amendments on retail 
shareholders.

A. Introduction

    We are amending certain procedural requirements of--and the 
provision relating to resubmitted proposals under--Rule 14a-8, the 
shareholder-proposal rule. The Commission has conducted various forms 
of outreach over the years on the proxy process, including hosting the 
Proxy Process Roundtable and soliciting public input on both the Rule 
14a-8 ownership thresholds and the costs of submitting shareholder 
proposals.\268\ That input informed our economic analysis in the 
Proposing Release and this release. We also requested comment on the 
estimates and data in the Proposing Release to help us refine our 
economic analysis. We considered all of this information thoroughly, 
leveraging our decades of experience with Rule 14a-8, when evaluating 
the effects of the rule amendments.
---------------------------------------------------------------------------

    \268\ See supra Section I.A.
---------------------------------------------------------------------------

    After carefully reviewing all of the comments received, we 
supplemented our analysis to investigate certain issues raised by 
commenters. We are adopting the rule amendments substantially as 
proposed and, based on our analysis of the available evidence and data, 
and our consideration of the comments received, our primary conclusions 
about the likely economic effects of the rule amendments have not 
changed substantively. The benefits of the rule are largely 
attributable to direct cost savings for companies that may process 
fewer shareholder proposals annually

[[Page 70264]]

and certain benefits to shareholders directly, as well as through their 
ownership in companies, derived from an ability to focus on shareholder 
proposals that are more likely to garner majority-voting support. The 
costs of the rule are attributable to certain costs to shareholder-
proponents in navigating the new thresholds and becoming eligible to 
submit proposals under the new thresholds, as well as any costs that 
would arise if the final rules result in the exclusion of shareholder 
proposals that otherwise would have garnered majority support or 
garnered majority support more quickly. We discuss the benefits and 
costs of the rule amendments in detail in Sections V.D and V.E below.
    Some commenters concurred with our assessment of the effects of the 
proposed rule amendments \269\ while other commenters raised concerns 
with our analysis and conclusions in the Proposing Release.\270\ Before 
addressing specific comments in more detail throughout the Economic 
Analysis, we address certain overarching issues raised by commenters.
---------------------------------------------------------------------------

    \269\ See, e.g., letters from American Securities Association 
dated February 3, 2020; Business Roundtable dated February 3, 2020; 
Center for Capital Markets Competitiveness dated January 31, 2020; 
Compass Lexecon dated December 23, 2019.
    \270\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; CalPERS dated February 3, 2020; John Coates and Barbara 
Roper dated January 30, 2020; Shareholder Rights Group dated January 
6, 2020.
---------------------------------------------------------------------------

    First, a number of commenters expressed the view that the 
Commission had not identified an economic need for the rule amendments 
because the economic analysis in the Proposing Release did not document 
a market failure or other basis for the amendments. For example, some 
commenters argued that the decreasing trend in the number of submitted 
proposals, the increasing trend in the average voting support for 
certain proposals, and the fact that most companies do not receive any 
proposals during any given year suggests that there is no economic 
justification for the rule amendments.\271\ As a general matter, we 
believe it is appropriate for the Commission to engage in retrospective 
review, including revisiting our rules on shareholder proposals, to 
ensure that they are functioning as intended. As discussed in the 
Proposing Release, certain aspects of the shareholder-proposal rule--
including the ownership thresholds--had not been reviewed by the 
Commission in more than 20 years prior to the Proposing Release. As 
part of that review, we observed that (1) the overwhelming majority of 
shareholder proposals are submitted by a very small number of 
proponents and (2) a significant number of proposals that are eligible 
to be resubmitted under the current resubmission thresholds continue to 
receive low levels of support from fellow shareholders.\272\ Because, 
in part, shareholder proposals impose direct and opportunity costs on 
shareholders and indirect costs on shareholders through their ownership 
in companies, the Commission has long held the view that it is 
appropriate to condition eligibility for those that submit shareholder 
proposals pursuant to Rule 14a-8 on indicia of an alignment of interest 
with non-proponent shareholders and to provide for a cooling-off period 
for proposals that receive low levels of support.\273\ In addition, 
shareholders' ability to communicate with companies and other 
shareholders has evolved due to technological advancements and 
developing market practices. As a result, shareholders now have more 
tools at their disposal to engage with a company's board and 
management, as well as other shareholders, in ways that may be more 
efficient for all parties than under the Rule 14a-8 process. The 
amendments we are adopting are designed to revise the thresholds to 
better ensure that the significant attendant burdens for other 
shareholders and companies associated with the inclusion of such 
proposals in the company's proxy statement are incurred in connection 
with those proposals that are (i) submitted by shareholders with an 
economic stake or investment interest in the company that demonstrates 
a reasonably sufficient alignment of interest with non-proponent 
shareholders and (ii) with respect to resubmissions, more likely to 
receive support from fellow shareholders and, accordingly, are more 
likely to lead to an action that is approved by its shareholders.\274\
---------------------------------------------------------------------------

    \271\ See, e.g., letters from As You Sow dated February 3, 2020; 
CalPERS dated February 3, 2020; Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Richard A. Liroff dated 
January 28, 2020; Local Authority Pension Fund Forum dated February 
3, 2020; James McRitchie dated February 2, 2020; Presbyterian Church 
dated January 28, 2020; Tom Shaffner dated December 17, 2019; 
Shareholder Rights Group dated January 6, 2020; UAW Retiree Medical 
Benefits Trust dated January 30, 2020; US SIF dated January 31, 
2020. See also Recommendation of the IAC, supra note 18. Some other 
commenters also raised concerns about amending the resubmission 
thresholds. In particular, commenters argued that the low number of 
excludable proposals under current resubmission thresholds does not 
imply that the resubmission thresholds are currently too low because 
proponents now tend to modify resubmitted proposals to increase the 
voting support they receive, proponents engage in more outreach than 
in the past which improves voting outcomes, and more active 
participation of proxy voting advice businesses and institutional 
investors can improve voting outcomes ultimately resulting in low 
numbers of excludable resubmitted proposals. In addition, some 
commenters argued that the rule amendments are unnecessary because 
shareholders already are unlikely to resubmit proposals that garner 
low levels of support. See, e.g., letters from AFL-CIO dated 
February 3, 2020; Principles for Responsible Investment dated 
February 3, 2020; Segal Marco Advisors dated February 3, 2020. 
Nevertheless, we believe that shareholder proposals impose direct 
and opportunity costs on shareholders and companies, and the amended 
resubmission thresholds are designed to decrease those costs by 
imposing a cooling-off period for proposals that receive low levels 
of support.
    \272\ Under the current thresholds, at least 90% of proposals 
remain eligible for resubmission. These resubmitted proposals have 
been permitted even though, according to our analysis, previously 
only approximately 6.5% of proposals that fail to win majority 
support the first time achieve majority support in a subsequent 
attempt. See supra notes 209 and 210 and accompanying text.
    \273\ See supra Section II.A.3 and II.E.3.
    \274\ See supra note 2 and accompanying text.
---------------------------------------------------------------------------

    Second, some commenters argued that the Proposing Release did not 
consider all of the potential benefits of various shareholder proposals 
and thus did not adequately analyze the costs of the amendments to 
companies and, as a result, to their shareholders, that could result 
from the exclusion of shareholder proposals.\275\ We recognize that 
shareholder proposals may bring benefits to companies and their 
shareholders and that the potential loss of those benefits resulting 
from the exclusion of certain proposals that are not otherwise proposed 
by other shareholders would be a cost of the rule. Thus, to the extent 
that the final rule amendments may exclude proposals that may bring 
benefits to companies and their shareholders, we qualitatively describe 
the cost that may arise. We do not focus on specific types of 
shareholder proposals or attempt to quantify whether excluded proposals 
would have resulted in economically beneficial changes, as suggested by 
some commenters.\276\ As a threshold matter, under state corporate law, 
those evaluations are properly left to the company's owners--the 
shareholders. In addition, our regulation of shareholder proposals 
under Rule 14a-8 has not been, nor would it be under the final

[[Page 70265]]

amendments,\277\ designed to judge the economic value of any particular 
shareholder proposal, or intended to take a position on the merits of 
any shareholder proposal topic.\278\ By way of example, it would be 
inappropriate and outside of our regulatory remit to make a 
determination that any particular proposal, for example one that has 
been disapproved by 90 percent of a company's voting shareholders, 
would have been beneficial (or costly) to those shareholders as it is 
the shareholders who ultimately determine the value of a proposal to a 
particular company. Rather, the rule focuses on setting thresholds at 
which it is appropriate for a shareholder proposal--regardless of its 
substance--to be included in the company's proxy materials at the 
expense of the other shareholders (directly and indirectly as owners of 
the company), either as an initial submission, or as a resubmission.
---------------------------------------------------------------------------

    \275\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Lucian A. Bebchuk dated February 3, 2020; Center for Political 
Accountability dated January 31, 2020; Council of Institutional 
Investors dated January 30, 2020; Richard A. Liroff dated January 
28, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020. 
See also Recommendation of the IAC, supra note 18.
    \276\ See infra note 426. See also infra Section V.E.2.
    \277\ For purposes of the economic analysis, we use the term 
``final amendments'' to refer collectively to the amendments to 
Rules 14a-8(b), 14a-8(c), and 14a-8(i)(12).
    \278\ See Statement of Informal Procedures, supra note 255 
(stating that the Commission has no interest in the merits of 
particular security holder proposals and that its ``sole concern is 
to insure that public investors receive full and accurate 
information about all security holder proposals that are to, or 
should, be submitted to them for their action''). This is consistent 
with the federal securities laws' general approach to public company 
disclosure, which eschews merit-based regulation and instead focuses 
on the need to provide information material to investment and voting 
decisions.
---------------------------------------------------------------------------

    Moreover, even if the statutory remit and historic approach of the 
Commission to such matters were to change fundamentally, focus on the 
potential economic effects of specific types of shareholder proposals 
would be inherently speculative, as it would require us to opine on the 
merits, and estimated costs and benefits, of proposals--or categories 
of proposals--without knowing sufficient details of the proposals or 
the companies for which they are advanced. Moreover, there are 
significant methodological and empirical challenges to quantifying 
whether excluded proposals would have resulted in economically 
beneficial changes to the company, including the difficulty of 
assessing whether a particular proposal would be beneficial to a 
particular company, for example because any decision driven by such a 
proposal would be part of an overarching array of decisions that 
collectively affect the company's business and prospects. It is also 
difficult to disentangle the effect of shareholder proposals from other 
effects such as the effect of direct communication of shareholders with 
management. A proposal that is subject to a cooling-off period may be 
approved in the future or, instead of waiting, shareholders who 
supported the proposal may use other methods to engage with the company 
on the issue. Consequently, the marginal cost of not allowing a 
shareholder proposal that would have benefited the company to go 
forward during the cooling-off period may be quite low. In addition, 
the relevant data does not exist and existing data cannot be 
generalized to estimate the benefits of shareholder proposals across a 
broad set of those proposals.\279\
---------------------------------------------------------------------------

    \279\ See infra Section V.E.2.
---------------------------------------------------------------------------

    Finally, some commenters criticized the data and method used to 
estimate the benefits of the proposed rule amendments, which we 
primarily expect to come in the form of cost savings to shareholders 
directly and through their ownership in companies.\280\ As a response 
to these comments, we discuss in more detail below the limitations 
associated with our estimates of those savings, including that we are 
unable to predict how shareholder-proponents might modify their 
behavior in response to the final amendments. We also have revised our 
cost savings analysis to take into account the additional cost 
estimates provided by commenters.\281\
---------------------------------------------------------------------------

    \280\ See, e.g., letters from AFL-CIO dated February 3, 2020; As 
You Sow dated February 3, 2020; Better Markets dated February 3, 
2020; CalPERS dated February 3, 2020; John Coates and Barbara Roper 
dated January 30, 2020; Council of Institutional Investors dated 
January 30, 2020; Impax Asset Management dated January 20, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; International Brotherhood of Teamsters dated February 3, 2020; 
Richard A. Liroff dated January 28, 2020; Paul M. Neuhauser dated 
February 3, 2020; Segal Marco Advisors dated February 3, 2020; Tom 
Shaffner dated December 17, 2019; UAW Retiree Medical Benefits Trust 
dated January 30, 2020.
    \281\ See infra Section V.D.1.i.
---------------------------------------------------------------------------

    The economic analysis proceeds as follows. Section V.B discusses 
the baseline against which we will measure the costs and benefits of 
the rule amendments and the effects of the rule amendments on 
efficiency, competition and capital formation. Section V.C provides our 
estimate of the reduction in the number of shareholder proposals as a 
result of the rule amendments. As discussed in more detail below, the 
net effect of the rule amendments will be the result of a combination 
of factors as there will likely be an increase in the number of 
excludable proposals from the baseline, but any such increase in the 
number of excludable proposals as a result of the changes to the 
initial submission thresholds may be mitigated by changes in proponent 
behavior as a response to the rule amendments. Any shareholder that 
meets the current initial submission threshold (e.g., holding $2,000 of 
company stock for at least one year), but does not already meet the 
length of holding or other thresholds under the amended rule and 
desires to submit a proposal can hold onto the company stock until it 
satisfies the three-year holding period or can otherwise adjust his or 
her holdings to meet the amended thresholds. As this discussion 
illustrates, the changes in shareholder-proponent behavior, in 
particular, in the areas of investment amount and holding period, and 
the effects thereof are difficult to quantify, including as a result of 
the relatively small percentage of shareholders that submit shareholder 
proposals. Section V.D discusses the benefits, costs, and effects on 
efficiency, competition, and capital formation of the rule amendments 
by type of affected party. In particular, Section V.D.1 discusses the 
effects of the rule amendments on companies that receive shareholder 
proposals, Section V.D.2 discusses the effects of the rule amendments 
on the non-proponent shareholders of those companies, and Section V.D.3 
discusses the effects of the rule amendments on shareholder-proponents. 
Finally, Section V.E discusses other effects of the rule that were 
raised by commenters,\282\ and Section V.F discusses reasonable 
alternatives to the amendments.
---------------------------------------------------------------------------

    \282\ Section V.E also discusses additional baseline 
considerations raised by commenters.
---------------------------------------------------------------------------

B. Economic Baseline

    The baseline against which we measure the costs, benefits, and the 
impact on efficiency, competition, and capital formation of the final 
rule amendments consists of the current regulatory framework \283\ and 
the current practices for shareholder proposal submissions.\284\ The 
final amendments

[[Page 70266]]

to Rule 14a-8(b), Rule 14a-8(c), and Rule 14a-8(i)(12) will affect all 
companies subject to the federal proxy rules that receive shareholder 
proposals, shareholders of these companies, and the proponents of these 
proposals.\285\ We discuss each one of these affected parties below.
---------------------------------------------------------------------------

    \283\ See Proposing Release at 66474 for a detailed description 
of state laws, corporate bylaws prepared under state law, and 
federal securities laws that jointly govern the shareholder-proposal 
process.
    \284\ See Proposing Release at 66476 for a detailed description 
of current market practices related to shareholder proposals, 
including general trends documenting the number of shareholder 
proposals and voting support over time, the distribution of 
ownership across shareholder-proponents, disclosures associated with 
the use of a representative, and shareholder proposal resubmissions.
    We believe that the 2018 data used in the Proposing Release to 
describe the economic baseline is representative of current market 
practices surrounding the shareholder-proposal process because 2018 
was a year of low market stress and 2018 data are recent. Our review 
of industry publications also suggests that the 2018 proxy season is 
largely representative of recent proxy seasons, including the 2019 
proxy season (e.g., Broadridge & PwC, ProxyPulse: 2019 Proxy Season 
Review, available at https://www.broadridge.com/_assets/pdf/broadridge-proxypulse-2019-review.pdf; Sullivan & Cromwell Report, 
supra note 60). Further, our review of comment letters suggests that 
the results of our analysis of the effects of the amendments to the 
resubmission thresholds using 2011-2018 data likely would be 
qualitatively similar if we expanded our sample to include 2019 
data. See letter from Council of Institutional Investors dated May 
19, 2020.
    A commenter criticized the use of one year of data for some of 
this analysis arguing that a single year of data may not be 
representative of current practices. See letter from Boston Trust 
Walden et al. dated January 27, 2020. We believe the 2018 data are 
representative.
    For most of our analysis both in this release and in the 
Proposing Release we use data from 2018 because we believe that 
using more recent data would not materially alter our conclusions. 
Nevertheless, we acknowledge that certain market developments, such 
as the Covid-19 pandemic, may affect certain aspects of our 
statistics, such as the adjustment of the $2,000 threshold for the 
growth in Russell 3000. Whenever relevant, we have updated certain 
relevant statistics throughout the release using more recent data.
    \285\ The amendments may also have second-order effects on 
providers of administrative and advisory services related to proxy 
solicitation and shareholder voting. Nevertheless, we believe that 
any such effects likely will be small because shareholder proposals 
are a small fraction of management proposals and so any potential 
change in the number of excludable shareholder proposals as a result 
of the rule amendments likely will have a limited effect on the 
business of providers of administrative and advisory services 
related to proxy solicitation and shareholder votes.
    Some commenters argued that the economic analysis in the 
Proposing Release did not consider the impact of the rule amendments 
on groups other than shareholders, such as the company's employees 
and society in general. See, e.g., letters from Better Markets dated 
February 3, 2020; Council of Institutional Investors dated January 
30, 2020; Local Authority Pension Fund Forum dated February 3, 2020; 
Pulte Institute for Global Development dated January 31, 2020. We 
acknowledge that the rule amendments may affect groups other than a 
company's shareholders, but we lack information that would allow us 
to reliably estimate the number of those entities and the effects of 
the rule amendments on those entities.
---------------------------------------------------------------------------

    1. Companies
    The final amendments will affect companies that expect to receive 
shareholder proposals. For each shareholder proposal a company 
receives, the company will incur costs to consider the proposal. For 
each shareholder proposal that meets the eligibility criteria, a 
company will incur costs associated with its response, which could 
include engaging with the proponent, including the proposal in the 
company's proxy statement, or submitting a no-action request to 
Commission staff.\286\ Although not required, no-action letters are 
submitted by most companies seeking to exclude shareholder proposals 
from their proxy statements.\287\ For the proposals that are not 
eligible for submission under Rule 14a-8, the company may incur the 
costs associated with submitting a no-action request to Commission 
staff. More specifically, the costs that companies incur include, to 
the extent applicable, costs to: (i) Review the proposal and address 
issues raised in the proposal (including time dedicated by internal 
legal, corporate governance, communications, and investor relations 
staff, law firms and other service providers, subject matter experts, 
executive management, and the board of directors on evaluating each 
proposal); (ii) engage in discussions with the proponent(s); (iii) 
print and distribute proxy materials, and tabulate votes on the 
proposal; (iv) communicate with proxy voting advice businesses and non-
proponent shareholders (e.g., proxy solicitation costs) and engage with 
non-proponent shareholders; (v) if the company intends to exclude the 
proposal, file a notice with the Commission; and (vi) prepare a 
statement of opposition to the submission.
---------------------------------------------------------------------------

    \286\ As we discuss in detail in Sections V.B.2 and V.D.2 below, 
the company's costs and benefits are indirectly borne by its 
shareholders.
    \287\ See Rule 14a-8(j). While Rule 14a-8(j) requires a company 
to ``file its reasons'' for exclusion with the Commission, most 
companies provide such information in the form of a no-action 
request.
---------------------------------------------------------------------------

    Some commenters added that the costs that companies incur to 
consider a shareholder proposal depend on, among others: (i) Whether 
the proposal is an initial submission or resubmission; \288\ (ii) 
whether or not the company seeks no-action relief from Commission 
staff; \289\ (iii) the nature of the proposal, including whether the 
topic of the proposal is one with which the company is familiar; \290\ 
(iv) whether the company engages with the proponent, whether the 
proponent engages with the company, and, if there is engagement, the 
manner of the engagement (e.g., face-to-face meetings versus phone 
calls); \291\ (v) the corporate governance of the company, and any 
changes thereto, over the course of the years of submission; \292\ (vi) 
the importance of the issue raised in the proposal to the company and 
the proponent and the resources each utilizes; \293\ and (vii) the need 
to seek outside legal advice, proxy solicitation services, consulting 
services, or other advisory services to respond to the proposal.\294\ 
Hence, there is variation in the costs that companies incur to process 
shareholder proposals.\295\
---------------------------------------------------------------------------

    \288\ For example, some commenters stated that in the case of 
statements in opposition of resubmitted proposals, companies often 
repeat the arguments made in a prior year, which should result in a 
lower cost of responding to resubmissions relative to first-time 
submissions. See, e.g., letters from AFL-CIO dated February 3, 2020; 
CalPERS dated February 3, 2020; Council of Institutional Investors 
dated January 30, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; Principles for Responsible 
Investment dated February 3, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020. See also letter in response to the 
Proxy Process Roundtable from Shareholder Rights Group dated 
December 4, 2018. In certain instances, however, resubmissions could 
be costlier than initial submissions. For example, companies might 
decide to challenge a resubmission or to make a concession to the 
proponent in exchange for the proposal being dropped and incur the 
associated costs following low support for the initial submission.
    \289\ See, e.g., letters from CalPERS dated February 3, 2020; 
John Coates and Barbara Roper dated January 30, 2020; Council of 
Institutional Investors dated January 30, 2020; International 
Brotherhood of Teamsters dated February 3, 2020; Richard A. Liroff 
dated January 28, 2020.
    \290\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; Richard A. Liroff dated January 28, 2020.
    \291\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; International Brotherhood of Teamsters dated 
February 3, 2020; Richard A. Liroff dated January 28, 2020.
    \292\ See, e.g., letter from Richard A. Liroff dated January 28, 
2020.
    \293\ See, e.g., letter from Council of Institutional Investors 
dated January 30, 2020.
    \294\ See, e.g., letters from John Coates and Barbara Roper 
dated January 30, 2020; Council of Institutional Investors dated 
January 30, 2020; Richard A. Liroff dated January 28, 2020.
    \295\ We requested from commenters, but did not receive, data 
that would allow us to estimate the opportunity costs associated 
with shareholder proposals. One commenter noted that there is no 
reliable evidence that companies have to forgo economically 
beneficial activities because of the need to respond to shareholder 
proposals. See letter from Council of Institutional Investors dated 
January 30, 2020. Other commenters, however, agreed that shareholder 
proposals impose opportunity costs on companies and their 
shareholders. See, e.g., letters from American Securities 
Association dated February 3, 2020; Business Roundtable dated 
February 3, 2020; Nareit dated February 3, 2020; National 
Association of Manufacturers dated February 3, 2020; Society for 
Corporate Governance dated February 3, 2020.
---------------------------------------------------------------------------

    The benefits of shareholder proposals to companies (and indirectly 
their shareholders) generally are the facilitation of shareholder 
engagement with the company and other shareholders and, in the case of 
a shareholder proposal that is adopted, the potential benefit of that 
proposal to the company (and indirectly its shareholders). These 
benefits are difficult to isolate from other forms of engagement and 
corporate activities, and cannot be reasonably quantified.\296\ In any 
event, as discussed below we do not expect the amendments to

[[Page 70267]]

significantly reduce shareholder engagement.\297\
---------------------------------------------------------------------------

    \296\ See infra Section V.E.2 for additional details.
    \297\ See infra Section V.C.
---------------------------------------------------------------------------

    We estimate that 18,594 companies are subject to the federal proxy 
rules and thus could potentially be affected by the final rule 
amendments; out of the 18,594 companies, 5,637 actually filed proxy 
materials with the Commission during calendar year 2018.\298\ Among all 
Russell 3000 companies that held annual meetings in calendar year 2018, 
439 (15 percent) received at least one shareholder proposal.\299\ Among 
S&P 500 companies, 266 (53 percent) received at least one shareholder 
proposal in 2018.
---------------------------------------------------------------------------

    \298\ The affected companies (i.e., 18,594) comprise 5,758 
companies with a class of securities registered under Section 12 of 
the Exchange Act, 20 companies without a class of securities 
registered under Section 12 of the Exchange Act that filed proxy 
materials, and 12,718 registered management investment companies, 
and 98 Business Development Companies. Of 5,690 entities that filed 
proxy materials with the Commission, we identified 53 that were not 
companies, and have excluded these from our estimate of companies 
that filed proxy materials during calendar year 2018.
    We estimate the number of registrants with a class of securities 
registered under Section 12 of the Exchange Act by reviewing all 
Forms 10-K filed during calendar year 2018 with the Commission and 
counting the number of unique registrants that identify themselves 
as having a class of securities registered under Section 12(b) or 
Section 12(g) of the Exchange Act. Foreign private registrants that 
filed Forms 20-F and 40-F and asset-backed registrants that filed 
Forms 10-D and 10-D/A during calendar year 2018 with the Commission 
are excluded from this estimate. This estimate excludes BDCs that 
filed Form 10-K in 2018.
    We identify the issuers without a class of securities registered 
under Section 12 of the Exchange Act that filed proxy materials as 
those (1) subject to the reporting obligations of Exchange Act 
Section 15(d) but that do not have a class of equity securities 
registered under Exchange Act Section 12(b) or 12(g) and (2) that 
filed any proxy materials during calendar year 2018 with the 
Commission. The proxy materials we consider in our analysis are 
DEF14A; DEF14C; DEFA14A; DEFC14A; DEFM14A; DEFM14C; DEFR14A; 
DEFR14C; DFAN14A; N-14; PRE 14A; PRE 14C; PREC14A; PREM14A; PREM14C; 
PRER14A; PRER14C. Form N-14 can be a registration statement and/or 
proxy statement. We manually review all Forms N-14 filed during 
calendar year 2018 with the Commission and we exclude from our 
estimates Forms N-14 that are exclusively registration statements. 
To identify registrants reporting pursuant to Section 15(d) but not 
registered under Section 12(b) or Section 12(g), we review all Forms 
10-K filed in calendar year 2018 with the Commission and count the 
number of unique registrants that identify themselves as subject to 
Section 15(d) reporting obligations but with no class of equity 
securities registered under Section 12(b) or Section 12(g).
    We estimate the number of unique registered management 
investment companies based on Forms N-CEN filed between June 2018 
and August 2019 with the Commission. Open-end funds are registered 
on Form N-1A. Closed-end funds are registered on Form N-2. Variable 
annuity separate accounts registered as management investment 
companies are trusts registered on Form N-3.
    BDCs are entities that have been issued an 814- reporting 
number. Our estimate includes 88 BDCs that filed Form 10-K in 2018 
as well as BDCs that may be delinquent or have filed extensions for 
their filings. Our estimate excludes six wholly-owned subsidiaries 
of other BDCs.
    The entities that filed proxy materials with the Commission 
(i.e., 5,690) are subset of affected entities (i.e., 18,594) that 
filed any of the following proxy materials during calendar year 2018 
with the Commission: DEF14A; DEF14C; DEFA14A; DEFC14A; DEFM14A; 
DEFM14C; DEFR14A; DEFR14C; DFAN14A; N-14; PRE 14A; PRE 14C; PREC14A; 
PREM14A; PREM14C; PRER14A; PRER14C.
    \299\ Several companies received multiple shareholder proposals 
during calendar year 2018. In addition, a few proposals were 
submitted to companies outside of the Russell 3000 index. Using 
FactSet's corporate governance database, SharkRepellent (available 
at https://sharkrepellent.net), we estimate that in 2018, there were 
19 voted shareholder proposals at 11 companies outside of the 
Russell 3000 index. Our analysis focuses on proposals submitted to 
companies within the Russell 3000 index because this sample 
represents the vast majority of submitted shareholder proposals.
---------------------------------------------------------------------------

2. Non-Proponent Shareholders
    The final amendments may also affect non-proponent shareholders of 
companies receiving shareholder proposals. These shareholders, 
particularly when considered in the aggregate, may incur significant 
costs to consider and vote on these proposals. Several commenters to 
the Commission's proposed amendments to the exemptions from the proxy 
rules for proxy voting advice, particularly institutional investors who 
typically vote a large number of proposals (which may include company 
and shareholder proposals) each proxy season, expressed that they face 
significant resource challenges in determining how to vote on those 
proposals.\300\ In addition, all shareholders may incur passed-through 
costs associated with companies' consideration and processing of 
shareholder proposals and experience the economic impact of shareholder 
proposals that are implemented. According to a recent study based on 
the 2016 Survey of Consumer Finances, approximately 65 million 
households owned stocks directly or indirectly (through other 
investment instruments).\301\ Our analysis of Form N-CEN data shows 
that there were 14,605 registered investment companies as of May 
2020.\302\ Non-proponent shareholders may benefit from shareholder 
proposals as a component of overall engagement as discussed above and, 
in certain cases, certain shareholders may benefit if they otherwise 
would have incurred the costs to submit a substantially similar 
proposal.
---------------------------------------------------------------------------

    \300\ See, e.g., letters from Investment Company Institute dated 
February 3, 2020; New York State Comptroller dated February 3, 2020; 
Ohio Public Employees Retirement System dated February 3, 2020. We 
received mixed comments from some of these commenters on the 
proposed amendments to Rule 14a-8.
    \301\ See Jesse Bricker et al., Changes in U.S. Family Finances 
from 2013 to 2016: Evidence from the Survey of Consumer Finances, 
103 Fed. Res. Bull. at 20, 39 (Sept. 2017), available at https://www.federalreserve.gov/publications/files/scf17.pdf (``Bricker et 
al. (2017)'') (51.9% of the 126.0 million families represented owned 
stocks). This is a triennial survey, and the latest data available 
as of this time is from the 2016 survey.
    \302\ Data is retrieved from Form N-CEN filings with the 
Commission as of May 2020. Form N-CEN only covers institutional 
investors that are registered investment companies.
---------------------------------------------------------------------------

3. Proponents of Shareholder Proposals
    Proponents of shareholder proposals can be motivated by 
expectations of pecuniary and non-pecuniary benefits and may be 
affected by the final amendments, which may limit their ability to 
submit shareholder proposals. We estimate that there were 170 
proponents--38 individual proponents and 132 institutional proponents--
that served as lead proponent or co-proponent during calendar year 2018 
and submitted a shareholder proposal that was included in a proxy 
statement.\303\ As broad context, we note that the ratio of the number 
of estimated proponents whose proposals appeared in proxy statements 
during 2018 (i.e., 170) to the number of direct and indirect investors 
in companies subject to the proxy rules (i.e., 65 million) is extremely 
small (i.e., 0.0000026 to one). The ratio is less than three 
shareholder-proponents per million investors. In other words, for both 
institutional and retail shareholders, the pool of shareholders that 
has demonstrated an interest in submitting shareholder proposals 
generally is separate and distinct from the overall general pool of 
shareholders. As a result, extrapolating from the general pool of 
shareholders to the pool of shareholders with an interest in submitting 
a proposal (and vice versa) is unlikely to provide a meaningful basis 
for analysis and insight.
---------------------------------------------------------------------------

    \303\ Data is retrieved from proxy statements (see Proposing 
Release at 66487 for a discussion of this data and its limitations). 
This data includes only shareholder proposals that appeared on the 
companies' proxy statements in 2018. In a broader set of submitted 
shareholder proposals, which includes voted, omitted, and withdrawn 
proposals, we estimate that 278 unique proponents submitted a 
proposal as lead proponent or co-proponent during calendar year 
2018. Data is retrieved from ISS Analytics.
---------------------------------------------------------------------------

C. Estimated Reduction in the Number of Shareholder Proposals

    We expect the primary economic effects of the final amendments, in 
the aggregate, to derive from the reduction in shareholder proposals 
included in companies' proxy statements. Because of the potential ways 
in which

[[Page 70268]]

proponents may satisfy, or alter their behavior to satisfy, the amended 
ownership thresholds for initial submissions, we believe it is more 
likely that the reduction in shareholder proposals will result from the 
amendments to the resubmission thresholds. The magnitude of the overall 
reduction will determine the magnitude of the benefits and costs 
discussed in Section V.D below.\304\
---------------------------------------------------------------------------

    \304\ Some commenters stated that the economic analysis should 
consider the interaction of the effects of the amendments to Rule 
14a-8 with the effects of the amendments to Rule 14a-2(b). See, 
e.g., letter from Senator Sherrod Brown dated August 21, 2020. In 
particular, commenters argued that the amendments to Rule 14a-2(b) 
will make it harder for shareholder proposals to meet the amended 
resubmission thresholds because the amendments to Rule 14a-2(b) will 
allow management to influence proxy voting advice businesses' 
recommendations related to proposals that management considers 
unfavorable to them. See, e.g., letters from Ceres et al. dated 
February 3, 2020; Shareholder Rights Group dated January 6, 2020; 
Trillium Asset Management dated February 3, 2020. A commenter also 
stated that the amendments to Rule 14a-2(b) will increase 
shareholders' costs of processing shareholder proposals because the 
cost of proxy voting advice businesses will increase and proxy 
voting advice will be issued with a delay. See, e.g., letter from 
Council of Institutional Investors dated January 30, 2020. To the 
extent that there is an increase in shareholders' costs of 
processing shareholder proposals from the amendments to Rule 14a-
2(b), any cost savings associated with the increase in excludable 
proposals as a result of the amendments to Rule 14a-8 may be higher. 
Nevertheless, we believe that any such effects that result from the 
interaction between the amendments to Rule 14a-8 and Rule 14a-2(b) 
likely will be small because the final amendments to Rule 14a-2(b) 
include certain revisions intended to mitigate the unintended 
consequences identified by commenters (i.e., undue influence and 
increased costs).
---------------------------------------------------------------------------

    We received two comments on the Preliminary Staff Analysis and the 
August 14, 2020 memorandum.\305\ One of these commenters asserted that 
the Commission should have provided the public notice of and an 
opportunity to comment on the Preliminary Staff Analysis in the 
Proposing Release.\306\ As discussed above and in the August 14, 2020 
memorandum, when Commission staff receives a data set in the context of 
a rulemaking, it often will attempt to conduct preliminary analyses 
with the data in an effort to determine whether analysis of the data 
could reliably inform the Commission's decision-making, including 
assessing limitations in the data and assumptions regarding the data 
that would be necessary or appropriate as well as its analytical value 
to the proposed rulemaking in light of those limitations and 
assumptions. Consistent with that approach, staff analyzed the data set 
provided by Broadridge in connection with the Commission's 
consideration of the proposed amendments to Rule 14a-8. However, as 
described in the August 14, 2020 memorandum from the Commission's Chief 
Economist accompanying the Preliminary Staff Analysis, due to the 
significant limitations in the data and the extent and nature of the 
related assumptions that would be necessary to make use of it, neither 
the data set nor the associated Preliminary Staff Analysis could be 
used to reliably assess the potential impact of our rule amendments on 
retail shareholders and accordingly, neither the data nor the related 
analysis were included in the Proposing Release. This is not an 
unprecedented occurrence in the context of a proposed rulemaking, and 
we note that in the Proposing Release the Commission requested that 
commenters submit data that would allow the Commission to reliably 
assess the impact of the proposal.\307\
---------------------------------------------------------------------------

    \305\ See letters from Council of Institutional Investors et al. 
dated September 4, 2020; Sherrod Brown dated August 21, 2020.
    \306\ See letter from Council of Institutional Investors et al. 
dated September 4, 2020.
    \307\ See Proposing Release at 66508-66509.
---------------------------------------------------------------------------

    The Commission satisfied its obligation under the Administrative 
Procedure Act (``APA'') to include in the Proposing Release ``either 
the terms or substance of the proposed rule or a description of the 
subjects and issues involved,'' \308\ and to ``give interested persons 
an opportunity to participate in the rule making through submission of 
written data, views, or arguments.'' \309\ These requirements also 
entail a duty ``to identify and make available technical studies and 
data that it has employed in reaching the decisions to propose 
particular rules.'' \310\ As the Commission's Chief Economist explained 
in his August 14, 2020 memorandum accompanying the Preliminary Staff 
Analysis, the staff did not rely on the Broadridge data set or the 
Preliminary Staff Analysis in formulating its recommendations for the 
Commission, having concluded that the data set had limitations that 
significantly narrowed its potential value in analyzing the impact of 
the proposed amendments. Consequently, the Commission did not rely on 
this data or analysis in determining to propose the amendments.
---------------------------------------------------------------------------

    \308\ 5 U.S.C. 553(b)(3).
    \309\ Id. 553(c).
    \310\ Owner-Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor 
Carrier Safety Admin., 494 F.3d 188, 201-03 (D.C. Cir. 2007) 
(quotation omitted).
---------------------------------------------------------------------------

    Although the Commission was not obligated to do so, it referenced 
the Broadridge data set and its limitations in the Proposing Release 
and invited commenters to submit data that would allow us to reliably 
estimate the potential effects of the rule.\311\ Moreover, we have 
provided an opportunity for public comment on the Preliminary Staff 
Analysis as well as a memorandum from the Chief Economist discussing 
the limitations of that analysis, which were placed in the public 
comment file on August 14, 2020.\312\ In formulating the final 
amendments, we have considered the comments received since that time, 
as discussed further below.\313\
---------------------------------------------------------------------------

    \311\ Broadridge was not identified in the Proposing Release. 
Until recently, Broadridge had asked not to be identified as the 
source of the data set. Additionally, Broadridge did not submit the 
data set to the public comment file in response to the request for 
comment. After receiving confirmation that the staff could attribute 
the Broadridge data set by name, the staff added the Preliminary 
Staff Analysis to the comment file.
    \312\ One commenter noted that the Preliminary Staff Analysis 
was added to the comment file after the comment period closed in 
February 2020. See letter from Council of Institutional Investors et 
al. dated September 4, 2020. The Proposing Release made clear, 
however, that we or the staff ``may add studies, memoranda, or other 
substantive items to the comment file during this rulemaking.'' See 
Proposing Release at 66458. Moreover, the Commission and staff have 
historically considered comments submitted after a comment period 
closes but before adoption of a final rule, consistent with the 
Commission's Informal and Other Procedures (17 CFR 202.6). 
Consistent with that practice, we have done so here.
    \313\ We disagree with a commenter who argued that the inclusion 
of the Preliminary Staff Analysis in the comment file after the 
Proposing Release was inconsistent with the staff's Current Guidance 
on Economic Analysis in SEC Rulemakings. See letter from Council of 
Institutional Investors et al. dated September 4, 2020 (citing 
Current Guidance on Economic Analysis in SEC Rulemakings, available 
at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``Staff Guidance'')). As 
noted above, the Proposing Release specifically indicated that 
``studies, memoranda, or other substantive items'' might be added to 
the comment file during the rulemaking. Nor does the Staff Guidance 
require that the Commission engage in economic analysis based on 
data that it reasonably believes cannot reliably inform an 
assessment of the benefits and costs of a rule. See Staff Guidance 
at 14. Rather, the Staff Guidance is designed to allow for 
flexibility in the context of any particular rulemaking (id. at 2) 
and the approach taken here was appropriate in the circumstances. In 
any event, the Staff Guidance is derived from the Commission's 
statutory obligations under the APA and the Exchange Act, among 
others, and does not itself impose enforceable obligations 
independent of those requirements.
---------------------------------------------------------------------------

    Two commenters asserted that the Proposing Release should have 
addressed the figures in the Preliminary Staff Analysis, including the 
attempts to estimate the percentage of all companies for which less 
than 25% or 5% of accounts in the Broadridge data set would be eligible 
to have their shareholder proposal included in the company's proxy 
statement under the baseline and under the proposed amendments.\314\
---------------------------------------------------------------------------

    \314\ See letters from Council of Institutional Investors et al. 
dated September 4, 2020; Sherrod Brown dated August 21, 2020.

---------------------------------------------------------------------------

[[Page 70269]]

    As described in the August 14, 2020 memorandum, the Broadridge data 
set suffered from significant limitations. As only one example, in 
analyzing the potential impact of possible changes to shareholder 
proposal eligibility, the staff was unable to determine with reasonable 
accuracy from the data set whether the snapshot of account holdings 
provided by Broadridge could be used to determine whether individual 
investors in fact met ownership and duration thresholds under the 
current or revised eligibility requirements (and therefore was unable 
to determine with reasonable accuracy the potential impact), because 
the data set does not identify account holdings as of the deadline to 
submit a shareholder proposal or as of the annual meeting date. Rather, 
it only includes data points as of the record date, which do not extend 
sufficiently in time to capture the minimum holding requirements. 
Additionally, neither Broadridge nor the staff were able to confirm 
that the anonymized accounts in the Broadridge data set represented 
retail shareholders, and the data was provided on an account-level 
basis, not an investor-level basis, while investors may hold securities 
in the same company through more than one account. For these and other 
reasons, including those set forth in the August 14, 2020 memorandum, 
we believe the Broadridge data, including through the Preliminary Staff 
Analysis, cannot be used to reliably determine the number of retail 
investors who would be affected by the proposed amendments.
    In addition, and apart from the specific issues associated with the 
limitations of the Broadridge data and the reliability of the 
Preliminary Staff Analysis, we do not believe an analysis of which 
companies have, for example, 5%, 10%, or 25% of their accounts eligible 
to submit proposals under the current or revised submission thresholds 
provides a meaningful basis on which to analyze the impact of the 
proposals. We note, for example, that we approximate that only roughly 
0.0003% of investors actually submitted shareholder proposals that 
appeared in 2018 proxy statements, and that such a general analysis 
would not allow us to estimate reliably the impact of the proposals on 
that small subset of shareholders that are likely to submit 
proposals.\315\
---------------------------------------------------------------------------

    \315\ 0.0003% = 170 unique proponents that submitted proposals 
that were included in a company's proxy statement as lead proponent 
or co-proponent during calendar year 2018/65 million U.S. investors. 
See supra note 72.
    Even looking at a broader set of submitted shareholder 
proposals, which includes voted, omitted, and withdrawn proposals, 
the estimated 278 unique proponents who submitted a proposal as lead 
proponent or co-proponent during calendar year 2018 represent only 
approximately 0.0004% of all shareholders. See Memorandum.
---------------------------------------------------------------------------

    Separate from the limitations inherent in extrapolating from a 
large pool of shareholders with diversified preferences to a very small 
subset of that group that expresses a specific preference, such a 
general analysis is static and, therefore, would not reflect the 
expectation that shareholders with a specific preference for submitting 
a proposal would adjust their holdings to meet the revised submission 
thresholds, including by holding shares for an additional period of 
time or otherwise adjusting their portfolios. For example, many 
investors also invest through investment funds, which would not be 
captured by company-specific account-level data. However, these 
shareholders could reallocate their fund holdings to increase their 
positions in individual companies if they desired to submit a 
shareholder proposal and did not want to wait to meet the revised 
eligibility requirements. Shareholders also could make various other 
adjustments to their holdings to address their individual eligibility 
preferences. Because, as discussed below, we do not expect the marginal 
cost of these adjustments to be significant, the inability to account 
for this behavior significantly narrowed the potential value of the 
analysis in analyzing the impact of possible changes to the eligibility 
thresholds.
    One commenter expressed the view that it was inappropriate to 
distinguish between retail investors who have filed proposals in the 
past and those who have not in considering the likely impact of the 
proposed amendments on retail shareholders.\316\ This commenter argued 
that investors who have not exercised their rights to have a 
shareholder proposal included in the company's proxy statement would 
nonetheless bear a cost if those rights were taken away, because a 
right can have value even if it is not exercised.
---------------------------------------------------------------------------

    \316\ See letter from Council of Institutional Investors et al. 
dated September 4, 2020.
---------------------------------------------------------------------------

    The Commission notes that every retail shareholder cited by the 
commenter whose current eligibility to submit a proposal is based on 
having held at least $2,000 worth of company stock for at least one 
year will continue to be eligible to submit a proposal during the 
transition period. In addition, while these shareholders' eligibility 
may be affected in the future, they can maintain their eligibility at 
that time by simply continuing to maintain at least $2,000 of company 
stock. More generally, the Commission has considered the potential 
costs and benefits of the rule amendments, including those associated 
with retail shareholders who, in the future, would meet the current 
eligibility thresholds but who may not meet the revised thresholds 
because, for example, they choose not to continue to hold at least 
their $2,000 worth of company securities for any additional required 
time. We continue to believe that, to the extent that any shareholder 
who has held at least $2,000 worth of company securities for one year 
chooses not to meet the revised eligibility thresholds, including by 
simply holding that same dollar amount of stock for a maximum of two 
additional years, that shareholder has not demonstrated a sufficient 
investment interest in a company to be able to draw on company and 
shareholder resources for the purpose of including a proposal in the 
company's proxy statement, including requiring fellow shareholders to 
potentially review, consider, and vote on that proponent's proposal.
    Moreover, as discussed in more detail below, the costs to the 
shareholder-proponent to submit a proposal are low, including when 
compared to the costs incurred by companies and non-proponent 
shareholders, such as, among others, the costs to the shareholder to 
review, consider, and vote on the proposal. To the extent that the 
potential shareholder-proponents cited by the commenter incur 
additional costs to maintain eligibility under the new thresholds--
including, for example, costs associated with maintaining at least 
$2,000 worth of stockholdings for a maximum of two additional years 
(which could be offset to some extent by benefits of holding the 
shares)--we believe those costs would be appropriate in light of the 
related benefits of the rule amendments, including those associated 
with an increased alignment of interest between the proponent and the 
non-proponent shareholders who would incur costs associated with 
reviewing, considering, and voting on the proponent's proposal.\317\
---------------------------------------------------------------------------

    \317\ For the same reason, we disagree with one commenter's 
assertion that ``the impact of the proposed amendments would be much 
broader than the Commission's release asserted, effectively 
depriving most retail shareholders of the rights and ability to use 
the shareholder proposal process to protect and advance their 
interests as investors.'' See letter from Council of Institutional 
Investors et al. dated September 4, 2020. As noted above, every 
retail shareholder cited by the commenter who currently is eligible 
to submit a proposal by having held $2,000 worth of company stock 
for at least one year will continue to be eligible to submit a 
proposal by simply continuing to maintain $2,000 of company stock 
for a maximum of two additional years.

---------------------------------------------------------------------------

[[Page 70270]]

    We also believe that the cost, if any, to shorter-term shareholders 
that have not previously demonstrated a desire to submit a shareholder 
proposal of the potentially applicable longer holding periods under the 
amended thresholds is likely to be small for a number of reasons. For 
example, and more specifically, (1) given that such a small number of 
total shareholders have submitted proposals over time, it would not be 
expected that a significant number of smaller, shorter-term 
shareholders that have not previously demonstrated a desire to submit a 
shareholder proposal would change their preferences and desire to 
submit a proposal, and (2) even if a particular shareholder changed his 
or her preferences, he or she could choose to remain eligible by 
incurring the marginal cost of holding at least $2,000 of his or her 
current shareholding for a total of three years. Accordingly, we 
estimate the potential loss in value cited by the commentator, if any, 
to be low.
    In the Proposing Release, we estimated the reduction in the number 
of shareholder proposals assuming no change in shareholder-proponent 
behavior as a result of the rule amendments.\318\ This analysis 
provides an upper bound estimate of the reduction in shareholder 
proposals that is unlikely to be observed in practice because 
shareholder-proponents are expected to respond to the final amendments 
by taking actions to mitigate the effects of rule amendments on their 
ability to submit proposals. Such actions may reduce the magnitude of 
the final amendments' effects on the number of shareholder proposals, 
thereby reducing the benefit of the amendments but also reducing the 
costs. However, as noted above, extrapolating from the general pool of 
shareholders has significant limitations, and it is difficult to 
anticipate the shareholder-proponents' responses. Accordingly, it 
should be recognized that our efforts to provide a quantitative 
analysis are inherently limited. In this section, we first summarize 
the analysis included in the Proposing Release from which we estimate 
the upper bound of the reduction and then describe how changes in 
shareholder-proponent behavior could affect the magnitude of the 
reduction in shareholder proposals.
---------------------------------------------------------------------------

    \318\ See Proposing Release at 66496-66498.
---------------------------------------------------------------------------

    Table 1 below provides an estimated range of the upper bound of the 
percentage of current shareholder proposals that we anticipate could be 
excludable as a result of the rule amendments assuming no change in 
shareholder-proponents' behavior and not taking into account the 
temporary effect of the transition period that the final rules 
provide.\319\ As discussed in more detail below, we do not believe this 
assumption will prove to be correct in practice. We can only estimate 
the range, and not a precise number, of the reduction in shareholder 
proposals associated with changes to the ownership thresholds because 
we do not have data on duration of holdings for shareholder-
proponents.\320\ We do not expect the final amendments relating to the 
one-percent ownership threshold and shareholder engagement or the final 
amendment requiring certain documentation when using a representative 
to meaningfully impact the number of shareholder proposals included in 
companies' proxy statements, because the one-percent

[[Page 70271]]

ownership threshold currently is rarely utilized in light of the 
$2,000/one-year threshold and the majority of shareholders that submit 
a proposal through a representative already provide much of the 
documentation that is mandated by the final amendments, consistent with 
existing staff guidance.\321\
---------------------------------------------------------------------------

    \319\ See Proposing Release at 66496 for details on the 
methodology and its limitations. Table 1 does not account for 
possible overlap of excludable proposals across final amendments. In 
particular, if final amendments result in a particular proposal 
being excludable under both amended Rule 14a-8(b) and amended Rule 
14a-8(i)(12), we include this proposal in the estimation of the 
effects for both of the final amendments.
    \320\ Several commenters provided staff with statistics related 
to equity holdings of U.S. investors. In particular, several 
commenters provided ownership data regarding themselves or their 
clients. See, e.g., letters from CalPERS dated February 3, 2020; 
First Affirmative Financial Network, LLC dated January 24, 2020; 
James McRitchie dated November 5, 2019; James McRitchie dated July 
21, 2020. One commenter cited a Department of Labor study observing 
that the median brokerage account balance of U.S. investors was 
$6,200 in 2013. See letter from Better Markets dated February 3, 
2020 (citing Advanced Analytical Consulting Group & Deloitte, 
Brokerage Accounts in the United States (Nov. 30, 2015), available 
at https://www.dol.gov/sites/dolgov/files/EBSA/researchers/analysis/retirement/brokerage-accounts-in-the-us.pdf (``Department of Labor 
Study'')). Another commenter cited the same Department of Labor 
study noting that households with a brokerage account owned $248,000 
in stocks on average in 2013. See letter from Jane Bulnes-Fowles 
dated February 3, 2020 (citing the Department of Labor Study). A 
third commenter cited a Census Bureau study observing that among 
U.S. households, the median holdings of stocks and mutual funds was 
$47,000 in 2016. See letter from Paul Rissman dated January 15, 2020 
(citing Jonathan Eggleston & Robert Munk, Net Worth of Households: 
2016, U.S. Census Bureau (Oct. 2019), available at https://www.census.gov/content/dam/Census/library/publications/2019/demo/p70br-166.pdf). A fourth commenter cited a study from the National 
Institute on Retirement Security, which analyzed data from the U.S. 
Census Bureau and showed that the median U.S. retirement account 
balance is zero, and from those accounts with a non-zero balance, 
the median account balance is approximately $40,000. See, e.g., 
letter from AFL-CIO dated February 3, 2020 (citing Jennifer Erin 
Brown et al., Retirement in America: Out of Reach for Working 
Americans?, National Institute on Retirement Security, at 1 (Sept. 
2017), available at https://www.nirsonline.org/wp-content/uploads/2018/09/SavingsCrisis_Final.pdf) (``Brown (2017)''). A fifth 
commenter cited a report documenting an average 401(k) balance in 
the third quarter of 2019 of $105,200. See letters from Shareholder 
Commons dated January 31, 2020 (citing Fidelity Investments, 
Building Financial Futures, available at https://sponsor.fidclity.com/binpublic/06PSWwebsite/documents/BuildingFinancialFutures.pdf). Some commenters cited a median value 
of retail investors' stock portfolios equal to $27,699. See, e.g., 
letter from Better Markets dated February 3, 2020. A final commenter 
cited a Federal Reserve bulletin according to which the median 
retirement portfolio in the United States was $60,000 in 2016. See, 
e.g., letter from Ceres et al. dated February 3, 2020 (citing 
Bricker et al. (2017), supra note 301). See also letter from James 
McRitchie dated July 21, 2020 (providing statistics on share 
ownership similar to the statistics provided by other commenters). 
Relatedly, some commenters noted that in practice, shareholder-
proponents must hold a share value significantly higher than the 
required ownership threshold because stock prices are volatile and 
share ownership thresholds must be maintained for a certain period 
of time. See, e.g., letter from First Affirmative Financial Network, 
LLC dated January 24, 2020. The above-mentioned statistics provide 
information that is additional to the ownership data from proxy 
statements and no-action letters because they provide ownership 
information of potential rather than current proponents. 
Nevertheless, these statistics do not allow us to distinguish 
between the holdings of all shareholders and the holdings of the 
shareholders that are likely to submit a proposal, so we have not 
used them in our analysis.
    Other commenters provided us with statistics on shareholders' 
ownership duration (see also Proposing Release at 66490 for 
additional statistics on shareholders' ownership duration). In 
particular, one commenter cited a white paper that estimated the 
average duration of holdings across all shareholders of nine months 
as of December 2018 using data of share turnover for NYSE listed 
securities. See letter in response to the Proxy Process Roundtable 
from Shareholder Rights Group dated December 4, 2018. Another 
commenter cited an academic study, which estimated that the average 
holding period for individual accounts at a U.S. discount brokerage 
was 16 months between 1991 and 1996. See letter from AFL-CIO dated 
February 3, 2020 (citing Brad Barber & Terrance Odean, Trading Is 
Hazardous to Your Wealth: The Common Stock Investment Performance of 
Individual Investors, 55 J. FIN. 773, 775 (2000) (``Barber & Odean 
(2000)'')). Using the same data as in Barber & Odean 2000, another 
paper found that the median holding period of individual investors 
is 207 trading days. See Deniz Anginer, Snow Xue Han & Celim 
Yildizhan, Do Individual Investors Ignore Transaction Costs? 
(Working Paper, 2018), available at https://ssrn.com/abstract=2972845. A third commenter cited a study, which estimated 
that the average holding period of mutual funds between 2005 and 
2015 was 15 to 17 months. See letter from AFL-CIO dated February 3, 
2020 (citing Anne M. Tucker, The Long and The Short: Portfolio 
Turnover Ratios & Mutual Fund Investment Time Horizons, 43 J. Corp. 
L. 581 (2018)). Finally, another commenter cited an academic study 
that showed that the median duration of holdings for institutional 
investors in 2015 was two years. See letter from Institute for 
Policy Integrity dated February 3, 2020 (citing K.J. Martijn Cremers 
& Simone M. Sepe, Institutional Investors, Corporate Governance, and 
Firm Value, 41 Seattle U. L. Rev. 387, 403 (2018)). Nevertheless, it 
is difficult to infer duration of holdings of shareholder-proponents 
from these studies because they do not separately consider holdings 
of shareholders that already submitted or are likely to submit 
shareholder proposals. Drawing conclusions about duration of 
holdings based on the data provided by commenters would be 
inherently speculative because shareholder-proponents constitute a 
very small (i.e., three shareholder-proponents per million 
investors) and non-random set of shareholders.
    \321\ See Proposing Release 66499.
    \322\ See Proposing Release at 66497. Table 1 uses data from 
proxy statements to estimate the number of excludable proposals as a 
result of the final amendments to Rule 14a-8(b) and Rule 14a-8(c). 
Our analysis using data from no-action letters yields qualitatively 
similar results. The low end of the range (i.e., 0%) assumes that 
all of the 170 proponents held the stock for three years. The high 
end of the range (i.e., 56%) assumes that none of the 170 
proponents, all of whom held the stock for one year, held the stock 
for three years, and assumes that proponents do not hold any more 
company stock outside of the single account that they cite for their 
public proof of ownership. We believe these assumptions are 
overinclusive.
    Table 1 estimates the joint impact of the amendments to the 
ownership thresholds and the prohibition on aggregation of 
shareholdings on the number of shareholder proposals included in 
companies' proxy materials. On the one hand, we estimate that 
changing the ownership thresholds while maintaining shareholders' 
ability to aggregate holdings across shareholder-proponents would 
have resulted in a reduction in the number of shareholder proposals 
included in companies' proxy statements in 2018 between zero and 54 
percent. On the other hand, we estimate that prohibiting aggregation 
of holdings across shareholder-proponents without raising ownership 
thresholds would not have resulted in a change in the number of 
shareholder proposals included in companies' proxy statements in 
2018.
    \323\ See Proposing Release at 66497.
    \324\ In the Proposing Release, we estimated that the amendments 
to Rule 14a-8(i)(12) could have resulted in 30 additional excludable 
proposals in 2018. See Proposing Release at 66500 n.259. Because we 
are not adopting the proposed Momentum Requirement, our estimated 
reduction in the number of shareholder proposals is lower than the 
estimate in the Proposing Release. In particular, we estimate that 
the amendments to the resubmission thresholds could result in 23 
additional excludable proposals in 2018, which is approximately 5% 
of the 423 shareholder proposals that appear as first-time 
submissions or resubmissions during 2018 in a report prepared by the 
Council of Institutional Investors (see Proposing Release at 66469 
n.92). See Proposing Release at 66490 n.197.
    One commenter estimated the number of excludable proposals as a 
result of the amendments to the resubmission thresholds to be around 
21%. See letter from Sustainable Investments Institute dated 
February 3, 2020. The commenter's analysis only examines the effects 
of the rule amendments on environmental and social proposals; it 
does not include governance and other proposals in the analysis. In 
addition, based on our understanding of the methodology used, we 
believe that the commenter's estimate of the effect of the rule 
amendments is overstated because the commenter counts as excludable 
all proposals that do not meet the resubmission thresholds 
regardless of whether those proposals were ultimately resubmitted or 
not. We are unable to confirm whether the commenter's classification 
of proposals as resubmissions is accurate. The same limitations 
apply to the updated analysis using data from the 2020 proxy season 
conducted by Sustainable Investments Institute and included as an 
attachment to the letter from Council of Institutional Investors et 
al. dated July 29, 2020.

 Table 1--Upper Bound Estimate of the Percentage of Excludable Proposals
by Rule Amendment Assuming No Change in Shareholder-Proponents' Behavior
------------------------------------------------------------------------
                       Amendment:                             Percent
------------------------------------------------------------------------
Rule 14a-8(b)--ownership thresholds and prohibition on              0-56
 aggregation \322\......................................
Rule 14a-8(c)--one proposal per person \323\............               2
Rule 14a-8(i)(12)--resubmission thresholds \324\........               5
------------------------------------------------------------------------

    These estimates are subject to several significant limitations and 
should be interpreted with caution. First, as noted earlier, when 
estimating the number of potentially excludable shareholder proposals 
in the analysis above, we assume that proponent behavior with respect 
to shareholder proposal submissions will remain unchanged. In reality, 
we believe this is highly unlikely. As noted, of the 65 million U.S. 
investors, only 170 submitted shareholder proposals that appeared in 
proxy statements in 2018 and were subsequently voted, and of those, 
only 38 were individuals (the rest were institutional investors). To 
meet the new initial submission thresholds, these investors--who 
typically already have owned at least $2,000 of company stock for at 
least one year or perhaps longer--would already be eligible to submit a 
proposal due to their holding period or the size of their holding, or 
would need to hold the same amount of stock for at most two more 
years.\325\
---------------------------------------------------------------------------

    \325\ If they held more than $2,000 but less than $15,000 or 
$25,000 in stock and had not yet met the three-year holding period.
---------------------------------------------------------------------------

    Accordingly, we believe it is likely that, in response to the 
amendments, proponents that desire to submit a proposal but could be 
precluded from submitting shareholder proposals due to the new 
requirements would decide to hold shares for a longer period or 
increase their holdings of certain stocks to meet the amended 
eligibility requirements.\326\ If shareholders respond by changing 
their investment behavior, or if many currently eligible holders are 
already long-term holders, the actual number of newly excludable 
shareholder proposals as a result of changes to Rule 14a-8(b) and Rule 
14a-8(c) will likely be significantly lower than the upper bound of 
excludable proposals estimated above.
---------------------------------------------------------------------------

    \326\ We note that portfolio reallocation is not costless or 
frictionless. We discuss costs associated with this type of 
reallocation in detail below in Section V.D.
---------------------------------------------------------------------------

    Second, another significant limitation in our data, and accordingly 
in the estimates presented in Table 1, is that it relies on proof of 
ownership letters provided by shareholder-proponents in connection with 
their shareholder proposals. Those letters typically are written by a 
broker-dealer or custodian of the shares and are written solely for the 
purpose of proving that the proponent meets the minimum size and length 
of ownership threshold requirements. For a number of reasons, which may 
include privacy concerns because in many cases these letters are made 
public, proponents may choose to keep some of their holdings in 
accounts that are separate from the account they use to prove 
compliance with the ownership thresholds. Thus, this analysis could 
underestimate proponents' actual holdings and, accordingly, 
overestimate the number of newly excludable proposals.
    Third, an issue that is sufficiently important to the broader 
shareholder base can be brought to the company's attention by other 
shareholders, including those that continue to be eligible to submit a 
shareholder proposal. Therefore, to the extent that shareholders with 
holdings that satisfy the amended ownership thresholds choose to take 
up proposals of shareholder-proponents precluded from submitting 
certain proposals under the final rule amendments, these proposals may 
continue to be included in companies' proxy statements.\327\
---------------------------------------------------------------------------

    \327\ As discussed below, institutional investors are less 
likely to be affected by the amendments to the ownership thresholds 
than retail investors (see infra note 392 and accompanying text). 
Several commenters discussed the likelihood of shareholders with 
larger stakes taking up shareholder proposals of proponents who 
would no longer meet amended eligibility requirements. In 
particular, one commenter argued that some asset managers have 
conflicts that may make them less likely to take up proposals that 
would have been submitted by the newly excludable proponents. The 
commenter asserted that some asset managers are reluctant to submit 
proposals against a company's management because they rely on a 
company's management for the assignment of the administration of the 
company's defined contribution plan and the inclusion of the asset 
manager's products in the menu of investment options available to 
plan participants. See letter from Lucian A. Bebchuk dated February 
3, 2020 (citing Lucian A. Bebchuk & Scott Hirst, Index Funds and the 
Future of Corporate Governance: Theory, Evidence, and Policy, 119 
Colum. L. Rev. 2029 (2019)). In addition, commenters indicated that 
some larger shareholders may become more active in submitting 
shareholder proposals but this response will be muted by regulatory 
disincentives, the fact that large investors are less nimble than 
smaller investors that have more flexibility to submit proposals on 
emerging matters, and the fact that large institutions have direct 
access to management and thus are less likely to submit a 
shareholder proposal. See, e.g., letters from Council of 
Institutional Investors dated January 30, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020; James McRitchie 
dated February 2, 2020.

---------------------------------------------------------------------------

[[Page 70272]]

    Fourth, the aggregate reduction in shareholder proposals may be 
lower than the one estimated above if shareholder-proponents decide to 
rotate proposals on similar topics among different companies or to 
submit proposals to the same company but on a different topic in 
response to changes to the resubmission thresholds. Lastly, 
shareholder-proponents may use alternative avenues of communication 
with management, which will not impact the number of excludable 
proposals but may impact the aggregate economic effects of the rule 
amendments. While we expect changes in behavior described above to 
moderate the reduction in submitted shareholder proposals and impact 
the economic effects of the rule amendments, we cannot quantify the 
magnitude of this impact because we cannot reliably predict the extent 
to which shareholder-proponents would change their behavior in response 
to final amendments.
    In addition, our estimation of newly excludable proposals does not 
reflect the final amendments' transition provision, which will 
temporarily decrease the number of excludable proposals as a result of 
the amendments to the ownership thresholds.\328\ Finally, we note that 
while the final amendments may result in a reduction in the number of 
shareholder proposals, companies may always elect to include in their 
proxy materials, or implement proposals, that will otherwise be 
excludable if they believe that those proposals will benefit 
shareholders.\329\
---------------------------------------------------------------------------

    \328\ The transition provision will temporarily exempt from the 
new ownership thresholds certain shareholder-proponents that met the 
former eligibility requirements and maintain continuous ownership of 
their shares, allowing these shareholders to continue to submit 
shareholder proposals for inclusion in companies' proxies for a 
period of time using the $2,000 threshold.
    \329\ Among shareholder proposals resubmitted to Russell 3000 
companies during 2011 to 2018, ten proposals appeared in company 
proxies and were voted on despite receiving low voting support in 
prior submissions and being eligible for exclusion under the current 
resubmission thresholds.
---------------------------------------------------------------------------

D. Analysis of Costs and Benefits and Effects on Efficiency, 
Competition, and Capital Formation of the Final Rule Amendments

1. Companies
    As a result of the final amendments, companies will likely 
experience cost savings because they will be able to exclude more 
proposals. Here, we note again that shareholders may take steps to 
significantly offset the effects resulting from the change to the 
initial submission thresholds at relatively low cost (e.g., a 
shareholder who currently meets the current threshold of holding at 
least $2,000 of company stock for one year can, to the extent that it 
has not already held the stock for three years, meet the revised 
threshold by holding the stock for at most two more years or can rely 
on the transition provision for a temporary period of time).\330\ Thus, 
we are more confident that the changes in the resubmission thresholds 
will reduce the number of shareholder proposals. Companies incur direct 
costs associated with the consideration and processing of submitted 
proposals. Moreover, companies may experience cost savings if 
shareholders are discouraged from submitting proposals that would be 
excludable based on the final amendments. This is because companies 
incur certain direct costs even in connection with excludable proposals 
(e.g., companies will need to file a notice with the Commission that 
they intend to exclude the proposal).\331\
---------------------------------------------------------------------------

    \330\ Commenters have also argued that certain proponents use 
the threat of submitting a shareholder proposal as a means to force 
the company to implement unrelated changes. See, e.g., letter from 
Center for Capital Markets Competitiveness dated January 31, 2020. 
We are unable to confirm whether and how frequently these events 
occur but we believe that the rule amendments may reduce the 
occurrence of any such events because proponents would need to 
either invest more money in the company or hold the company's shares 
for a longer period of time to make the threat credible.
    \331\ It is also possible that, as a result of the revised 
resubmission thresholds, proponents of proposals that are unlikely 
to meet the resubmission thresholds may be less likely to submit 
those proposals initially because they expect that their proposals 
will be excluded on a subsequent resubmission.
---------------------------------------------------------------------------

i. Cost Savings Due to Fewer Shareholder Proposals
    To quantify the cost savings companies will likely experience as a 
result of the final amendments, we use the estimated upper bound 
reduction in the number of shareholder proposals from Section V.C above 
and estimates provided by commenters on the average costs that 
companies incur to process shareholder proposals.\332\
---------------------------------------------------------------------------

    \332\ A number of commenters responded to our request for data 
on the cost of shareholder proposals. One commenter indicated that, 
based on the experience of one of its staffers who had represented 
registrants, no-action correspondence represents the most 
substantial cost related to shareholder proposals, with a marginal 
cost to the company of less than $20,000. See, e.g., letter from 
CalPERS dated February 3, 2020. Two commenters cited the $18,982 
cost estimate to print and mail a single shareholder proposal 
included in the Paperwork Reduction Act (``PRA'') section of the 
Proposing Release and derived from a July 2009 survey by Business 
Roundtable. See letters from John Coates and Barbara Roper dated 
January 30, 2020; Council of Institutional Investors dated January 
30, 2020 (citing the cost estimates from the letter in response to 
Facilitating Shareholder Director Nominations, Release No. 34-60089 
(June 10, 2009) [74 FR 29024 (June 18, 2009)] from Business 
Roundtable dated August 17, 2009, available at https://www.sec.gov/comments/s7-10-09/s71009-267.pdf) (``2009 BRT Letter''). Yet another 
commenter indicated that the cost of shareholder proposals ranges 
from $50,000 to $100,000 or more per proposal. See letter from 
Business Roundtable dated February 3, 2020 (noting that ``[a]lthough 
many member companies reported that it was difficult to quantify the 
costs of shareholder proposals, several reported costs ranging from 
$50,000 to $100,000 or more per proposal. In addition, a number of 
companies noted that their costs for first-time proposals are 
generally higher than those incurred for resubmitted proposals''). 
Finally, according to a commenter, the $87,000 to $150,000 per 
proposal is a fair range of cost estimates for typical proposals, 
even though the cost of certain proposals may exceed the high end of 
the range. See letter from Center for Capital Markets dated January 
31, 2020.
    One commenter conducted a survey of its members regarding the 
costs associated with shareholder proposals. See letter from Society 
for Corporate Governance dated February 3, 2020. According to the 
survey, 24% of the respondents stated that they spend no money or a 
negligible dollar amount on average annually to manage/respond to 
shareholder proposals, 12% stated that they spend more than a 
negligible amount but less than $5,000, eight percent mentioned that 
they spend between $5,000 and $10,000, and 29% stated that they 
spend between $10,000 and $20,000. In addition, a number of survey 
respondents indicated that they spend more than $20,000. For 
example, one respondent reported costs ``[i]n excess of $50,000''; 
one respondent reported costs of ``well over'' $125,000; and a third 
respondent reported incurred expenses of $109,792 in 2018, which 
included the cost of seeking no-action relief, for one proposal and 
$133,587 in 2019 for a proposal that was ultimately included in the 
proxy statement. Two other respondents reported costs of up to 
$100,000; and another respondent reported costs of ``more than 
$200,000'' in ``outside counsel expenses alone'' to process the 
shareholder proposals it receives. Although informative, we are 
unable to use these survey responses to precisely estimate cost 
savings associated with the rule amendments because they refer to 
the annual cost of shareholder proposals for each respondent rather 
than the cost of a single proposal. While we have information of the 
number of proposals submitted at each company in the Russell 3000 
index, we lack information on the identity of respondents in the 
survey. Thus, we are unable to estimate the average cost of a single 
proposal from this data. For example, although 24% of respondents 
stated that they spend no money or a negligible dollar amount on 
average annually to manage/respond to shareholder proposals, we are 
unable to determine whether this is because they do not spend money 
to respond or because they have not received proposals. Several of 
the respondents noted in their comments that they had not received a 
shareholder proposal in recent years. Further, the Council of 
Institutional Investors estimates that S&P 500 companies received 
77% of the proposals received by Russell 3000 companies as of the 
end of the third quarter 2017 (see Jonas Kron & Brandon Rees, 
Frequently Asked Questions about Shareholder Proposals, Council of 
Institutional Advisors, at 1 (last visited Aug. 21, 2020), available 
at https://www.cii.org/files/10_10_Shareholder_Proposal_FAQ(2).pdf 
(``CII FAQ'')), but 47% of the Society for Corporate Governance 
survey respondents were not in the S&P 500. Further, the types of 
costs included in the survey responses differ across respondents and 
so we cannot use the survey responses to estimate the total cost of 
a typical shareholder proposal.

---------------------------------------------------------------------------

[[Page 70273]]

    Some commenters criticized the estimates of costs that companies 
incur to process shareholder proposals used in the estimation of the 
cost savings to companies in the Proposing Release. A number of 
commenters argued that the cost estimates discussed in the economic 
analysis of the Proposing Release were unreliable.\333\ In particular, 
commenters argued that the $150,000 cost estimate provided by a 
commenter in response to the Proxy Process Roundtable \334\ and used as 
an upper bound of our cost estimates in the Proposing Release is 
unreliable because: (i) It is not based on any hard data; (ii) it is 
based on costs incurred by financial services firms rather than 
corporations; and (iii) it is likely at the high end of a range of 
costs.\335\ Commenters also argued that the $50,000 per proposal cost 
estimate provided by one observer \336\ and used as a lower bound of 
our cost estimates in the Proposing Release likely is unreliable 
because it is based on anecdotal reports.\337\ Finally, a number of 
commenters, without providing cost estimates of their own, argued that 
the actual costs of processing shareholder proposals are lower than 
existing cost estimates because these estimates are exaggerated by 
certain commenters.\338\
---------------------------------------------------------------------------

    \333\ See letters from AFL-CIO dated February 3, 2020; As You 
Sow dated February 3, 2020; Better Markets dated February 3, 2020; 
CalPERS dated February 3, 2020; John Coates and Barbara Roper dated 
January 30, 2020; Council of Institutional Investors dated January 
30, 2020; CtW Investment Group dated February 3, 2020; Impax Asset 
Management dated January 20, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; Richard A. Liroff dated January 
28, 2020; Paul M. Neuhauser dated February 3, 2020; Segal Marco 
Advisors dated February 3, 2020; Tom Shaffner dated December 17, 
2019; UAW Retiree Medical Benefits Trust dated January 30, 2020. 
Some of the points raised by commenters were also discussed in the 
Proposing Release. See Proposing Release at 66496.
    \334\ See letter in response to the Proxy Process Roundtable 
from American Securities Association dated June 7, 2019.
    \335\ See, e.g., letters from Better Markets dated February 3, 
2020; John Coates and Barbara Roper dated January 30, 2020; Council 
of Institutional Investors dated January 30, 2020; Interfaith Center 
on Corporate Responsibility dated January 27, 2020; Segal Marco 
Advisors dated February 3, 2020; Tom Shaffner dated December 17, 
2019; UAW Retiree Medical Benefits Trust dated January 30, 2020.
    \336\ See Statement of Darla C. Stuckey, President and CEO, 
Society for Corporate Governance, before the H. Comm. on Financial 
Services, Subcomm. on Capital Markets and Government Sponsored 
Enterprises, Sept. 21, 2016 (noting ``a lower legal cost estimate 
based on anecdotal discussions with [the Society for Corporate 
Governance] members of $50,000 per proposal'').
    A number of commenters criticized cost estimates that other 
commenters provided and were cited in the Proposing Release but 
which we did not use in the estimation of cost savings because they 
fell within the lower and upper bounds of the cost estimates we 
used. See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; RK Invest Law dated February 3, 2020; Segal Marco Advisors 
dated February 3, 2020; UAW Retiree Medical Benefits Trust dated 
January 30, 2020.
    \337\ See, e.g., letters from John Coates and Barbara Roper 
dated January 30, 2020; Council of Institutional Investors dated 
January 30, 2020.
    \338\ See, e.g., letters from AFL-CIO dated November 1, 2017 
(enclosed in November 27, 2019 letter); Athena Impact dated January 
17, 2020; Dominican Sisters of Springfield Illinois dated January 
23, 2020; Impax Asset Management dated January 20, 2020; Stephen 
Lewis dated January 29, 2020; Neuberger Berman dated January 27, 
2020; US SIF dated January 31, 2020. As discussed in more detail 
below, the cost estimates used in the economic analysis are informed 
by the Commission's decades-long experience with Rule 14a-8 and the 
various forms of outreach on the proxy process that the Commission 
has conducted over the years. See infra note 346.
---------------------------------------------------------------------------

    Some other commenters stated that the economic analysis should 
distinguish between the costs that are discretionary (e.g., cost of 
submitting a no-action request to Commission staff, the decision to use 
an outside law firm instead of in-house personnel, or the expenses 
related to soliciting investors) and mandatory (e.g., the cost of 
printing and mailing the shareholder proposal materials).\339\ 
Relatedly, for those costs that are discretionary, some commenters 
argued that companies' decisions to incur those costs may be suboptimal 
and to the detriment of investors.\340\ In particular, several 
commenters argued that the volume of unsuccessful no-action requests is 
suggestive of an unproductive use of company resources, and thus the 
actual, non-discretionary costs of processing shareholder proposals 
(and consequently the actual cost savings of the rule amendments) are 
low.\341\ As a response to commenters that were concerned with 
distinguishing between discretionary and non-discretionary costs, we 
use an estimate of non-discretionary costs (i.e., the cost of printing 
and mailing shareholder proposals) as the lower bound for our direct 
cost savings estimates in the economic analysis.\342\
---------------------------------------------------------------------------

    \339\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; CtW 
Investment Group dated February 3, 2020; First Affirmative Financial 
Network, LLC dated January 24, 2020; Impax Asset Management dated 
January 20, 2020; International Brotherhood of Teamsters dated 
February 3, 2020; Richard A. Liroff dated January 28, 2020; James 
McRitchie dated February 2, 2020; US SIF dated January 31, 2020.
    A commenter also argued that the largest cost associated with 
shareholder proposals is the cost of submitting a no-action request 
to Commission staff, and ``the only proposals excludable under the 
new rules would be those that otherwise could meet the requirements 
of Rule 14a-8, and would not fall within the subset of proposals 
likely to generate the highest costs.'' See letter from John Coates 
and Barbara Roper dated January 30, 2020. We understand this comment 
to mean that the proposals excludable under the rule amendments 
would be those that otherwise meet the requirements of Rule 14a-8 
and thus companies would not be required to incur costs associated 
with a no-action request to exclude those proposals. We disagree 
with the commenter's assessment, including as a factual matter. For 
example, a proposal that may be excludable under the new rules 
because the proponent did not have a sufficiently long-term interest 
in the company also may have been excludable by the company for one 
of the other reasons enumerated in paragraph (i) of Rule 14a-8. To 
the extent that the rule amendments will deter proponents from 
submitting some shareholder proposals that are excludable under the 
rule amendments and other Rule 14a-8 requirements, companies and 
their shareholders could realize cost savings by avoiding having to 
seek no-action relief for those shareholder proposals.
    Some commenters implied that because many proposals are 
withdrawn, the cost of shareholder proposals is small. See, e.g., 
letter from Impax Asset Management dated January 20, 2020. We 
disagree with this assertion because companies may incur significant 
direct and opportunity costs to engage with shareholders and achieve 
the withdrawal of a proposal.
    Some commenters also suggested that if companies wish to avoid 
the expenses associated with shareholder proposals, they could 
simply include those proposals in their proxy materials. See, e.g., 
letter from Impax Asset Management dated January 20, 2020. Companies 
and their shareholders incur costs associated with the inclusion of 
proposals in the proxy materials. In addition, we believe that 
companies likely will expend time and effort to analyze and assess a 
shareholder proposal, either because it is not obvious whether the 
proposal will be beneficial for shareholders or because further 
communication with the proponent may be beneficial.
    \340\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; Richard A. Liroff dated January 28, 2020; 
James McRitchie dated February 2, 2020; US SIF dated January 31, 
2020. See also Brown (2017), supra note 320, at 21; Adam M. Kanzer, 
The Dangerous ``Promise of Market Reform'': No Shareholder 
Proposals, Harvard Law School Forum on Corporate Governance and 
Financial Regulation (Jun. 15, 2017), available at https://corpgov.law.harvard.edu/2017/06/15/the-dangerouspromise-of-market-reform-no-shareholder-proposals/, at 2; James McRitchie, SRI Funds & 
Advisors Send Open Letters on Lawsuits Against Shareholders, 
CorpGov.net (Mar. 24, 2014), available at https://www.corpgov.net/2014/03/sri-funds-advisors-send-open-letters-on-lawsuits-against-shareholders/; letter in response to the Proxy Process Roundtable 
from Investor Voice, SPC dated November 14, 2018.
    \341\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020.
    \342\ See infra note 344.

---------------------------------------------------------------------------

[[Page 70274]]

    Several commenters also argued that the economic analysis should 
consider the marginal rather than the average cost of shareholder 
proposals, and suggested the marginal costs would be significantly 
lower than the average costs because all fixed costs of handling 
proposals will remain.\343\ While we agree with the commenters that the 
economic analysis should consider the marginal cost of shareholder 
proposals, we do not believe that the marginal costs would be 
significantly lower than the average costs because many of the costs 
associated with processing shareholder proposals are variable costs, 
such as reviewing the proposal and addressing issues raised in the 
proposal, engaging in discussions with the proponent, and printing and 
mailing materials associated with the particular proposal.
---------------------------------------------------------------------------

    \343\ See, e.g., letters from John Coates and Barbara Roper 
dated January 30, 2020; Council of Institutional Investors dated 
January 30, 2020.
---------------------------------------------------------------------------

    We recognize that there is variation in the costs to companies of 
responding to shareholder proposals, and we have considered all of the 
comments received in estimating cost savings to companies. In response 
to these comments, we have adjusted our estimate of the lower end of 
the costs. We use the estimate of $18,982 to print and mail a single 
shareholder proposal, rounded up to $20,000, as the lower bound for our 
direct cost estimates in the economic analysis.\344\ We continue to use 
$150,000 as the upper bound for our direct cost estimates in the 
economic analysis, which we believe represents a reasonable upper end 
of potential costs of processing a shareholder proposal, including 
legal and management time to consider a shareholder proposal and the 
cost of submitting a no-action request to Commission staff.\345\ 
Nevertheless, we acknowledge that the cost of processing certain 
proposals may be outside of this $20,000 to $150,000 range due to the 
large variation in the types of proposals.\346\
---------------------------------------------------------------------------

    \344\ The $18,982 estimate was derived in 2009 and is equal to 
$22,600, when adjusted for inflation (see supra note 58 for the 
source of inflation adjustment data). To be conservative in our cost 
savings estimates and for ease of discussion and calculations, we 
use $20,000 as the rounded up estimate of $18,982. See letters from 
John Coates and Barbara Roper dated January 30, 2020; Council of 
Institutional Investors dated January 30, 2020.
    See Proposing Release at 66510 (citing 2009 BRT Letter, supra 
note 332). We use this cost estimate as the lowest range because the 
cost of printing and mailing a shareholder proposal is the only non-
discretionary cost that all companies must incur when they are 
required to include a shareholder proposal in their proxy statement. 
The cost of printing and mailing shareholder proposals, however, 
only captures a subset of the direct costs that the company may 
incur. It is unclear whether this cost estimate captures the cost of 
tallying votes for an additional shareholder proposal. In addition, 
this cost estimate is the average cost of printing and mailing a 
shareholder proposal rather than the marginal cost of printing and 
mailing an additional shareholder proposal.
    \345\ See Proposing Release at 66461. See letter from Center for 
Capital Markets, dated January 31, 2020.
    \346\ Some commenters suggested that the Commission should have 
conducted independent research on the cost of shareholder proposals. 
See, e.g., letters from Council of Institutional Investors dated 
January 30, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020. We note that the Commission has conducted 
various forms of outreach over the years on the proxy process, 
including hosting the Proxy Process Roundtable and soliciting public 
input on the Rule 14a-8 ownership thresholds and the costs of 
submitting shareholder proposals. That input informed our cost 
estimates in the Proposing Release, and we specifically requested 
comment on the estimates and data to help us refine our analysis. We 
considered all of this information thoroughly, leveraging our 
decades of experience with Rule 14a-8, when evaluating whether the 
available information is reliable and sufficient. We have no reason 
to believe that additional study of the costs of shareholder 
proposals would yield materially different information, nor are we 
aware of additional sources of information that would further inform 
these cost estimates.
    One commenter also argued that the cost estimate of shareholder 
proposals used in the economic analysis of the Proposing Release is 
inconsistent with the cost estimate of shareholder proposals used in 
the PRA of the release. See letter from John Coates and Barbara 
Roper dated January 30, 2020. Our revised economic analysis takes 
into account the lowest cost estimate discussed in the PRA of the 
Proposing Release. The cost estimates in the PRA section of this 
release may be different than the cost estimates in the economic 
analysis because the economic analysis applies a range of cost 
estimates to all proposals (i.e., those that are included in the 
proxy statement without seeking no-action relief, those that are 
included in the proxy statement after seeking no-action relief, 
those that are omitted from the proxy statement after seeking no-
action relief, and those that are withdrawn) while the PRA uses an 
average cost estimate per proposal category. In addition, the PRA 
makes certain assumptions regarding hourly costs to arrive at a cost 
estimate per proposal category while the economic analysis uses per-
proposal cost estimates provided by commenters or surveys.
---------------------------------------------------------------------------

    Hence, we estimate that, as a result of the final amendments to 
Rule 14a-8(b) and Rule 14a-8(c), all Russell 3000 companies together 
may experience an upper bound annual cost savings associated with a 
decrease in the number of submitted proposals ranging from $332,400 to 
$72.30 million per year.\347\ In addition, we estimate that as a result 
of the final amendments to the resubmission thresholds, all Russell 
3000 companies together may experience an upper bound annual cost 
savings associated with a decrease in the number of submitted proposals 
ranging from $831,000 to $6.23 million per year.\348\ In total, we 
estimate that all Russell 3000 companies may experience an upper bound 
of annual cost savings ranging from $1.16 million to $78.53 million per 
year, assuming no change in proponents' behavior as a result of the 
final amendments.
---------------------------------------------------------------------------

    \347\ $332,400 = $20,000 (see supra note 344) x 2% (i.e., 
minimum upper bound percentage of excludable proposals as a result 
of the amendments to Rules 14a-8(b) and 14a-8(c) from Table 1 above) 
x 831 (i.e., all proposals submitted to be considered at 2018 
shareholders' meetings).
    $72.30 million = $150,000 (see supra note 344) x 58% (i.e., 
maximum upper bound percentage of excludable proposals as a result 
of the amendments to Rules 14a-8(b) and 14a-8(c) from Table 1 above) 
x 831 (i.e., all proposals submitted to be considered at 2018 
shareholders' meetings).
    Our analysis assumes that the distribution of ownership for 
proponents with exact ownership information in the proxy statements 
is the same as the distribution of ownership for proponents with 
minimum or no ownership information in the proxy statements and the 
distribution of ownership for proponents that submitted proposals 
that were ultimately withdrawn or omitted. Our analysis also applies 
the same per-proposal cost estimate to voted, omitted, and withdrawn 
proposals, and it applies the same per-proposal cost estimate to 
operating companies and management companies. Further, our analysis 
does not account for overlap in the excludable proposals under the 
various aspects of the rule amendments. Lastly, our analysis assumes 
that companies will not reallocate the time and resources that will 
be freed up as a result of the reduction in proposals to process the 
remaining proposals, if any.
    \348\ $831,000 = $20,000 (see supra note 344) x 5% (i.e., upper 
bound percentage of excludable proposals as a result of the 
amendments to Rule 14a-8(i)(12) from Table 1 above) x 831 (i.e., all 
proposals submitted to be considered at 2018 shareholders' 
meetings).
    $6.23 million = $150,000 (see supra note 344) x 5% (i.e., upper 
bound percentage of excludable proposals as a result of the 
amendments to Rule 14a-8(i)(12) from Table 1 above) x 831 (i.e., all 
proposals submitted to be considered at 2018 shareholders' 
meetings).
    Our analysis applies the same per-proposal cost estimate to 
voted, omitted, and withdrawn proposals and to operating companies 
and management companies. In addition, our analysis assumes that the 
amendments to Rule 14a-8(i)(12) will have the same effect on 
proposal eligibility of voted, withdrawn, and omitted proposals. 
Lastly, our analysis assumes that companies will not reallocate the 
time and resources that will be freed up as a result of the 
reduction in proposals to process the remaining proposals, if any.
---------------------------------------------------------------------------

    Commenters argued that the cost savings estimated in the Proposing 
Release and arising from the rule amendments are not substantial 
because: (i) Shareholder proposals are a small fraction of management 
proposals and so the cost savings of the rule amendments will be small; 
\349\ and (ii) the cost savings arising from the rule amendments are 
small relative to companies' market capitalization and relative to the 
costs arising from the rule amendments.\350\ Commenters also

[[Page 70275]]

suggested that the cost of shareholder proposals is small for smaller 
companies because smaller companies do not receive proposals 
frequently, and so any benefits to those companies due to the rule 
amendments is limited.\351\ We acknowledge that the costs of 
shareholder proposals may be a small percentage of companies' market 
capitalization but we continue to believe that these costs are 
nonetheless significant in terms of the time and attention from company 
management. Further, we continue to believe that the rule amendments 
better ensure that the attendant burdens for other shareholders and 
companies associated with the processing of shareholder proposals and 
the inclusion of such proposals in the company's proxy statement are 
incurred in connection with those proposals that are (1) submitted by 
shareholders with a sufficient demonstrated interest in the company and 
(2) with respect to resubmissions, more likely to receive support from 
fellow shareholders.\352\ Lastly, the cost savings estimates cited by 
commenters only reflect a subset of the benefits of the rule amendments 
(i.e., the benefits that we were able to quantify in our economic 
analysis) and does not include a quantification of other qualitative 
benefits of the rule amendments, which are discussed below.
---------------------------------------------------------------------------

    \349\ See, e.g., letter from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020.
    \350\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; CtW Investment Group dated February 3, 2020; 
Impax Asset Management dated January 20, 2020; Interfaith Center on 
Corporate Responsibility dated January 27, 2020; International 
Brotherhood of Teamsters dated February 3, 2020; Segal Marco 
Advisors dated February 3, 2020; UAW Retiree Medical Benefits Trust 
dated January 30, 2020.
    \351\ See letter from Paul M. Neuhauser dated February 3, 2020. 
Another commenter argued that the proposed amendments will 
disproportionately benefit a small subset of large companies. See 
letter from Sustainable Investments Institute dated February 3, 
2020.
    \352\ Analysis in the Proposing Release showed that of 
resubmitted proposals that ultimately obtain majority support, the 
overwhelming majority have garnered more than 15% on their second 
submission and more than 25% on their third submission. Based on our 
review of shareholder proposals that received a majority of the 
votes cast on a second or subsequent submission between 2011 and 
2018, 95% received support greater than 15% on the second 
submission, and 100% received support greater than 25% on the third 
or subsequent submission. In addition, of the 22 proposals that 
obtained majority support on their third or subsequent submissions, 
approximately 95% received support of over 15% on their second 
submission, and 100% received support of over 25% on their third or 
subsequent submission. See Proposing Release at Section IV.B.3.iv.
---------------------------------------------------------------------------

ii. Other Economic Benefits to Companies
    In addition to the direct cost savings to companies discussed 
above, by requiring a statement from the proponent that he or she is 
willing to meet with the company after submission of the shareholder 
proposal, the final amendments may encourage more direct communication 
between the proponent and the company. This may foster potential 
beneficial shareholder engagement more generally; it may promote more 
frequent resolution of proposals outside the voting process. Although 
companies would incur costs (e.g., management and legal time) to engage 
with shareholder-proponents, companies may choose to do so if they 
expect a benefit, including if they expect the cost of the resolution 
outside of the proxy process to be lower than the cost that they and 
their shareholders would incur to process a shareholder proposal.\353\ 
We believe that this requirement may increase engagement between 
management and shareholder-proponents because it will require 
proponents to set aside time to communicate with management and provide 
specific contact information to facilitate that discussion. This 
amendment will enable companies to know whom to contact and when to do 
so if they wish to engage with the proponent about the proposal. 
Further, although the revised rule will not require companies to engage 
with shareholder-proponents, companies may be more likely to engage if 
they are provided with the shareholder-proponent's contact information 
and availability at the time the proposal is submitted.
---------------------------------------------------------------------------

    \353\ Some commenters supported the idea that requiring a 
statement from the proponent that he or she is willing to meet with 
the company will improve communication between proponents and 
companies. See, e.g., letters from Business Roundtable dated 
February 3, 2020; Center for Capital Markets Competitiveness dated 
January 31, 2020; Church Investment Group dated January 29, 2020; 
National Association of Manufacturers dated February 3, 2020. Other 
commenters, however, argued that certain companies are unwilling to 
engage with proponents and there is no evidence that this rule 
amendment will actually increase engagement between management and 
shareholder-proponents. See, e.g., letters from AFL-CIO dated 
February 3, 2020; Boston Trust Walden et al. dated January 27, 2020; 
CalPERS dated February 3, 2020; Ceres et al. dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; 
International Brotherhood of Teamsters dated February 3, 2020; Local 
Authority Pension Fund Forum dated February 3, 2020; Paul M. 
Neuhauser dated February 3, 2020; Segal Marco Advisors dated 
February 3, 2020; Trillium Asset Management dated February 3, 2020; 
UAW Retiree Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Also, to the extent that the practices of certain proponents are 
not already consistent with the final amendments related to proposals 
submitted through a representative, the final amendments will likely 
benefit companies by clearly communicating to companies that proponents 
authorize representatives to act on their behalf. The requirements 
under the final amendments would provide a meaningful degree of 
assurance as to the shareholder-proponent's identity, role, and 
interest in a proposal that is submitted for inclusion in a company's 
proxy statement.\354\ Further, the final amendments will likely result 
in cost savings to companies that currently expend resources to obtain 
information that is not provided by proponents but will be required 
under the final amendments.\355\ We expect that any cost savings 
associated with the final amendments related to proposals submitted 
through a representative will likely be small because most proponents 
and representatives already provide much of the documentation and 
information required by the rule amendments.
---------------------------------------------------------------------------

    \354\ See, e.g., letters from Business Roundtable dated February 
3, 2020; Center for Capital Markets Competitiveness dated January 
31, 2020; National Association of Manufacturers dated February 3, 
2020.
    \355\ See, e.g., Business Roundtable dated February 3, 2020; 
Center for Capital Markets Competitiveness dated January 31, 2020; 
Nasdaq, Inc. dated February 3, 2020.
---------------------------------------------------------------------------

    To the extent that the final amendments will reduce the costs to 
companies of processing shareholder proposals, the final amendments may 
result in efficiency improvements. In addition, to the extent that the 
final amendments will reduce costs to companies associated with the 
shareholder-proposal process, the final amendments may be a positive 
factor in the decision of businesses to become public reporting 
companies, which could positively affect capital formation on the 
margin.\356\ Nevertheless, we believe that any such effects likely will 
be minimal because most firms receive few proposals each year and the 
costs of responding to proposals likely are a small percentage of the 
costs associated with being a public company.\357\ In addition, 
companies that have recently had an initial public offering 
infrequently receive shareholder proposals.\358\
---------------------------------------------------------------------------

    \356\ See, e.g., letters from American Securities Association 
dated February 3, 2020; Center for Capital Markets Competitiveness 
dated January 31, 2020; see also letter in response to the Proxy 
Process Roundtable from Center for Capital Markets Competitiveness 
dated December 20, 2018.
    \357\ Between 1997 and 2018 for Russell 3000 companies that 
received a proposal, the median number of proposals was one per 
year. See Roundtable Transcript, supra note 141, comments of Brandon 
Rees, Deputy Director of Corporations and Capital Markets, AFL-CIO; 
see also letters in response to the Proxy Process Roundtable from 
Ceres dated November 13, 2019; Mercy Investment Services, Inc. dated 
December 3, 2018; Presbyterian Church U.S.A. dated November 13, 
2018.
    \358\ See infra note 395.
---------------------------------------------------------------------------

    Several commenters argued that the rule amendments will increase 
companies' cost of capital by reducing the effectiveness of shareholder 
oversight, the efficiency of corporate

[[Page 70276]]

governance arrangements, the extent to which governance arrangements 
conform with best governance practice, and companies' overall 
environmental, social, and governance (``ESG'') performance.\359\ 
Relatedly, one of these commenters argued that the rule amendments will 
harm capital formation because investors might shy away from capital 
markets if they believe that their ability to make changes to companies 
that would benefit the companies and their shareholders is 
compromised.\360\ We agree with commenters that the proxy system is 
important to the cost of capital and capital formation, and some 
changes prompted by shareholder proposals may be considered beneficial 
by other shareholders. Nevertheless, there are a number of avenues 
through which shareholders can encourage change at public companies. 
Under the final amendments, shareholders can and, we expect, will 
continue to pursue these other avenues of engagement, which may help 
mitigate any potential increase in the number of excludable proposals. 
In addition, we note again that many proposals that would be newly 
excludable under these rule amendments would be (1) those in which the 
proponent has not demonstrated a meaningful interest in the company 
(e.g., by holding $2,000 of stock for three years, or higher amounts 
for shorter periods of time) or (2) resubmissions of proposals which 
shareholders have already expressed substantial disapproval (e.g., at 
least 75 percent, 85 percent or 95 percent disapproval) in prior years. 
We believe these changes will improve capital formation because 
companies and fellow shareholders will no longer expect to bear the 
costs of responding to, reviewing, and voting on these types of 
proposals, which we believe do not warrant use of the company's proxy 
statement.
---------------------------------------------------------------------------

    \359\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; Ceres et al. dated February 3, 2020; Illinois Treasurer 
dated January 16, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; James McRitchie dated February 2, 
2020; Oxfam dated February 3, 2020; Segal Marco Advisors dated 
February 3, 2020; UAW Retiree Medical Benefits Trust dated January 
30, 2020.
    \360\ See letter from Lucian A. Bebchuk dated February 3, 2020.
---------------------------------------------------------------------------

iii. Costs of Updating Policies and Procedures
    We acknowledge here, as we did in the Proposing Release, that 
companies may incur one-time costs to amend their policies and 
procedures in light of the final amendments. The one-time costs that 
companies may incur include (i) reviewing the requirements of the final 
amendments; (ii) modifying the existing policies and procedures to 
align with the requirements of the final amendments; and (iii) 
preparing new training materials and administering training sessions 
for staff in affected areas. According to commenters, the change to a 
three-tiered approach to submission thresholds will also increase 
compliance complexity because companies will be required to consider 
multiple thresholds for the purpose of evaluating whether a proposal is 
eligible for exclusion.\361\ Nevertheless, we expect the one-time costs 
and the costs associated with increased complexity to be minimal 
because companies already have in place policies and procedures to 
implement Rule 14a-8's requirements and will only need to modify those 
policies and procedures to comply with the final amendments rather than 
create new policies and procedures.\362\
---------------------------------------------------------------------------

    \361\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Local 
Authority Pension Fund Forum dated February 3, 2020.
    \362\ No company or company representatives argued that the 
final rule amendments will increase administrative costs.
---------------------------------------------------------------------------

iv. Effects on Competition
    To the extent that the final amendments will result in cost savings 
for U.S. firms, the final amendments may improve U.S. firms' 
competitive position relative to foreign firms, because foreign firms 
are not subject to the federal proxy rules.\363\ Further, to the extent 
that the final amendments to the ownership (resubmission) thresholds 
will have disproportionate effects on smaller (larger) companies, the 
final amendments may alter competition between firms of different 
sizes.\364\ The amendments to the ownership thresholds could have a 
disproportionate effect on companies with smaller market capitalization 
because shareholder-proponents' holdings are more likely to be below 
the amended ownership thresholds in smaller companies, to the extent 
that investors hold stocks proportionately to the companies' market 
capitalization (e.g., investors hold the market portfolio).\365\ In 
addition, the final amendments to the resubmission thresholds will 
likely have a greater effect on larger companies because larger 
companies are more likely to receive shareholder proposals.\366\ 
Nevertheless, we expect that any such effects likely will be minimal 
because the cost of processing shareholder proposals likely is a small 
percentage of companies' total cost of operations.
---------------------------------------------------------------------------

    \363\ See Proposing Release at 66459 n.3.
    \364\ See infra Section V.E.1 for detailed discussion of the 
potentially disproportionate effects of the rule amendments.
    \365\ See, e.g., John Y. Campbell, Household Finance, 61 J. Fin. 
1553 (2006) (discussing households' stock holdings).
    See also, e.g., letters from CalPERS dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Paul 
Rissman dated January 15, 2020; Trillium Asset Management dated 
February 3, 2020 (arguing that the amended thresholds will have a 
larger effect on smaller companies).
    \366\ Our analysis shows that 20% of resubmitted shareholder 
proposals at S&P 500 companies would be excludable under the 
proposed resubmission thresholds, as compared to 12% of proposals 
resubmitted to non-S&P 500 firms. See Proposing Release at 66502.
---------------------------------------------------------------------------

2. Non-Proponent Shareholders
    Non-proponent shareholders may benefit from the decrease in the 
number of proposals because they may commit fewer resources to 
reviewing and voting on shareholder proposals.\367\ We are unable to 
quantify the costs to non-proponent shareholders of reviewing and 
voting on shareholder proposals, but we believe the cost savings from a 
decrease in the number of proposals will be significant. The reason is 
that the number of non-proponent shareholders at each registrant is 
very large in absolute terms and relative to the number of shareholder-
proponents. Consequently, we expect the aggregate cost savings 
associated with the elimination of a shareholder proposal (e.g., the 
aggregate cost to shareholders to review and vote on the proposal) will 
be significant in absolute terms and much larger when compared to the 
potential costs to shareholder-proponents, such as the costs to craft 
and submit the proposal or, in the case of a potential proponent, the 
costs to acquire and hold shares for a sufficient period of time to 
meet the eligibility requirements.
---------------------------------------------------------------------------

    \367\ One commenter argued that the costs shareholders incur to 
review and consider shareholder proposals are discretionary because 
``[a]ny shareholder that thinks analyzing the proposal is a waste of 
time and resources can simply decide not to review them. Instead, 
the shareholder could either follow the advice of a hired proxy 
advisor, or vote by default with management, thereby supporting the 
status-quo world without the proposal.'' See letter from Institute 
for Policy Integrity dated February 3, 2020. Nevertheless, we note 
that institutional shareholders commit significant resources to 
reviewing and voting on shareholder proposals. See infra note 372. 
See also Commission Guidance Regarding Proxy Voting Responsibilities 
of Investment Advisers, Guidance, Release Nos. IA-5325 IC-33605 
(Jul. 22, 2020) [84 FR 47420 (Sept. 10, 2019)].
---------------------------------------------------------------------------

    While these cost savings are difficult to estimate across the wide 
array of shareholder types, we believe that the cost savings are 
significant. For example, we note that many investment

[[Page 70277]]

advisers (among others) retain proxy voting advice businesses to 
perform a variety of services to reduce the burdens associated with 
proxy voting determinations, including determinations on shareholder 
proposals.\368\ One major proxy voting advice business, Institutional 
Shareholder Services (``ISS''), reports a fee ranging from $5,000 to 
above $1,000,000 for these services \369\ and 2,000 institutional 
clients,\370\ which suggests an aggregate lower bound cost of $10 
million and an upper bound cost of $2 billion for these clients of 
outsourcing certain voting related matters, not including the internal 
costs associated with voting, including the monitoring of the proxy 
voting advice businesses. We recognize that these fees cover a broad 
range of services provided by ISS (e.g., voting services, governance 
research, ratings provision, etc.) in addition to reviewing and 
providing voting advice and services with respect to shareholder 
proposals.\371\ They also reflect an aggregate cost and not the 
incremental cost of considering an additional shareholder proposal. 
However, these figures are nonetheless an indication that institutional 
shareholders commit significant resources to reviewing and voting on 
shareholder proposals.\372\ Similarly, with respect to retail 
shareholders, we note that, if we assume a company has 100,000 
shareholders and 50% of them (in number) are individual investors who 
spend 0-60 minutes reading a proposal at a cost of $25 per hour, then 
the consideration of one proposal could impose a cost of $0-$1,250,000 
for the individual shareholders of such a hypothetical company.
---------------------------------------------------------------------------

    \368\ We have limited data on fees charged by proxy voting 
advisory services. ISS reports a fee ranging from $5,000 to above 
$1,000,000 on Form ADV, and this covers a broad range of services 
provided by ISS (e.g., voting services, governance research, ratings 
provision, etc.).
    \369\ See ISS Form ADV dated Mar. 27, 2020 available at https://www.issgovernance.com/file/duediligence/iss-adv-part-2a-march-2020.pdf, at 5.
    \370\ See ISS Form ADV dated Apr. 23, 2020 available at https://reports.adviserinfo.sec.gov/reports/ADV/111940/PDF/111940.pdf, at 
14.
    \371\ See id.
    \372\ Indeed, a number of commenters to the Commission's 
proposed amendments to the exemptions from the proxy rules for proxy 
voting advice, particularly institutional investors who typically 
vote a large number of proposals each proxy season, expressed that 
they face significant resource challenges in determining how to vote 
on shareholder proposals. See, e.g., letters in response to 
Amendments to Exemptions from the Proxy Rules for Proxy Voting 
Advice, Release No. 34-87457 (Nov. 5, 2019) [84 FR 66518 (Dec. 4, 
2019)] from Ohio Public Employees Retirement System dated February 
3, 2020; Council of Institutional Investors dated February 13, 2020; 
Investment Company Institute dated February 3, 2020; MFS Investment 
Management dated February 3, 2020; Institutional Adviser Association 
dated February 3, 2020.
---------------------------------------------------------------------------

    While these figures do not provide a reliable basis for quantifying 
the cost savings of the amendments to non-proponent shareholders of a 
reduction in the number of shareholder proposals, they provide general 
support for our belief that the costs to non-proponent shareholders of 
analyzing and voting on shareholder proposals are significant, 
particularly in comparison to the costs to proponents to (i) meet the 
eligibility criteria and (ii) craft and submit a proposal. At a 
minimum, this supports the Commission's longstanding view that there 
should be a demonstrated alignment of ownership and investment interest 
between shareholder-proponents and shareholders generally. In addition, 
if the final amendments are effective in excluding proposals that are 
not submitted by proponents with a long-term or significant interest in 
the company or that are unlikely to receive support from other 
shareholders or to be implemented by management, then the decrease in 
the number of proposals may allow shareholders to focus their limited 
resources on the assessment and processing of proposals that are more 
likely to be aligned with their interests or have the potential to 
garner majority support and be implemented. Shareholders also will 
benefit indirectly from any decrease in the costs borne by 
companies.\373\
---------------------------------------------------------------------------

    \373\ See, e.g., letter from Business Roundtable dated February 
3, 2020. See also letter in response to the Proxy Process Roundtable 
from Business Roundtable dated June 3, 2019 (noting ``shareholders 
can lose sight of matters of true economic significance to the 
company if they are spending time considering one, or even numerous, 
immaterial proposals. The resources and attention expended in 
addressing shareholder proposals cost the company and its 
shareholders in absolute dollars and management time and, perhaps 
worse, divert capital resources to removal of an immediate 
distraction and away from investment in value-adding allocations, 
such as research and development and corporate strategy'').
---------------------------------------------------------------------------

    We discuss potential costs to companies and non-proponent 
shareholders from the potential decrease in the number of proposals as 
a result of the rule amendments in Section V.E.2 below.
3. Proponents of Shareholder Proposals
    The final amendments may impose costs on proponents of shareholder 
proposals. These costs may arise as a result of a currently eligible 
proponent either having to invest additional funds to immediately 
submit a proposal or having to wait to submit a shareholder proposal 
and thus forgo the potential benefits associated with the immediate 
inclusion of the proposal in a company's proxy statement at the expense 
of other shareholders and the company. In each instance, we expect the 
shareholder-proponent who has not met the eligibility thresholds to 
choose the option that yields the greatest net benefit for himself or 
herself. For example, in instances where the benefit to the proponent 
associated with a more immediate proposal submission is large enough, 
we expect that the proponent will elect to incur the costs of investing 
additional funds to satisfy the amended ownership thresholds. The 
amended ownership thresholds, however, may deter proponents from 
submitting proposals for which the aggregate benefit to all 
shareholders exceeds the cost to the proponent of submitting a 
proposal. This may occur because the cost of meeting the new ownership 
thresholds is incurred by the proponent while any benefits associated 
with the proposal are widely dispersed among all shareholders. 
Nevertheless, since we believe these behavioral responses of proponents 
involve relatively modest costs, we expect that in many instances, the 
final amendments will not represent a significant hurdle for 
shareholder-proponents.
    Commenters stated their belief that because of the final amendments 
to the ownership thresholds, shareholder-proponents may incur higher 
administrative costs to track their holdings for more than one year and 
prove their eligibility to submit a proposal.\374\ Further, the change 
to a three-tiered approach could increase compliance complexity because 
shareholder-proponents will be required to consider multiple thresholds 
for the purpose of evaluating whether a proposal is eligible for 
exclusion, although we would expect those costs to be minimal for 
current proponents because those proponents already have in place 
processes to comply with Rule 14a-8's requirements and will only need 
to modify these processes to comply with the final rule rather than 
creating new ones.\375\
---------------------------------------------------------------------------

    \374\ The commenter stated that costs that proponents would bear 
as a result of longer holding periods include administrative costs 
to track their holdings for more than one year and prove their 
eligibility to submit a proposal. This commenter also stated that 
this administrative cost will also be higher whenever the proponent 
changes brokers or banks. See, e.g., letter from AFL-CIO dated 
February 3, 2020.
    \375\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Local 
Authority Pension Fund Forum dated February 3, 2020.
---------------------------------------------------------------------------

    In addition, following the transition period, the final amendments 
to the ownership thresholds and the limitation on the ability to 
aggregate holdings across proponents may impose costs on

[[Page 70278]]

proponents that currently satisfy the ownership thresholds but do not 
currently satisfy the new thresholds, who may take actions to preserve 
their ability to submit shareholder proposals under the new 
thresholds.\376\ These costs may arise from some combination of: (i) 
Shareholder-proponents' efforts to reallocate shareholdings in their 
portfolio to satisfy the dollar ownership thresholds; (ii) decreased 
diversification of shareholder-proponents' portfolio because a larger 
portion of their wealth may be invested in a particular company; \377\ 
and (iii) shareholder-proponents holding the shares for longer periods 
of time to satisfy the duration thresholds.
---------------------------------------------------------------------------

    \376\ Any such effects will be mitigated temporarily by the 
transition period of the final amendments. See Section III.
    \377\ The costs of diversification arise from lower risk-
adjusted expected return of an undiversified portfolio compared to a 
diversified one. See, e.g., letters from First Affirmative Financial 
Network, LLC dated January 24, 2020; Jantz Management LLC dated 
January 21, 2020; Shareholder Commons dated January 31, 2020; 
Wright-Ingraham Institute dated February 3, 2020.
---------------------------------------------------------------------------

    A shareholder-proponent that chooses to reallocate assets to meet 
the new ownership thresholds may incur transaction costs to buy shares 
and, depending on the shareholder-proponent's liquidity, may incur 
transaction costs to sell other assets to raise cash to buy shares or 
incur borrowing costs to raise cash to buy shares. However, we expect a 
negligible number of shareholders to incur these costs because, as 
discussed elsewhere in this release, most investors do not submit 
proposals. Furthermore, in theory, reallocation of portfolio assets 
might mean that a shareholder-proponent deviates from what would be an 
efficient portfolio in the absence of the final amendments. For 
example, a shareholder who held the minimum amount of shares for the 
purpose of submitting a shareholder proposal for the minimum amount of 
time could, instead of holding $2,000 of shares for an additional two 
years, choose to increase her holdings in a company from $2,000 to 
$25,000 to retain the ability to submit a shareholder proposal in one 
year. In theory, such a deviation could result in a portfolio that no 
longer supplies the shareholder-proponent with the desired levels of 
risk and return. However, if the shareholder made the minimum 
investment for purposes of submitting the proposal, such a portfolio-
oriented investment strategy would be of secondary consideration. More 
generally, we do not believe that the additional investment in the 
company needed to hold the same $2,000 of stock for three years instead 
of one, or to meet the revised threshold for a one-year holding period 
(i.e., $25,000-$2,000 = $23,000), on its own constitutes a cost to 
shareholder-proponents, as this amount represents the holding or 
purchase of assets that will earn an expected rate of return in the 
form of capital gains and/or dividends. The impact of reduced 
diversification on portfolio risk and return that may result from 
increasing holdings in a particular company would depend on the size of 
a shareholder-proponent's asset holdings, and would be larger for 
shareholder-proponents with smaller portfolios. However, shareholder-
proponents may be able to mitigate the costs of reduced diversification 
by reducing exposures to assets with similar risk characteristics.\378\ 
Also, in theory, a shareholder-proponent might incur costs by choosing 
to hold shares for longer than would otherwise be efficient resulting, 
for example, in the borrowing of funds to meet liquidity needs or a 
delay in purchases of alternative assets.\379\ We lack sufficient data 
to quantify their effects because we lack data on proponents' portfolio 
holdings, investment preferences and resources.
---------------------------------------------------------------------------

    \378\ For example, a shareholder-proponent might reduce the 
impact of acquiring additional shares of Company A on portfolio 
diversification by liquidating shares of other companies in the same 
industry.
    \379\ In such a case, we can express the opportunity cost of 
holding shares in one company while delaying the purchase of shares 
in another company as the difference in risk-adjusted expected 
returns between the shares held and the shares to be purchased.
---------------------------------------------------------------------------

    The final amendments to the 14a-8(b) shareholder engagement 
component may impose the following costs on shareholder-proponents: (i) 
Direct costs associated with disclosing the times the proponents will 
be available to communicate with management as well as preparing to and 
communicating with management and (ii) the opportunity costs associated 
with setting aside and spending time to communicate with management 
instead of engaging in other activities.\380\ Certain commenters also 
argued that this aspect of the rule amendments could discourage 
shareholders from submitting proposals because some shareholder-
proponents may be reluctant to engage directly with the company.\381\ 
We expect the direct costs associated with this aspect of the rule 
amendments to be minimal because the information required to be 
disclosed is readily available, the rule does not prescribe any 
particular form or degree of engagement with the company, and 
proponents can use inexpensive means of communication with the company, 
such as teleconference calls. We also note that the rule does not 
prohibit representatives from participating in any meetings that take 
place or advising the shareholder-proponent with respect to all aspects 
of the engagement process.
---------------------------------------------------------------------------

    \380\ See, e.g., letters from Boston Trust Walden et al. dated 
January 27, 2020; Ceres et al. dated February 3, 2020; Interfaith 
Center on Corporate Responsibility dated January 27, 2020; Paul 
Rissman dated January 15, 2020; Segal Marco Advisors dated February 
3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020.
    Some commenters argued that the requirement that a proponent 
should state its availability to meet with management will impose 
costs on companies because ``companies will be hard-pressed to 
assemble personnel with appropriate expertise to engage 
substantively on the proposal, given the short notice, and schedules 
of both investors and companies are crowded not only with proposal-
related business but also with holiday obligation.'' See, e.g., 
letters from Ceres et al. dated February 3, 2020; UAW Retiree 
Medical Benefits Trust dated January 30, 2020. While we acknowledge 
that this rule amendment may also impose costs on companies, we 
believe that companies will choose to engage with proponents only if 
they believe the benefits of the engagement outweigh the costs.
    \381\ See, e.g., letters from Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Paul Rissman dated January 
15, 2020.
    One commenter argued that the Commission should not get involved 
in issues of shareholder-management engagement, and if the 
Commission does, it should conduct a survey of both investors' and 
companies' current practices. See letter from Investor Environmental 
Health Network dated January 31, 2020. See supra note 346 for our 
response to related commenter suggestions that the Commission should 
conduct additional analysis.
    Some commenters also argued that the Commission has not 
identified a market failure that this aspect of the rule amendments 
seeks to address, especially given the increase in the number of 
withdrawn proposals over time, which suggests increased engagement 
between proponents and companies. See, e.g., letter from AFL-CIO 
dated February 3, 2020. We understand that proactive company 
engagement with shareholders has increased in recent years, and 
shareholders frequently withdraw their proposals as a result of 
company-shareholder engagement. Nevertheless, we believe that 
further facilitating engagement would be beneficial both to 
companies and to shareholders.
---------------------------------------------------------------------------

    The final rule amendment requiring certain documentation when a 
proponent submits a proposal through a representative may result in 
shareholders that submit a proposal through a representative incurring 
minimal costs to ensure that their practices are consistent with the 
final amendments.\382\ To the extent that the practices of certain 
proponents are not

[[Page 70279]]

consistent with the final amendments, the final amendments will also 
impose minimal costs on proponents to provide this additional 
documentation. Some commenters argued that this aspect of the rule 
amendments would be more burdensome for institutional investors, who 
always act through agents, and that it would interfere with contractual 
relations, such as attorney-client relations.\383\ As discussed in 
Section II.B.3, where a shareholder-proponent is an entity and thus can 
act only through an agent, compliance with the amended rule will not be 
necessary if the agent's authority to act is apparent and self-evident 
such that a reasonable person would understand that the agent has 
authority to act. In addition, although shareholder-proponents who 
elect to submit a proposal through a representative will be required to 
provide additional information about their submissions, the rule will 
not prevent them from using representatives in accordance with state 
law. We requested, but did not receive, data on or estimates of the 
specific costs that representatives and proponents will incur to comply 
with this aspect of the rule amendments. Nevertheless, we believe that 
any costs associated with this aspect of the rule amendments will be 
small because the vast majority of the proponents and representatives 
that will be required to provide documentation under the final 
amendments already provide much of this documentation.
---------------------------------------------------------------------------

    \382\ Some commenters argued that the rule amendment requiring 
certain documentation when a proponent submits a proposal through a 
representative will create ambiguity that can be exploited by 
management to exclude beneficial proposals. See, e.g., letter from 
As You Sow dated February 3, 2020. We disagree with the commenter 
that management will be able to exploit any ambiguity to exclude 
beneficial proposals because management must provide its reasons for 
excluding a proposal to the Commission and the shareholder-proponent 
prior to excluding a shareholder proposal and proponents can contest 
exclusions of proposals that they deem to be inappropriate.
    \383\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Paul M. Neuhauser dated February 3, 2020.
---------------------------------------------------------------------------

    The amendments to the resubmission thresholds will impose costs on 
proponents to the extent they may spend more resources in preparing a 
proposal to seek to garner sufficient levels of support to satisfy the 
final amendments.\384\ Any effect of the amendments to resubmission 
thresholds may be mitigated by the fact that companies' ability to 
exclude certain resubmissions will be limited to a three-year cooling-
off period regardless of the level of support the proposal last 
received.
---------------------------------------------------------------------------

    \384\ See, e.g., letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; National Association of 
Manufacturers dated February 3, 2020.
    One commenter disagreed with the assertion that that the 
resubmission thresholds will improve proposal quality because 
proponents already request feedback on their proposals prior to 
submitting them to the company. See letter from Interfaith Center on 
Corporate Responsibility dated January 27, 2020.
    A commenter also suggested that an increase in the resubmission 
thresholds will provide stronger incentives to some proponents to 
submit proposals on certain topics with the intent of obtaining low 
levels of support for certain subject matters, thus rendering 
proposals on the same subject matter excludable for three years. See 
letter from Council of Institutional Investors dated January 30, 
2020; see also letter in response to the Proxy Process Roundtable 
from the City of New York Office of the Comptroller dated January 2, 
2019; Sustainable Investments Institute dated November 12, 2018. We 
do not agree with the commenter's concern. As the Commission has 
previously stated, considerations regarding the rule's application 
are based upon the ``substantive concerns raised by a proposal 
rather than the specific language or actions proposed to deal with 
those concerns,'' such that ``an improperly broad interpretation of 
the . . . rule will be avoided.'' See 1983 Adopting Release, supra 
note 2.
---------------------------------------------------------------------------

E. Other Potential Effects of the Amendments

    Rule 14a-8 sets thresholds at which it is appropriate for a 
shareholder proposal to be considered for inclusion in the company's 
proxy materials initially, or on resubmission. For example, the 
thresholds for initial proposals are designed to help ensure that the 
interests of those who submit them are appropriately aligned with 
fellow shareholders, by indicating a sufficient economic stake or 
investment interest in the company. The thresholds for resubmissions 
are designed to provide a modest cooling-off period for those proposals 
that previously were disapproved by fellow shareholders by a large 
margin (i.e., 75 percent, 85 percent, or 95 percent disapproval). In 
neither case are the thresholds designed to or meant to judge the 
merits of any particular proposal. Nevertheless, commenters asserted 
that the amendments may have certain unintended effects. In the 
Proposing Release, we provided descriptive statistics on shareholder 
proposals by type of proposals, proponents, and companies.\385\ In this 
section, we address the comments we received on potential effects of 
the rule amendments on excludable proposals by type of proposal, 
proponent, and company.\386\ We also consider comments about economic 
effects of the final rule amendments on the quality of submitted 
proposals,\387\ as well as issues raised by commenters with our use of 
voting support in the economic analysis included in the Proposing 
Release.\388\
---------------------------------------------------------------------------

    \385\ See Proposing Release at 66478-66487.
    \386\ See infra Section V.E.1.
    \387\ See infra Section V.E.2.
    \388\ See infra Section V.E.3.
---------------------------------------------------------------------------

    We believe that many of the potential negative effects suggested by 
commenters that would result from our adoption of the proposal and 
discussed in this section would be mitigated if shareholder-proponents 
adjust their behavior in light of the amendments. For example, any 
negative effects related to the changes in initial submission 
thresholds could be mitigated to the extent that shareholder-proponents 
(who, again, are an extremely small percentage of total shareholders) 
adjust their behavior to hold at least $2,000 of shares for at most two 
additional years or hold higher amounts. Of course, to the extent that 
shareholders adjust their behavior in this way, the cost savings 
associated with the amendments would also be reduced. Negative effects 
to shareholder-proponents related to the exclusion of proposals that 
may provide benefits to companies and their shareholders may be 
substantially mitigated to the extent that the final amendments are 
more likely to exclude shareholder proposals with an observable measure 
of low shareholder interest (i.e., low voting support among 
shareholders).\389\ As explained above, the number of non-proponent 
shareholders--who must review, consider, and vote on shareholder 
proposals--is very large relative to shareholder-proponents; 
accordingly, we believe that any costs set forth below are appropriate 
in light of the benefits to other shareholders. In addition, the 
negative effects of the final rule amendments could be mitigated to the 
extent that companies elect to include in their proxy materials or 
implement otherwise excludable proposals that they believe will benefit 
shareholders; that eligible shareholders take up proposals that may 
benefit other shareholders from the proponents precluded from 
submitting certain proposals under the final rule amendments; or that 
shareholder-proponents are able to influence management and other 
shareholders through means other than the submission of shareholder 
proposals.
---------------------------------------------------------------------------

    \389\ Using data from proxy statements, we estimate that the 
average voting support for proposals that may have been excludable 
as a result of changes to the ownership threshold is approximately 
31%, which is not statistically different from the voting support 
for the remaining proposals in the sample used for this analysis. 
See Proposing Release at 66497 for a detailed description of this 
analysis. Further, we estimate that approximately 5.3% of 
shareholder proposals used for this analysis received majority 
support and may have been excludable under final amendments to the 
ownership thresholds.
    Using data on shareholder proposal resubmissions, we estimate 
that in 2018, none of the proposals that would have been excludable 
as a result of final rule amendments to the resubmission thresholds 
would have generated majority support. See Proposing Release at 
66499 for a detailed description of this analysis.
---------------------------------------------------------------------------

1. Effects of the Rule Amendments on Excludable Proposals by Type of 
Proposal, Proponent, and Company
    As discussed above, the amendments set thresholds at which it is 
appropriate for a shareholder proposal to be

[[Page 70280]]

considered for inclusion in the company's proxy materials based on 
content-neutral criteria designed to provide access to the company 
proxy to shareholder-proponents that have sufficient indicia of 
alignment with the interests of other shareholders who bear the costs 
associated with the inclusion of such proposals in the company's proxy 
statement. The amendments are not designed to include or exclude 
certain types of proposals or proponents.\390\ However, as discussed in 
the Proposing Release (and raised by commenters), the rule amendments 
may have different effects on certain proposal types, proponents, and 
companies.\391\
---------------------------------------------------------------------------

    \390\ Cf. letter from Council of Institutional Investors et al. 
dated July 29, 2020 (expressing concern that ``the true regulatory 
goal of the amendments is to curtail shareholder proposals related 
to environmental or social topics'').
    \391\ See Proposing Release at 66499-66502 for detailed 
discussion of the potentially disproportionate effects of the rule 
amendments.
---------------------------------------------------------------------------

    As a first example, the final amendments to the ownership 
thresholds could have a greater effect on retail shareholder-proponents 
compared to institutional shareholder-proponents because the average 
holdings of retail investors are typically lower than the average 
holdings of institutional investors and so the final ownership 
thresholds are more likely to affect retail investors.\392\ Again, 
however, shareholders holding the current threshold of $2,000 worth of 
company stock could still meet the new ownership thresholds by, for 
example, holding that stock for three years. Generally, to the extent 
that such a shareholder would instead have sold that stock after one 
year or two years, we would not view that shareholder as having the 
alignment of interest with other long-term shareholders that warrants 
the use of the company's proxy statement.
---------------------------------------------------------------------------

    \392\ See, e.g., letters from As You Sow dated February 3, 2020; 
Better Markets dated February 3, 2020; Boston Trust Walden et al. 
dated January 27, 2020; CalPERS dated February 3, 2020; Center 
Political Accountability dated January 31, 2020; Council of 
Institutional Investors dated January 30, 2020; Council of 
Institutional Investors et al. dated July 29, 2020; First 
Affirmative Financial Network, LLC dated January 24, 2020; Patricia 
Hathaway dated January 31, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; Local Authority Pension Fund Forum 
dated February 3, 2020; James McRitchie dated July 21, 2020; 
Newground Social Investment dated February 3, 2020; Maria M. 
Patterson, NYU Stern School of Business dated January 30, 2020; 
Segal Marco Advisors dated February 3, 2020; Tom Shaffner dated 
December 17, 2019; Robert K. Silverman dated February 3, 2020; 
Sisters of St. Dominic dated January 31, 2020; Trustee of Donations 
to the Protestant Episcopal Church dated January 31, 2020; US SIF 
dated January 31, 2020. See also Recommendation of the IAC, supra 
note 18.
    Some commenters argued that the amendment related to proponents' 
ability to aggregate their holdings disadvantages retail investors 
relative to institutional investors because institutional investors 
can aggregate the investments of various individuals to submit a 
proposal, but retail investors no longer will be able to aggregate 
their holdings with other proponents to become eligible to submit a 
proposal. See, e.g., letters from AFL-CIO dated February 3, 2020; 
First Affirmative Financial Network, LLC dated January 24, 2020. 
Although institutional portfolios represent the aggregate holdings 
of multiple individuals, institutional investors' submission of 
shareholder proposals may reflect predetermined investment policies 
rather than the preferences of each individual investor or any 
subset of individual investors.
    Relatedly, several commenters argued, but did not provide any 
data, that the rule may have a disproportionate effect on women and 
people of color to the extent that shareholder wealth varies with 
gender and ethnicity, and the effect of the rule amendments will 
vary with the wealth of shareholders. See, e.g., letters from Jantz 
Management LLC dated January 21, 2020; Shareholder Commons dated 
January 31, 2020. We note that the mitigating factors discussed 
elsewhere in the release, such as the availability of other forms of 
shareholder communication with management and the possibility that 
other eligible investors may take up the topics of excludable 
proposals, may reduce the impact of the exclusion of proposals by 
all proponents, including women and people of color.
---------------------------------------------------------------------------

    Second, to the extent that retail investors with smaller holdings 
and shorter holding periods are more likely to submit certain types of 
proposals than institutional investors, absent a change in behavior 
(e.g., holding for a longer period if necessary to make a proposal) the 
final rule amendments to the ownership thresholds could decrease the 
number of those types of proposals more than other types of 
proposals.\393\ Third, the final rule amendments to the ownership 
thresholds could affect companies and their shareholders with smaller 
market capitalization more than those with larger market capitalization 
and those with more volatile stock prices more than those with less 
volatile stock prices. For firms with smaller market capitalization, 
shareholder-proponents' holdings are more likely to be below the 
amended ownership thresholds, to the extent that investors that would 
be expected to make proposals hold stocks proportionately to the 
companies' market capitalization (e.g., investors hold the market 
portfolio).\394\ However, such a broad portfolio-based approach with 
low holdings in individual stocks may be inconsistent with the company-
specific analysis that would be expected from a shareholder-proponent. 
The ownership holding of the proponent is more likely to fall below the 
ownership thresholds under Rule 14a-8 during any given period of time 
for volatile stocks than it is for less volatile stocks. Fourth, the 
final amendments to the ownership thresholds could decrease the number 
of proposals received by companies that have been public for fewer than 
three years more than the number of proposals received by seasoned 
companies because the average duration of investors' holdings will be, 
by their nature, shorter for those firms. However, shareholder 
proposals appear to be less likely in the case of newer public 
companies.\395\ Fifth, to the extent the final amendments to Rule 14a-
8(i)(12) result in a reduction in shareholder proposals, larger 
companies and their shareholders in general may be more affected than 
smaller companies and their shareholders because larger companies are 
more likely to receive shareholder proposals. Sixth, the final 
amendments to Rule 14a-8(i)(12) will likely have a greater effect on 
companies with dual-class voting shares for which insiders hold the 
majority of the voting shares.\396\ Seventh, as suggested by

[[Page 70281]]

commenters, the effects of the final amendments to the ownership 
threshold will depend on differences in share turnover across companies 
and over time.
---------------------------------------------------------------------------

    \393\ See Proposing Release at 66499. Untabulated analysis shows 
that 86% of the proposals submitted by individual investors are 
governance proposals, whereas 47% of the proposals submitted by 
institutional investors are governance proposals. Data is retrieved 
from ISS Analytics for Russell 3000 companies between 2004 and 2018 
and classifications are based on ISS Analytics determinations.
    \394\ See supra note 365.
    See also, e.g., letters from CalPERS dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Paul 
Rissman dated January 15, 2020; Trillium Asset Management dated 
February 3, 2020 (arguing that the amended thresholds will have a 
larger effect on smaller companies).
    \395\ We note that newly listed companies currently receive 
proposals less frequently than seasoned companies, and thus the 
overall impact of the increase in the ownership thresholds might be 
less pronounced for newly listed companies. See CII FAQ, supra note 
332. See also Roundtable Transcript, supra note 141, comments of 
Jonas Kron, Senior Vice President and Director of Shareholder 
Advocacy, Trillium Asset Management (``Less than nine percent of 
Russell 3000 companies that have had an IPO since 2004 have received 
a shareholder proposal.''); Ning Chiu, Counsel, Capital Markets 
Group, Davis Polk & Wardwell LLP (acknowledging that ``IPO companies 
don't always get a lot of proposals'').
    See also, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; International Brotherhood of Teamsters dated 
February 3, 2020; US SIF dated January 31, 2020.
    \396\ A number of commenters expressed the view that the 
proposed amendment would have a more pronounced effect at companies 
with dual-class voting structures. See, e.g., letters from AFL-CIO 
dated February 3, 2020; Boston Trust Walden et al. dated January 31, 
2020; CFA Institute dated February 3, 2020; Connecticut State 
Treasurer dated January 31, 2020; Council of Institutional Investors 
dated January 30, 2020; Council of Institutional Investors et al. 
dated July 29, 2020; Representative Bill Foster et al. dated January 
31, 2020; Friends Fiduciary Corporation dated February 2, 2020; 
Illinois State Treasurer dated January 16, 2020; International 
Brotherhood of Teamsters dated February 3, 2020; International 
Corporate Governance Network dated December 4, 2019; Loring, Wolcott 
& Coolidge dated January 31, 2020; New York State Comptroller dated 
February 3, 2020; Shareholder Association for Research & Education 
dated January 30, 2020; Trillium Asset Management dated February 3, 
2020.
---------------------------------------------------------------------------

    The final amendments could in theory have larger effects on 
companies entering or exiting an index and newly-merged firms because 
these companies experience a significant shift in their shareholder 
base and, if longer term shareholders are replaced by newer 
shareholders, upon initial entry into the index fewer shareholders will 
be eligible to submit a shareholder proposal to those companies due to 
shorter holding periods.\397\ However, to the extent current longer-
term shareholders continue to hold a sufficient investment following a 
company's entry into the index, this potential change in eligibility 
would be lower. Further, a shift into an index could increase the 
number of shareholders eligible to submit a proposal over time because 
shareholders that follow an index-based strategy hold shares in the 
index longer.
---------------------------------------------------------------------------

    \397\ See, e.g., letter from International Brotherhood of 
Teamsters dated February 3, 2020.
---------------------------------------------------------------------------

    In addition, as share turnover increases and thus investors hold 
shares for a shorter period of time, the number of investors who will 
meet the ownership duration thresholds would be expected to decrease to 
the extent share turnover reflects entry and exit from a particular 
investment as opposed to increasing or decreasing the extent of that 
particular investment.\398\ For example, market-weighted index 
strategies require regular rebalancing of positions, which, in turn, 
may lead others to alter positions in anticipation or as a result of 
such rebalancing. Literature has documented a general upward trend in 
share turnover.\399\ This general trend in turnover likely reflects 
other factors that also are unrelated to the ability or desire to 
submit shareholder proposals.
---------------------------------------------------------------------------

    \398\ Proponents may have some discretion in how frequently they 
trade shares, and thus they may decide to hold shares for a longer 
period of time to satisfy the amended ownership duration thresholds. 
However, several commenters argued that the duration of 
stockholdings is not discretionary, although they did not provide 
data to support this statement. See, e.g., letters from Interfaith 
Center on Corporate Responsibility dated January 27, 2020; UAW 
Retiree Medical Benefits Trust dated January 30, 2020.
    \399\ See, e.g., Tarun Chordia, Richard Roll & Avanidhar 
Subrahmanyam, Recent Trends in Trading Activity and Market Quality, 
101 J. Fin Econ. 243 (2011). Some commenters noted that considering 
market trends of greater diversification and lower average holding 
times is important for describing how the rule amendments may effect 
investors. See, e.g., letter from As You Sow dated February 3, 2020.
---------------------------------------------------------------------------

    We are not arbiters of the type or substance of a proposal. That 
said, the final amendments also may have effects that vary for 
different types of proposals. Based on historical data, the final 
amendments to Rule 14a-8(i)(12) may have a greater impact on the 
resubmission of shareholder proposals relating to environmental and 
social issues compared to shareholder proposals on governance issues 
because: (i) Shareholder proposals on environmental and social issues 
historically have tended to receive lower shareholder support than 
those on governance issues, on average; (ii) proposals on environmental 
and social issues are more likely to be resubmitted compared to 
proposals on governance issues with similar levels of shareholder 
support, and thus will be more likely to be affected by the changes in 
the resubmission thresholds; and (iii) shareholder proposals on social 
and environmental issues historically have tended to take longer to 
gain support than proposals on governance issues. Again, however, to 
the extent that these proposals are excludable because they have 
received low levels of shareholder support in the past, companies and 
their non-proponent shareholders may benefit from their exclusion 
subject to a right to resubmit after a cooling-off period. Second and 
relatedly, the final amendments to the resubmission thresholds may have 
a greater effect on shareholder proposals submitted by non-individual 
proponents because these proponents have tended to submit environmental 
and social proposals at a higher frequency than individual investors 
do.
    Several commenters argued that voting support may fluctuate across 
years for many reasons and this volatility may not be associated with 
the value of the shareholder proposals. In particular, voting support 
may fluctuate due to changes in the company performance, changes in the 
phrasing of the proposal, changes in shareholder base, changes in the 
proponent, exercise of stock options and equity awards, or changes in 
market circumstances.\400\ To the extent that the voting support for 
certain types of proposals may be more volatile, companies may be more 
or less likely to exclude these proposals from their proxy statements 
as a result of the rule amendments.\401\ We find that the dispersion in 
the change in voting support from a prior submission to a resubmission 
is higher for governance proposals than for environmental or social 
proposals.\402\ In addition, we find that the dispersion in the change 
in voting support is higher among proposals submitted to non-S&P 500 
companies than those submitted to S&P 500 companies.\403\ As a result, 
changes to the resubmission thresholds may have a different effect on 
proposals of different types and submitted to companies of different 
sizes.
---------------------------------------------------------------------------

    \400\ See, e.g., letters from Center for Political 
Accountability dated January 31, 2020; Council of Institutional 
Investors dated January 30, 2020; International Brotherhood of 
Teamsters dated February 3, 2020; James McRitchie dated February 2, 
2020; Morningstar, Inc. dated February 3, 2020; Principles for 
Responsible Investment dated February 3, 2020; Segal Marco Advisors 
dated February 3, 2020; Teachers Insurance and Annuity Association 
of America (TIAA) dated February 3, 2020; UAW Retiree Medical 
Benefits Trust dated January 30, 2020; US SIF dated January 31, 
2020. See also Recommendation of the IAC, supra note 18.
    \401\ See letters from As You Sow dated February 3, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; UAW Retiree Medical Benefits Trust dated January 30, 2020.
    \402\ To measure how voting support fluctuates across multiple 
submissions of a proposal to the same company, we compute the 
standard deviation of the change in voting support from a prior 
submission to a subsequent submission. We find that the standard 
deviation is 10.7% for governance proposals as compared to 9.0% for 
environmental proposals and 7.6% for social proposals. Differences 
between these standard deviation estimates are statistically 
significant.
    \403\ We find that the standard deviation is 9.3% for proposals 
submitted to S&P 500 companies and 11.5% for proposals submitted to 
non-S&P 500 companies. Differences between these standard deviation 
estimates are statistically significant.
---------------------------------------------------------------------------

2. Economic Effects of Final Rule Amendments on the Quality of 
Shareholder Proposals
    The rule amendments are likely to result in the exclusion of 
certain proposals that would have otherwise been included in the proxy 
statement and submitted for a vote.\404\ Certain commenters have noted 
that, if by increasing companies' ability to exclude certain proposals 
the final amendments decrease shareholders' willingness to submit 
certain proposals,\405\ the final

[[Page 70282]]

amendments may limit information available to management about 
shareholder views on issues raised in shareholder proposals and inhibit 
communication among shareholders.\406\ In a similar vein, commenters 
have asserted that a potential decrease in the number of proposals may 
limit or slow the consideration of changes that may benefit companies 
and their shareholders.\407\ Commenters have also noted that by 
potentially increasing the number of proposals companies can exclude 
from being put to a vote on an initial submission or a resubmission, 
the final amendments may prompt proponents to utilize (or utilize to a 
greater extent) alternative avenues of influence, such as public 
campaigns, litigation over the accuracy of proxy materials, ``vote no'' 
campaigns on corporate directors, or demands to inspect company 
documents. These and other means of engagement may be effective, but 
also have their own associated costs. Because of the varied number of 
ways shareholders can engage with management in lieu of submitting a 
proposal, companies may confront lesser or greater uncertainty in their 
interaction with shareholders, proponents in certain instances may 
incur lower or higher costs to engage with management, and the 
efficiency of management's engagement with shareholders may increase or 
decrease.\408\ While we lack data to determine whether these other 
forms of engagement, in the aggregate, will be more costly and 
disruptive, we nonetheless believe that it is appropriate to alter the 
ownership thresholds to ensure greater alignment of interests in the 
context of shareholder proposals. To the extent companies perceive that 
their exclusion of shareholder proposals increases the overall costs 
associated with shareholder engagement, they may partially mitigate 
these costs by including proposals that would otherwise be excludable 
under the final amendments.\409\
---------------------------------------------------------------------------

    \404\ In addition to the exclusion of proposals that would have 
otherwise been included in the proxy statements, certain commenters 
have asserted that there may be a reduction in negotiated 
resolutions between management and proponents. See, e.g., letters 
from AFL-CIO dated February 3, 2020; Institute for Policy Integrity 
dated February 3, 2020; Lucian A. Bebchuk dated February 3, 2020. 
Because the rule amendments do not prevent proponents from 
communicating their views to management by means other than through 
the company's proxy materials, we believe that the rule amendments 
are unlikely to result in a reduction in negotiated resolutions.
    \405\ Companies occasionally allow proposals that do not meet 
the current eligibility thresholds to be voted on. At the same time, 
companies may expend additional time and resources to exclude 
proposals that are submitted despite not being eligible for 
submission. Hence, to the extent that the rule amendments will 
discourage proponents from submitting certain proposals, the rule 
amendments will have an effect that may be different than and 
incremental to the effect of companies' ability to exclude certain 
proposals.
    \406\ See supra Section V.C for discussion of factors that may 
mitigate any such effects.
    Commenters argued that shareholder proposals are a valuable form 
of communication between management and shareholders as well as 
among shareholders because they can challenge management's group 
thinking, allow the introduction of outside points of view on 
emerging issues, raise issues that cut across various departments in 
a company, and provide information to management that management 
would otherwise pay to obtain (e.g., through the hiring of 
consulting firms). See, e.g., letters from As You Sow dated February 
3, 2020; Lucian A. Bebchuk dated February 3, 2020; CalPERS dated 
February 3, 2020. See also Recommendation of the IAC, supra note 18. 
Commenters also noted that, through the engagement process motivated 
by the submission of shareholder proposals, management may provide 
information that is relevant to shareholders. See, e.g., letters 
from Center for Political Accountability dated January 31, 2020; 
Shareholder Rights Group dated January 6, 2020. Relatedly, 
commenters stated that even proposals that receive low voting 
support may be beneficial because the voting outcome of shareholder 
proposals may provide accurate aggregated information regarding 
shareholders' preferences on various topics, and this information 
becomes even more valuable as it is aggregated across various 
companies. See, e.g., letters from Council of Institutional 
Investors dated January 30, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Tom Shaffner dated December 
17, 2019. Commenters also stated that shareholder proposals are a 
unique form of communication with management because--in contrast to 
other forms of communication such as social media--shareholder 
proposals can motivate management to engage with shareholders and 
the prospect of receiving shareholder proposals can incentivize 
management to proactively adopt certain resolutions. See, e.g., 
letters from Council of Institutional Investors dated January 30, 
2020; Impax Asset Management dated January 20, 2020; Interfaith 
Center on Corporate Responsibility dated January 27, 2020. Some 
commenters argued that shareholder proposals are beneficial not only 
because they encourage communication between management and 
shareholders but also because they encourage both proponent and non-
proponent shareholders to communicate with each other through the 
submission of proposals, deliberation on existing proposals, and the 
voting process. See, e.g., letters from Council of Institutional 
Investors dated January 30, 2020; Tom Shaffner dated December 17, 
2019; Shareholder Rights Group dated January 6, 2020. In addition, 
other commenters noted that shareholder proposals may have market-
wide benefits that extend beyond the companies receiving them. See, 
e.g., letters from Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Pulte Institute for Global Development dated 
January 31, 2020; Shareholder Rights Group dated January 6, 2020. 
Some commenters argued that shareholder proposals may provide a 
valve to release tensions and avoid more costly and disruptive forms 
of engagement such as proxy contests, litigation, efforts related to 
regulatory change, books and records requests, etc. See, e.g., 
letters from Center for Political Accountability dated January 31, 
2020; Council of Institutional Investors dated January 30, 2020; 
Pulte Institute for Global Development dated January 31, 2020.
    \407\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; Center for Political Accountability dated January 31, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; Shareholder Rights Group dated January 6, 2020; US SIF dated 
January 31, 2020; Council of Institutional Investors et al. dated 
July 29, 2020 (arguing that the amendments might result in the 
exclusion of valuable proposals).
    Commenters stated that the implementation of shareholder 
proposals has helped companies manage risk, enhance disclosures, 
limit insiders' entrenchment, and implement long-term value-
enhancing changes. See, e.g., letters from Lucian A. Bebchuk dated 
February 3, 2020; Council of Institutional Investors dated January 
30, 2020; Interfaith Center on Corporate Responsibility dated 
January 27, 2020; Richard A. Liroff dated January 28, 2020; Pulte 
Institute for Global Development dated January 31, 2020; Shareholder 
Rights Group dated January 6, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020.
    \408\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; CtW 
Investment Group dated February 3, 2020; Oxfam dated February 3, 
2020; Pulte Institute for Global Development dated January 31, 2020; 
UAW Retiree Medical Benefits Trust dated January 30, 2020. See also 
Brown (2017), supra note 320, at 24-25; letter to Jeb Hensarling, 
Chairman, and Maxine Waters, Ranking Member, House Financial 
Services Committee, from Jeffrey P. Mahoney, General Counsel, 
Council of Institutional Investors dated April 24, 2017, available 
at https://democrats-financialservices.house.gov/uploadedfiles/letter_-_cii_04.27.2017.pdf; Ceres et al., The Business Case for the 
Current SEC Shareholder Proposal Process, (2017), at 11-12, 
available at https://www.ussif.org/files/Public_Policy/Comment_Letters/Business%20Case%20for%2014a-8.pdf (``Ceres Business 
Case''), at 11; letters in response to the Proxy Process Roundtable 
from Council of Institutional Investors dated January 31, 2019; Los 
Angeles County Employees Retirement Association dated October 30, 
2018; MFS Investment Management dated November 14, 2018; US SIF 
dated November 9, 2018.
    Some commenters, however, argued that alternative methods of 
communication, such as social media, are not a substitute for 
shareholder proposals because they do not ``allow aggregation of 
shareholder preferences or accommodate discussions about complex 
subjects of the type raised in shareholder proposals.'' See, e.g., 
letter from Interfaith Center on Corporate Responsibility dated 
January 27, 2020. Relatedly, one commenter criticized the economic 
analysis because it did not empirically examine the effects of 
technological advances on the shareholder proposal process. See 
letter from Council of Institutional Investors et al. dated July 29, 
2020. Based on the Commission's decades-long experience with Rule 
14a-8 and the various forms of outreach on the proxy process that 
the Commission has conducted over the years, we continue to believe 
that technological advances over recent years have facilitated 
shareholder engagement.
    \409\ For example, our analysis shows that, in our sample, 10 
shareholder proposals submitted to nine companies were resubmitted 
and voted on despite being eligible for exclusion under the current 
resubmission thresholds. Five of these proposals were resubmitted in 
the year following a previous vote during 2011 to 2017. See 
Proposing Release, at n.200.
    Companies could also reach an agreement with the shareholder-
proponent.
---------------------------------------------------------------------------

    To the extent that some excludable shareholder proposals may, if 
they had been submitted, have benefited companies and their 
shareholders, the exclusion of those proposals could impose costs on 
companies and their shareholders and decrease the efficiency of the 
shareholder-proposal process.\410\ Some commenters disagreed that the 
final amendments will result in the

[[Page 70283]]

exclusion of beneficial proposals, stating instead that these 
amendments will be beneficial to companies and their shareholders 
because they will result in the exclusion of proposals that are not 
related to long-term shareholder value.\411\ In particular, the 
benefits of shareholder proposals as a result of the rule amendments 
may increase because the average stockholdings of shareholder-
proponents will likely increase as a result of the amendments to the 
ownership thresholds. A shareholder with a larger ownership stake in a 
company will bear a larger percentage of the passed-through costs 
associated with processing a shareholder proposal relative to a 
proponent with a lower ownership stake. This differential may, in 
theory, cause larger shareholders to be less likely to submit proposals 
that are unlikely to garner majority support and/or be implemented by 
management.\412\
---------------------------------------------------------------------------

    \410\ See Proposing Release at 66494-66495 for a detailed 
discussion of potential benefits to companies and shareholders 
associated with the submission and consideration of shareholder 
proposals.
    The potential decrease in the number of shareholder proposals 
also may be costly to the various providers of administrative and 
advisory services related to shareholder voting because the demand 
for the services of these providers may decrease. Examples of these 
service providers include proxy voting advice businesses, tabulators 
of voting, and proxy solicitors, and others who seek to profit from 
shareholder proposals (such as investment advisers who market their 
services as shareholder-proponent for their clients).
    \411\ See letters from American Securities Association dated 
February 3, 2020; Business Roundtable dated February 3, 2020; Center 
for Capital Markets Competitiveness dated January 31, 2020; Compass 
Lexecon dated December 23, 2019; National Association of 
Manufacturers dated February 3, 2020.
    \412\ See, e.g., letter from Center for Capital Markets 
Competitiveness dated January 31, 2020 (arguing that shareholders 
who submit proposals under the rule amendments ``will have to have a 
little bit more skin in the game'').
---------------------------------------------------------------------------

    Relatedly, by eliminating shareholders' ability to aggregate their 
holdings with those of other shareholders, the final amendments will 
require each proponent to have a higher economic stake or investment 
interest in the company. As a result, we expect that shareholder-
proponents that would have otherwise aggregated their shares with other 
shareholders in order to meet the eligibility thresholds would need to 
increase their holding amount or duration to submit a proposal under 
the final amendments. Such shareholder-proponents would bear a larger 
percentage of the costs of processing a shareholder proposal and 
therefore, also in theory, may be marginally less likely to submit 
proposals that are unlikely to garner majority support and/or be 
implemented by management.
    Nevertheless, to the extent that the amendments to the ownership 
thresholds and the ability to aggregate will exclude proposals that may 
benefit companies and investors, the rule amendments will impose costs 
on companies and their investors. Several commenters asserted that 
there is no relation between proponents' level and duration of 
ownership and the value of submitted shareholder proposals, so the 
amendments to Rule 14a-8(b) would not effectively distinguish 
shareholder proposals on the basis of their potential benefits.\413\ 
The rules, however, do not attempt to distinguish proposals on the 
basis of their potential benefits. As already discussed, an attempt to 
determine in advance which proposals will be beneficial would be 
inherently speculative and our proxy rules are not designed to do so. 
Rather, the proxy rules have long relied on ownership thresholds as 
indicia of an economic stake or investment interest in the company to 
infer a reasonably sufficient alignment of interest with non-proponent 
shareholders such that it is appropriate to include a proposal in the 
company's proxy materials at the expense of other shareholders.\414\ 
Consistent with this purpose, the amendments update those thresholds.
---------------------------------------------------------------------------

    \413\ See, e.g., letters from AFL-CIO dated February 3, 2020; As 
You Sow dated February 3, 2020; Better Markets dated February 3, 
2020; Council of Institutional Investors dated January 30, 2020; 
Lila Holzman dated January 25, 2020; International Corporate 
Governance Network dated December 4, 2019; Institute for Policy 
Integrity dated February 3, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Maryknoll Sisters of St. 
Dominic, Inc. dated January 17, 2020; Newground Social Investment 
dated February 3, 2020; Segal Marco Advisors dated February 3, 2020; 
Shareholder Commons dated January 31, 2020; UAW Retiree Medical 
Benefits Trust dated January 30, 2020.
    \414\ See 1982 Proposing Release, supra note 2; 1983 Adopting 
Release, supra note 2.
---------------------------------------------------------------------------

    Relatedly, some commenters stated that certain companies may be in 
urgent need of reform and the increase in the holding period at the 
$2,000 ownership threshold may in theory delay the implementation of 
such reforms.\415\ To the extent a company is in urgent need of reform, 
it may be more likely that a proposal, or a similar one, that addresses 
the issue will be submitted by another shareholder who meets the 
eligibility thresholds and, more generally, that the issues in need of 
urgent attention will be the subject of other forms of engagement.
---------------------------------------------------------------------------

    \415\ See, e.g., letters from Segal Marco Advisors dated 
February 3, 2020; UAW Retiree Medical Benefits Trust dated January 
30, 2020.
---------------------------------------------------------------------------

    The benefits of submitted proposals may also marginally increase as 
a result of the one-proposal-per-person requirement because proponents 
may prioritize the submission of proposals with higher expected 
benefits ahead of those with lower expected benefits for a given 
company.\416\ On the other hand, some commenters argued that the one-
proposal-per-person requirement may increase costs to companies and 
their shareholders because the one-proposal-per-person amendment could 
discourage proponents from using a representative to help craft 
proposals and supporting statements.\417\ Further, commenters described 
additional costs the one-proposal final amendment may impose, assuming 
that shareholders' reliance on representatives will change.\418\ 
Commenters noted that these costs may arise from (i) companies having 
to deal with multiple proponents instead of dealing with few 
representatives, which will make engagement less efficient; (ii) 
companies having to submit and Commission staff having to review more 
no-action requests because the proposals submitted by inexperienced 
proponents may be less well-drafted than those submitted by experienced 
representatives and thus may be more likely to be sought to be 
excluded; \419\ and (iii) less frequent and meaningful dialogue between 
proponents and companies because proponents may have less experience 
and expertise than representatives at effectively communicating with 
management.\420\ Relatedly, several commenters argued that the one-
proposal final amendment will interfere with proponents' fiduciary 
relationships with their investment advisers, who might act as their 
representatives, or other entities with whom proponents have 
contractual relationships.\421\ As a result, the commenters asserted 
that the proposed amendments may impose costs on investment advisers 
and their clients.\422\

[[Page 70284]]

We expect that any costs related to the one-proposal amendment will be 
small, including because we estimate that the amendment to Rule 14a-
8(c) will only affect a small number of proposals and proponents.\423\ 
In addition, the amendment will restrict the representative's ability 
to submit a proposal on the proponent's behalf but otherwise will not 
limit or interfere with the representative's ability to assist the 
proponent with drafting a proposal, navigating the submission process, 
or presenting the proposal at the annual meeting, and thus any 
potential effects of the rule amendment will be limited.
---------------------------------------------------------------------------

    \416\ See letter from Robeco dated January 16, 2020.
    \417\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
James McRitchie dated February 2, 2020.
    In addition, some commenters argued that the one-proposal 
amendment may impose costs on proponents associated with proponents 
incurring higher recordkeeping costs to comply with the requirement. 
We generally expect any such costs will be minimal. See, e.g., 
letter from AFL-CIO dated February 3, 2020.
    \418\ See, e.g., letter from James McRitchie dated February 2, 
2020. See also Recommendation of the IAC, supra note 18.
    \419\ See, e.g., letters from CalPERS dated February 3, 2020; 
Paul Rissman dated January 15, 2020.
    \420\ See, e.g., letters from As You Sow dated February 3, 2020; 
Boston Trust Walden et al. dated January 27, 2020; CalPERS dated 
February 3, 2020; Council of Institutional Investors dated January 
30, 2020; First Affirmative Financial Network, LLC dated January 24, 
2020; James McRitchie dated February 2, 2020; Paul Rissman dated 
January 15, 2020; Tom Shaffner dated December 17, 2019; Trillium 
Asset Management dated February 3, 2020; US SIF dated January 31, 
2020.
    \421\ See, e.g., letters from As You Sow dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; First 
Affirmative Financial Network, LLC dated January 24, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; James McRitchie dated February 2, 2020; Trillium Asset 
Management dated February 3, 2020; US SIF dated January 31, 2020.
    \422\ Some commenters argued that this aspect of the amendments 
is unworkable for institutional investors who always rely on 
representatives to submit a proposal because they are not natural 
persons. In particular, for institutional investors that share an 
investment adviser or pension plan administrator, the amendment will 
impose unintended ``first to file'' constraints. See, e.g., letter 
from AFL-CIO dated February 3, 2020. Other commenters, however, 
argued that that this aspect of the amendments will create a bias 
towards institutional investing because anyone whose investments are 
made through institutions is automatically and necessarily 
represented in the course of filing a shareholder proposal, but 
individual investors will be more limited in their ability to use a 
representative. See, e.g., letter from Shareholders Rights Group 
dated March 18, 2020.
    \423\ See supra tbl.1.
---------------------------------------------------------------------------

    Lastly, the final amendments to the resubmission thresholds may 
benefit companies and their shareholders to the extent that they change 
proponents' behavior in ways that result in proposals that obtain 
higher levels of support. In particular, due to the higher thresholds, 
proponents may formulate proposals that are more likely to garner 
sufficient levels of shareholder support to avoid future 
exclusion.\424\ In addition, proponents may market and communicate 
their proposal to other shareholders to increase support for their 
proposal. As a result, companies and their shareholders could benefit 
from the submission of shareholder proposals that are more likely to 
receive higher levels of support and/or be implemented by management. 
Similarly, the amended resubmission thresholds may discourage the 
submission of proposals that are less likely to garner majority voting 
support and/or be implemented by management.\425\
---------------------------------------------------------------------------

    \424\ See, e.g., letters from Center for Capital Markets 
Competitiveness dated January 31, 2020; National Association of 
Manufacturers dated February 3, 2020.
    One commenter disagreed with the assertion that that the 
resubmission thresholds will improve proposal quality because 
proponents already request feedback on their proposals prior to 
submitting them to the company. See letter from Interfaith Center on 
Corporate Responsibility dated January 27, 2020.
    \425\ Proponents incur costs to submit proposals, which may 
already deter some proponents from resubmitting proposals that have 
a low likelihood of receiving sufficient levels of shareholder 
support.
---------------------------------------------------------------------------

    Some commenters stated that the Proposing Release's economic 
analysis was incomplete because it did not provide a dollar estimate of 
the cost of excluding certain proposals as a result of the rule 
amendments.\426\ Although some commenters suggested we should attempt 
to estimate the hypothetical value of excluded proposals, our analysis 
does not attempt to quantify whether excluded proposals would have (in 
the event they would have been adopted or would have been adopted 
sooner) resulted in benefits (or harm) to companies or their 
shareholders. Any such focus would both require us to opine on the 
merits of specific proposals and be inherently speculative. Such an 
exercise also would not be consistent with the intent of Rule 14a-8, 
which is to set thresholds at which it is appropriate for a shareholder 
proposal to be considered for inclusion in the company's proxy 
materials initially, or on resubmission, without opining on the merits 
of specific proposals. The thresholds for initial proposals are 
intended to ensure that the interests of those who submit them are 
appropriately aligned with fellow shareholders. The thresholds for 
resubmissions are designed to exclude temporarily (through a modest 
cooling-off period) those proposals that previously were disapproved by 
fellow shareholders by a large margin. In neither case are the 
thresholds designed to favor or disadvantage particular types of 
proposal topics. In addition, we describe additional significant 
methodological and empirical challenges of doing this type of analysis 
below.
---------------------------------------------------------------------------

    \426\ See letters from Lucian A. Bebchuk dated February 3, 2020; 
CalPERS dated February 3, 2020; John Coates and Barbara Roper dated 
January 30, 2020; First Affirmative Financial Network, LLC dated 
January 24, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Richard A. Liroff dated January 28, 2020; 
James McRitchie dated February 2, 2020; Tom Shaffner dated December 
17, 2019; Shareholder Rights Group dated January 6, 2020; UAW 
Retiree Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Specifically, some commenters suggested that to estimate the costs 
of the rule amendments, the economic analysis should consider studies 
documenting a correlation between companies' ESG policies and financial 
performance.\427\ In particular, one commenter employed this 
methodology to estimate the cost of the rule amendments as ranging from 
$223.9 million to $129.7 billion.\428\ We believe that the commenter's 
cost estimate of the rule amendments is not instructive for the 
following reasons. First, we do not believe that this type of study 
accurately predicts the economic effects of the amendments because ESG 
policies could be implemented for reasons other than the submission of 
shareholder proposals, including shareholder engagement that does not 
involve the submission of shareholder proposals. In addition, the 
studies cited by the commenter do not provide evidence of a causal 
relation between governance, environmental, and social provisions and 
firm value. Lastly, the commenter used an estimate of 530 excludable 
proposals annually; however, as discussed in more detail above, we 
continue to expect that the upper bound estimate of the number of 
excludable proposals under the rule amendments will range from 58 to 
524 annually and that changes in behavior by shareholder-proponents may 
mitigate this effect.\429\
---------------------------------------------------------------------------

    \427\ See, e.g., letters from Athena Capital Advisors dated 
January 17, 2020; Lucian A. Bebchuk dated February 3, 2020; Betty 
Cawley dated January 8, 2020; Ceres et al. dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020; Muriel 
Finegold dated January 29, 2020; Impax Asset Management dated 
January 20, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Richard A. Liroff dated January 28, 2020; 
Newground Social Investment dated February 3, 2020; Principles for 
Responsible Investment dated February 3, 2020; Segal Marco Advisors 
dated February 3, 2020; Seventh Generation Interfaith Coalition for 
Responsible Investment dated January 28, 2020; Stardust dated 
January 29, 2020; Tides dated January 15, 2020; UAW Retiree Medical 
Benefits Trust dated January 30, 2020.
    \428\ See letter from Tom Shaffner dated December 17, 2019.
    Another commenter estimated the value of shareholder engagement 
to be equal to $19.6 billion per year. See letter from Newground 
Social Investment dated February 3, 2020. We do not rely on this 
estimate for purposes of estimating the economic effects of the 
final amendments because the commenter did not estimate the cost of 
the rule amendments but rather the benefit of shareholder proposals 
in general. Further, the commenter applied an estimate of value from 
a proposal submitted to a single company to all companies in Russell 
3000, regardless of whether those companies received a proposal. 
Applying the same value estimate to all Russell 3000 companies also 
ignores variation in the value of proposals.
    \429\ 58 = (0% minimum upper bound percentage of excludable 
proposals as a result of the amendments to 14a-8(b) + 2% upper bound 
percentage of excludable proposals as a result of the amendments to 
14a-8(c) + 5% upper bound percentage of excludable proposals as a 
result of the amendments to 14a-8(i)(12)) x 831 (all proposals 
submitted to be considered at 2018 shareholders' meetings). 524 = 
(56% maximum upper bound percentage of excludable proposals as a 
result of the amendments to 14a-8(b) + 2% upper bound percentage of 
excludable proposals as a result of the amendments to 14a-8(c) + 5% 
upper bound percentage of excludable proposals as a result of the 
amendments to 14a-8(i)(12)) x 831 (all proposals submitted to be 
considered at 2018 shareholders' meetings). See supra tbl.1.
---------------------------------------------------------------------------

    Other commenters suggested that the economic analysis should use 
estimates of changes in market capitalization around events related to 
shareholder proposals that are provided in academic literature to 
estimate the cost of exclusion of certain proposals as a result

[[Page 70285]]

of the rule amendments.\430\ Using an average short-run stock price 
reaction of 0.06 percent around events related to shareholder proposals 
cited in Denes et al. (2017), one commenter estimated that rule 
amendments would result in a $4.3 billion reduction in annual stock 
market valuations.\431\
---------------------------------------------------------------------------

    \430\ See, e.g., Lucian A. Bebchuk dated February 3, 2020.
    \431\ See letter from AFL-CIO dated February 3, 2020. See also, 
Matthew R. Denes, Jonathan M. Karpoff & Victoria B. McWilliams, 
Thirty Years of Shareholder Activism: A Survey of Empirical 
Research, 44 J. Corp. Fin. 405 (2017) (``Denes et al. (2017)'').
---------------------------------------------------------------------------

    In the Proposing Release, we summarized the findings of empirical 
literature that examines whether proposals are economically beneficial 
by studying short-run abnormal stock returns \432\ around key events 
related to shareholder proposals.\433\ Several commenters criticized 
our discussion of short-term stock price reactions studies, arguing 
that the economic analysis instead should look at the long-run effects 
of shareholder proposals.\434\ We agree with commenters that there are 
significant limitations to using short-term market reactions to measure 
the benefits of shareholder proposals because these estimates: (i) May 
confound the benefits of shareholder proposals with the benefits of 
other concurrent information releases (e.g., submission of management 
proposals); (ii) may not capture anticipatory effects of shareholder 
proposals as information about the submission of a shareholder proposal 
may leak prior to the event date considered by the academic study; 
(iii) may reflect the benefits of the average shareholder proposal 
rather than the benefits of the excludable shareholder proposals as a 
result of the rule amendments; and (iv) may capture various effects 
such as signaling effects (e.g., the submission of a proposal may 
signal that the targeted company is underperforming or that the initial 
negotiations between proponent and company failed), market expectations 
regarding the voting outcome, market expectations regarding the 
probability of implementation of a proposal, etc.\435\ We also believe 
that the limitations observed in short-run studies are even more 
pronounced in long-run studies.\436\ For these reasons, we do not rely 
on either short-run return studies or long-run return studies to 
measure the benefits of excludable shareholder proposals in our 
economic analysis.
---------------------------------------------------------------------------

    \432\ We refer to abnormal stock returns because they are 
adjusted for changes in prices that are attributable to events that 
have market-wide implications (e.g., changes in interest rates, 
natural disasters, etc.) and thus only capture the effect of firm-
specific information releases.
    \433\ See Proposing Release at 66495. The main events related to 
shareholder proposals studies in academic literature comprise the 
initial press announcement of submission of a shareholder proposal, 
the proxy mailing date, and the date of the shareholder meeting. See 
Denes et al. (2017), supra note 431.
    \434\ See, e.g., letters from Impax Asset Management dated 
January 20, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; Segal Marco Advisors dated February 3, 2020; 
Tom Shaffner dated December 17, 2019; UAW Retiree Medical Benefits 
Trust dated January 30, 2020.
    \435\ See, e.g., Stuart L. Gillan & Laura T. Starks, Corporate 
Governance Proposals and Shareholder Activism: The Role of 
Institutional Investors, 57 J. Fin. Econ. 275 (2000) (``Gillan & 
Starks (2000)''); Diane Del Guercio & Jennifer Hawkins, The 
Motivation and Impact of Pension Fund Activism, 52 J. Fin. Econ. 293 
(1999).
    Commenters provided additional reasons for why short-term stock 
market reaction may be inappropriate to assess the benefits of 
shareholder proposals. One commenter argued that stock price 
reactions around shareholder meetings may not capture the benefits 
of shareholder proposals because companies do not have to disclose 
the voting outcome until several days after the shareholder meeting. 
See letter from Interfaith Center on Corporate Responsibility dated 
January 27, 2020. Another commenter argued that stock returns may 
not fully capture the utility shareholders derive from proposals 
because investors may seek not only financial returns but also 
changes such as the ``integration of environmental and social 
concerns in business decisions.'' See letter from Institute for 
Policy Integrity dated February 3, 2020. Other commenters argued 
that short-term stock market reactions do not capture the long-term 
impact of shareholder proposals on firm value. See, e.g., letters 
from Tom Shaffner dated December 17, 2019; UAW Retiree Medical 
Benefits Trust dated January 30, 2020. Finally, a commenter argued 
that event studies capture shareholders' expectations about the 
future impact of a proposal but these expectations may turn out not 
to be correct. See letter from UAW Retiree Medical Benefits Trust 
dated January 30, 2020.
    Academic literature employs various methods to address the 
issues with short-window event studies discussed above. For example, 
some academic literature uses the date of the initial press 
announcement of the shareholder engagement rather than the proxy 
mailing date as the event date to isolate the effect of the 
shareholder proposals from the effect of other items on the proxy 
statements. See, e.g., Jonathan M. Karpoff, Paul H. Malatesta & 
Ralph A. Walkling, Corporate Governance and Shareholder Initiatives: 
Empirical Evidence, 42 J. Fin. Econ. 365 (1996). Other academic 
literature uses techniques such as regression discontinuity to 
isolate the anticipatory effects of voting outcomes from the 
benefits of implementation of certain shareholder proposals. See 
Vicente Cu[ntilde]at, Mireia Gine & Maria Guadalupe, The Vote Is 
Cast: The Effect of Corporate Governance on Shareholder Value, 67 J. 
Fin. 1943 (2012). Finally, assuming semi-strong form of market 
efficiency, companies' short-term stock price reaction should 
capture investors' expectations of both the short- and long-term 
benefits and costs of shareholder proposals. According to the semi-
strong form of market efficiency, stock prices fully reflect all 
publicly available information, not just information related to 
short-term changes. See, e.g., Eugene F. Fama, Efficient Capital 
Markets: A Review of Theory and Empirical Work, 25 J. Fin. 383 
(1970) (discussing the concept of market efficiency); James M. 
Patell & Mark A. Wolfson, The Intraday Speed of Adjustment of Stock 
Prices to Earnings and Dividend Announcements, 13 J. Fin. Econ. 223 
(1984) (testing the efficient market hypothesis).
    \436\ See, e.g., Gillan & Starks (2000), supra note 435.
---------------------------------------------------------------------------

3. Comments Regarding Voting Support and Economic Effects of the Rule 
Amendments
    In the Proposing Release, we provide descriptive statistics on the 
voting support and the probability of obtaining majority support for 
all proposals, by proposal topic, and by proponent type.\437\ This 
analysis allowed us to provide some evidence on the effects of the 
proposed amendments on proposals that may garner high and/or majority 
shareholder support, and to examine whether the proposed amendments to 
the resubmission thresholds may have larger effects for some types of 
proposals and proponents than for others.
---------------------------------------------------------------------------

    \437\ See Proposing Release at 66483-66487.
---------------------------------------------------------------------------

    Several commenters suggested that shareholder voting support may 
not be the best or only metric to assess the economic effects of the 
rule amendments because it does not account for:
     The effects of withdrawn proposals that resulted in a 
company's implementation of beneficial measures; \438\
---------------------------------------------------------------------------

    \438\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; CalPERS dated February 3, 2020; Center for Political 
Accountability dated January 31, 2020; Institute for Policy 
Integrity dated February 3, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; UAW Retiree Medical Benefits 
Trust dated January 30, 2020.
---------------------------------------------------------------------------

     the effects of changes implemented without the passage of 
a shareholder proposal but following the passage of similar proposals 
at many other companies; \439\
---------------------------------------------------------------------------

    \439\ See, e.g., letter from Lucian A. Bebchuk dated February 3, 
2020.
---------------------------------------------------------------------------

     the effects of proposals that received low levels of 
support but resulted in a company's implementation of beneficial 
measures; \440\ and
---------------------------------------------------------------------------

    \440\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; CalPERS dated February 3, 2020; John Coates and Barbara 
Roper dated January 30, 2020; Council of Institutional Investors 
dated January 30, 2020; Institute for Policy Integrity dated 
February 3, 2020; Interfaith Center on Corporate Responsibility 
dated January 27, 2020; James McRitchie dated February 2, 2020; UAW 
Retiree Medical Benefits Trust dated January 30, 2020; US SIF dated 
January 31, 2020.
    Relatedly, commenters have argued that voting support is not a 
relevant metric for assessing the amendments' economic effects 
because proposals are almost never binding and just learning about 
the voting outcome may be valuable information to a company. See, 
e.g., letter from Council of Institutional Investors dated January 
30, 2020.
---------------------------------------------------------------------------

     the effects of company-shareholder engagement without the 
submission of a formal shareholder proposal but against the background 
of the company's expectation that a proposal might be

[[Page 70286]]

submitted if the company does not agree to make satisfactory 
changes.\441\
---------------------------------------------------------------------------

    \441\ See, e.g., letters from Lucian A. Bebchuk dated February 
3, 2020; Center for Political Accountability dated January 31, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020.
---------------------------------------------------------------------------

    Commenters also suggested that voting support is becoming a less 
informative metric with the increase in uninformed voting by passive 
investors that frequently side with management.\442\ A few commenters 
argued that voting support may be an unreliable measure of actual 
shareholder support for a proposal because of proxy voting advice 
businesses' influence of voting outcomes.\443\ In addition, two 
commenters stated that voting outcomes are unreliable because of issues 
with the counting of votes.\444\ While we acknowledge the views of 
commenters, we continue to believe that voting support is a useful and 
relevant metric for purposes of our economic analysis because that is 
the established metric for shareholder voting generally and most likely 
to result in implementation of a shareholder proposal. Further, 
substituting other subjective views or metrics could have the effect of 
raising the views of others over the views of shareholders. Our 
economic analysis acknowledges and seeks to account for the fact that 
the rule amendments may affect not only voted proposals but also 
omitted and withdrawn proposals by applying the percentage of 
excludable proposals estimated over the sample of voted proposals to 
all submitted proposals.\445\ Relatedly, some commenters argued that 
the economic analysis should examine the effect of resubmission 
thresholds on implemented proposals rather than proposals that received 
majority support. According to these commenters, certain resubmitted 
proposals are withdrawn because management expects that these proposals 
are likely to garner majority support, which results in proposal 
implementation without going to a vote, and ignoring those withdrawn 
proposals in the economic analysis misestimates the effects of the rule 
amendments on the likelihood of receiving broad or majority support 
upon a resubmission.\446\ More generally, commenters argued that 
companies implement proposals even when those proposals do not receive 
majority support.\447\ While we agree with commenters that companies 
may implement proposals (in whole or in part, or in an alternative 
form) even when they do not receive majority support, we lack data to 
reliably identify resubmitted proposals that were implemented by 
management. Finally, the probability that a shareholder proposal will 
be implemented is higher for proposals that receive majority support, 
and thus we believe that our statistics on proposals that receive 
majority support are a good approximation of statistics for implemented 
proposals.\448\
---------------------------------------------------------------------------

    \442\ See, e.g., letter from Tom Shaffner dated December 17, 
2020.
    \443\ See, e.g., letters from Business Roundtable dated February 
3, 2020; Exxon Mobil Corporation dated February 3, 2020; Society for 
Corporate Governance dated February 3, 2020.
    \444\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Council of Institutional Investors dated January 30, 2020. See also 
Recommendation of the IAC, supra note 18.
    \445\ See, e.g., supra notes 347 and 348.
    \446\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
Institute for Policy Integrity dated February 3, 2020.
    \447\ See, e.g., letter from Institute for Policy Integrity 
dated February 3, 2020.
    \448\ See infra note 451.
---------------------------------------------------------------------------

    Some commenters also argued that using a majority-support threshold 
in the economic analysis is not appropriate because majority approval 
has no legal significance and there is a positive relation between 
voting support and the probability of implementation of shareholder 
proposals in general, even when voting support falls short of the 
majority of shares.\449\ In addition, several commenters cited academic 
research that suggests that the passing rate of shareholder proposals 
may in some cases be impacted by management expending resources to 
influence results for proposals that are close to a majority 
threshold.\450\ In the Proposing Release, we examined the percentage of 
proposals that received majority support as opposed to some other 
voting threshold because studies show that the probability of 
implementation of a shareholder proposal increases significantly once 
the proposal receives majority support.\451\
---------------------------------------------------------------------------

    \449\ See, e.g., letters from AFL-CIO dated February 3, 2020; 
John Coates and Barbara Roper dated January 30, 2020; Council of 
Institutional Investors dated January 30, 2020; Impax Asset 
Management dated January 20, 2020; Institute for Policy Integrity 
dated February 3, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Tom Shaffner dated December 
17, 2019. See also Recommendation of the IAC, supra note18.
    \450\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; Impax Asset Management dated January 20, 
2020; Interfaith Center on Corporate Responsibility dated January 
27, 2020; New York City Comptroller dated February 3, 2020 (citing 
Laurent Bach & Daniel Metzger, How Close Are Close Shareholder 
Votes?, 32 Rev. Fin. Stud. 3183 (2019) (``Bach & Metzger (2019)'')); 
Tom Shaffner dated December 17, 2019. Bach & Metzger (2019) provide 
evidence consistent with the idea that management attempts to 
influence voting outcomes by encouraging the participation of retail 
shareholders, who are more likely to vote with management, and 
exercising option packages to obtain additional votes.
    \451\ See Proposing Release at 66485. For example, a 2010 study 
by Ertimur et al. shows that ``proposals that won at least one 
majority vote in the past are more likely to be implemented (34.2% 
versus 22.9%).'' See Yonca Ertimur, Fabrizio Ferri & Stephen R. 
Stubben, Board of Directors' Responsiveness to Shareholders: 
Evidence from Shareholder Proposals, 16 J. Corp. Fin. 53 (2010) 
(``Ertimur et al. (2010)''). Similarly, a 2017 study by Bach and 
Metzger showed that ``when the 50%-threshold is passed, there is a 
very sizeable jump of about 20% of the implementation likelihood.'' 
See Laurent Bach & Daniel Metzger, How Do Shareholder Proposals 
Create Value? (Working Paper, Mar. 2017) (``Bach & Metzger 
(2017)''). However, only crossing the management-defined majority 
threshold (as opposed to the simple majority threshold defined as 
the ratio of ``for'' votes divided by the sum of ``for'' and 
``against'' votes) has a positive effect on the probability that the 
proposal is implemented. Id. The management-defined majority 
threshold may differ from a simple majority threshold. Id. In 43% of 
their sample, the management threshold is the same as the simple 
majority threshold. See id. In our analysis, we define majority 
support as the simple majority threshold because we lack data on the 
management-defined majority threshold.
---------------------------------------------------------------------------

F. Reasonable Alternatives

    We have considered the relative costs and benefits of reasonable 
alternatives to the final amendments. The discussion below is limited 
to reasonable alternatives within the scope of Rule 14a-8.
1. Alternative Amendments to Rule 14a-8(b) and Rule 14a-8(c)
i. Alternative Ownership Thresholds
    We considered a number of alternative approaches to the ownership 
thresholds. First, we considered whether to increase the $2,000/one-
year threshold in the current requirement to a $25,000/one-year 
threshold without providing additional eligibility options. Using 
proponents' exact ownership information from the proxy statements and 
assuming no change in proponents' ability to aggregate their holdings 
to submit a joint proposal, such an increase would have resulted in the 
excludability of an upper bound estimate of 56 percent of the proposals 
with exact proponents' account ownership information to be considered 
at 2018 shareholder meetings.\452\ The

[[Page 70287]]

advantage of increasing only the dollar amount in the current threshold 
is that the rule would be less costly for shareholder-proponents and 
companies to implement and monitor. The disadvantage of such an 
approach would be that shareholders would not have the flexibility to 
become eligible to submit shareholder proposals by either increasing 
their holdings or holding the shares of a company for a longer period 
of time as under the adopted approach.
---------------------------------------------------------------------------

    \452\ Companies have discretion in the type of information they 
must include in the proxy statements regarding proponents' ownership 
(see Rule 14a-8(l)). In particular, the company's proxy statement 
must include either proponents' share ownership or a statement that 
this information will be provided to shareholders upon request. 
Whenever the company discloses proponents' ownership information, 
the company may disclose the actual dollar value, the actual number 
of shares, a minimum dollar value, or a minimum number of shares 
held by the proponent. In addition, whenever the company discloses 
proponents' ownership information, the company may disclose 
ownership information for a subset of the proponents submitting a 
proposal, and the company may disclose actual holdings information 
for some of the proponents and minimum holdings information for the 
rest of the proponents submitting the same proposal. The type of 
ownership information the company discloses (i.e., actual holdings 
versus minimum holdings and dollar value versus number of shares) 
frequently depends on the type of information provided in the proof-
of-ownership letter furnished by the proponent. In particular, 
proponents also have discretion in the type of information they must 
provide in the proof-of-ownership letters (see Rule 14a-8(b)(2)). 
Proponents may disclose the exact duration and level of their 
holdings or they may confirm that they meet the minimum ownership 
thresholds. Hence, there is available data in the proxy statements 
regarding proponents' exact ownership for only a subset of the 
proponents, and data regarding proponents' minimum ownership for the 
remaining proponents. More specifically, there were 447 unique voted 
proposals for shareholder meetings held in 2018. Out of the 447 
proposals, 287, or 64 percent, contained information on proponents' 
actual and/or minimum holdings, whereas the remaining 160, or 36 
percent, did not contain information on proponents' ownership. 
Further, in our sample of proxy statements, there were 198 
proponents that submitted 150 unique proposals for which the proxy 
statements mentioned the proponents' actual holdings, and 159 
proponents that submitted 139 unique proposals for which the proxy 
statements mentioned the proponents' minimum holdings.
---------------------------------------------------------------------------

    Alternatively, we considered using a tiered approach, but with 
different combinations of minimum dollar amounts and holding periods. 
For example, we considered (i) $2,000 for five years, $15,000 for three 
years, and $25,000 for one year or (ii) $2,000 for three years, $10,000 
for two years, and $50,000 for one year. We are unable to estimate the 
incremental effects of the first alternative relative to the effects of 
the final amendments discussed in Section V.D above because we lack 
data on proponents' ownership duration. Regarding the effects of the 
second alternative, assuming all proponents held the shares for only 
one year, the increase in the dollar ownership thresholds from $2,000 
to $50,000 (i.e., third tier of the alternative ownership threshold) 
could result in the exclusion of 65 percent of the proposals based on 
the ownership information of proponents at 2018 shareholder 
meetings.\453\ On the other hand, assuming all proponents held the 
shares for at least three years, the ownership thresholds of the second 
alternative would not result in a change in the number of excludable 
proposals relative to the current thresholds.
---------------------------------------------------------------------------

    \453\ 65% = 97 (excludable proposals under a $50,000/one-year 
threshold)/150 (proposals with exact proponents' ownership 
information in proxy statements, see supra note 452). This estimate 
assumes that proponents do not own any shares of company stock 
outside of the account used to prove ownership. In the case of 
institutional shareholders, in particular, this assumption is 
overinclusive and our estimate should be viewed as an upper bound. 
This estimate assumes that proponents will not be permitted to 
aggregate their holdings to meet the ownership threshold. See 
Proposing Release at 66506.
---------------------------------------------------------------------------

    We also considered whether to index the adopted ownership 
thresholds for inflation or to maintain a single ownership threshold 
but index it to inflation, as recommended by several commenters.\454\ 
The benefit of such an approach would be that the thresholds would 
adjust over time without the need for additional rulemaking. The 
disadvantage of such an approach would be that compliance with the rule 
could be more cumbersome as companies and shareholder-proponents would 
have to monitor periodically adjusted ownership thresholds.
---------------------------------------------------------------------------

    \454\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; First Affirmative Financial Network, LLC 
dated January 24, 2020; Society for Corporate Governance dated 
February 3, 2020.
    As of February 2020, the $2,000 threshold as adopted in May 1998 
would be equal to $3,178 after adjusting for inflation (see supra 
note 58) and it would be equal to $7,470 after adjusting for the 
growth in Russell 3000 index (see supra note 59).
    One commenter argued that adjusting the $2,000 threshold for 
inflation would result in excessive ownership thresholds because 
``the original increase from $1,000 to $2,000 already included a 
future inflationary adjustment.'' The same commenter argued that 
adjusting the ownership thresholds using the growth in the Russell 
3000 ``only makes sense for investors who have been in the market 
during this entire time; new entrants to the market would not have 
benefitted from market growth and as such the Russell Index 
comparison simply doesn't make sense.'' See letter from Tom Shaffner 
dated December 17, 2019.
---------------------------------------------------------------------------

    Different thresholds could result in the exclusion of more or fewer 
proposals, depending on the particular thresholds. Any set of ownership 
thresholds has various tradeoffs associated with any given choice along 
the range of potential alternatives, the magnitude of which can vary 
based on a shareholder's actual holdings. The final rules attempt to 
address the interests of shareholders who seek to use the company's 
proxy statement to advance their own proposals at little or no cost to 
themselves, while recognizing that other shareholders and companies 
bear the burdens associated with the inclusion of such proposals and 
thus have an interest in ensuring that the interests of proponents are 
sufficiently aligned with those of other shareholders.
ii. Percent-of-Ownership Threshold
    We considered whether to instead adopt an ownership requirement 
based solely on the percentage of shares owned. For example, we 
considered eliminating the dollar ownership threshold and retaining the 
one-percent ownership threshold. Using proponents' exact ownership 
information from the proxy statements and assuming no change in 
proponents' ability to aggregate their holdings to submit a joint 
proposal, we estimate that using a one-percent ownership threshold and 
removing the $2,000/one-year threshold would have resulted in an upper 
bound estimate of 149 proposals, or 99 percent of the proposals to be 
considered in 2018 shareholder meetings that provide exact proponents' 
ownership information, being excludable under the final amendments, 
again assuming no change in proponent behavior.\455\
---------------------------------------------------------------------------

    \455\ 99% = 149 (number of excludable proposals under a 1% 
threshold)/150 (proposals with exact proponents' ownership 
information in proxy statements). For proposals that are submitted 
by more than one proponent, these estimates assume that the 
proposals will still be submitted if the aggregate ownership of the 
co-proponents met the alternative percent-of-ownership threshold. 
For proposals that are submitted by multiple proponents, some of 
which provide exact and others provide minimum holdings information, 
we assume that the ownership of the proponents with minimum holdings 
information is equal to the lowest end of the ownership range. See 
Proposing Release at 66507.
---------------------------------------------------------------------------

    The advantage of a percentage-of-ownership threshold is that it 
would permit shareholders owning the same proportion of a larger 
company as of a smaller company to submit a proposal, and so the rule 
would have similar effects on smaller and larger companies.\456\ The 
percentage-of-ownership threshold, however, may be somewhat harder to 
implement because of changes in companies' capital structure over time. 
We also believe that a percentage-of-ownership threshold of one percent 
would prevent the vast majority of shareholders from submitting 
proposals,\457\ which, in turn, could have a chilling effect on 
shareholder engagement. In addition, the types of investors that hold 
more than one percent of a company's shares are generally large 
institutional investors and commenters noted that these types of 
investors are more likely to be able to communicate directly with 
management, and thus do not typically use shareholder proposals.\458\
---------------------------------------------------------------------------

    \456\ See supra note 394 and accompanying text.
    \457\ See supra note 9.
    \458\ See, e.g., letters from James McRitchie dated February 2, 
2020; Tom Shaffner dated December 17, 2019; Shareholder Rights Group 
dated January 6, 2020; Trillium Asset Management dated February 3, 
2020; see also letters in response to the Proxy Process Roundtable 
from MFS Investment Management dated November 14, 2018; Pax World 
Funds dated November 9, 2018; Shareholders Right Group dated 
December 4, 2018; see also Ceres Business Case, supra note 408, at 
9; Eugene Soltes, Suraj Srinivasan, & Rajesh Vijayaraghavan, What 
Else do Shareholders Want? Shareholder Proposals Contested by Firm 
Management (Harvard Bus. Sch. Accounting & Mgmt. Unit, Working 
Paper, 2017) (``Soltes et al. (2017)'').
    On the other hand, one commenter argued against the assertion 
that large institutional investors have certain privileges when 
attempting to engage with companies and noted difficulties that 
large investors also experience. See letter from CalPERS dated 
February 3, 2020.

---------------------------------------------------------------------------

[[Page 70288]]

iii. Eligibility Thresholds Based on the Size of a Shareholder's Total 
Investment Portfolio
    Some commenters argued that the eligibility thresholds should be a 
function of investors' wealth, not an absolute dollar amount.\459\ 
Setting the eligibility thresholds to be a function of investors' 
wealth would ensure that all shareholders, regardless of their wealth, 
are able to submit proposals. Nevertheless, imposing such requirements 
would increase complexity because measuring and proving one's own 
wealth would be complex and time consuming, potentially adding 
significant costs to the shareholder-proposal process.
---------------------------------------------------------------------------

    \459\ See, e.g., letters from First Affirmative Financial 
Network, LLC dated January 24, 2020; Interfaith Center on Corporate 
Responsibility dated January 27, 2020.
---------------------------------------------------------------------------

2. Alternative Amendments to Rule 14a-8(i)(12)
i. Alternative Resubmission Thresholds
    We estimate that the new resubmission thresholds contained in the 
final amendments of 5/15/25 percent would result in an additional five 
percent of proposals being excludable relative to current thresholds. 
We considered proposing different resubmission thresholds, including 
raising the thresholds to 5/10/15 percent, 6/15/30 percent, or 10/25/50 
percent. All three alternative threshold levels would increase the 
number of proposals eligible for exclusion relative to the baseline, 
with the first expected to have smaller effects relative to the final 
amendments and the second and third expected to have larger effects 
relative to the final amendments. Under these three alternative 
thresholds, we estimate that two percent, eight percent, and 20 percent 
of proposals, respectively, would be excludable relative to the 
baseline 3/6/10 percent thresholds.\460\
---------------------------------------------------------------------------

    \460\ See Proposing Release at 66490 for a detailed description 
of the data on resubmitted proposals.
---------------------------------------------------------------------------

    In addition, we considered whether the rule should remove 
resubmission thresholds for the first two submissions and, instead, 
allow for exclusion if a matter fails to receive majority support by 
the third submission. Under this alternative, no proposal would be 
eligible for exclusion on its first two submissions, allowing 
shareholder proposals at least two years to gain traction. We estimate 
that 15 percent of proposals would be excludable relative to the 
baseline.\461\ We decided against adopting these alternative 
resubmission thresholds because we believe that the final amended 
resubmission thresholds appropriately reduce the costs to companies and 
their shareholders of responding to proposals that do not garner 
significant shareholder support and may be unlikely to do so in the 
near future, while at the same time preserving shareholders' ability to 
engage with a company and other shareholders through the shareholder-
proposal process and, through the modest cooling-off period, providing 
for resubmission in the future based on the initial submission 
criteria.
---------------------------------------------------------------------------

    \461\ This estimate is an upper bound of the number of 
excludable proposals under this alternative because it will allow 
all proposals following first and second submissions to be 
resubmitted. We cannot identify all proposals that would have been 
resubmitted but were not because they were eligible for exclusion 
under the current resubmission thresholds for first and second 
submissions.
---------------------------------------------------------------------------

ii. Different Vote-Counting Methodologies
    We considered whether to change how votes are counted for purposes 
of applying the resubmission thresholds. For example, we considered 
whether votes by insiders should be excluded from the calculation of 
the percentage of votes that a proposal received. We also considered 
whether to apply a different vote-counting methodology for companies 
with dual-class voting structures. Several commenters highlighted how 
the presence of a subset of shareholders with special voting rights 
could make the voting threshold requirement difficult to satisfy.\462\ 
Applying different vote-counting methodologies for votes by insiders 
and for companies with dual-class shares would make it easier for 
shareholder proposals to meet the resubmission thresholds and thus 
potentially could allow for the submission of a greater number of 
proposals that would benefit companies and their shareholders.\463\ 
However, because this approach may still require companies and their 
shareholders to continue to incur costs associated with processing 
proposals that are less likely to garner majority support based on all 
votes cast and that are less likely to be implemented by management, we 
believe that the adopted approach is more appropriate. In addition, 
applying different vote-counting methodologies for votes by insiders 
and for companies with dual-class shares could increase the rule's 
complexity and thus could increase the costs of rule implementation to 
the detriment of shareholders.
---------------------------------------------------------------------------

    \462\ See supra note 203. See also letter in response to the 
Proxy Process Roundtable from City of New York Office of the 
Comptroller dated January 2, 2019.
    \463\ See Section V.C.3.ii.d for detailed discussion on this 
topic.
---------------------------------------------------------------------------

iii. Exception to the Rule if Circumstances Change
    Several commenters pointed out the possibility of an initially 
unpopular proposal gaining popularity in subsequent years following 
changes in company circumstances or other market developments.\464\ We 
acknowledge that changes in circumstances could change a proposal's 
voting support across years. For this reason, we considered whether to 
provide an exception to the final rule amendments that would allow an 
otherwise excludable proposal to be resubmitted if there were material 
developments that suggest a resubmitted proposal may garner 
significantly more votes than when it was previously voted on. We 
expect that such an exception would lower the number of proposals 
eligible for exclusion under the final amendments, but the magnitude of 
the decrease would depend on what types of developments qualify for the 
exception and how many companies experience these particular types of 
developments. Shareholders could benefit from the lower number of 
proposals eligible for exclusion to the extent that the submitted 
proposals would result in changes that would benefit companies and 
their shareholders. However, such an exception may impose significant 
costs on companies associated with determining whether changes in 
circumstances qualify for the exception. In addition, as noted above, 
there are various alternative means for shareholder engagement, 
including with regard to recent developments, and the amendments 
provide shareholder-proponents with the ability to resubmit initially 
unpopular proposals after a modest cooling-off period. Hence, we

[[Page 70289]]

decided against adopting this alternative.
---------------------------------------------------------------------------

    \464\ See supra notes 203 and 400. See also letters in response 
to the Proxy Process Roundtable from the City of New York Office of 
the Comptroller dated January 2, 2019; Shareholder Rights Group 
dated December 4, 2018; Teachers Insurance and Annuity Association 
of America (TIAA) dated June 10, 2019.
---------------------------------------------------------------------------

iv. Momentum Requirement
    In the Proposing Release we considered a Momentum Requirement that 
would allow companies to exclude proposals previously voted on by 
shareholders three or more times in the preceding five calendar years 
if: (i) The most recent vote occurred within the preceding three 
calendar years; (ii) at the time of the most recent shareholder vote, 
the proposal did not receive a majority of the votes cast; and (iii) 
support declined by 10 percent or more compared to the immediately 
preceding shareholder vote on the same subject matter.
    We indicated, and a number of commenters agreed, that the main 
benefit of the proposed Momentum Requirement would be that it would 
decrease the number of proposals that companies and their shareholders 
would consider, and thus companies and their shareholders could 
experience cost savings.\465\ Relatedly, the proposed Momentum 
Requirement would exclude proposals that have historically garnered low 
levels of support and thus would allow shareholders to focus on the 
processing of proposals that may garner higher levels of voting support 
and may be more likely to be implemented by management. In the 
Proposing Release, we estimated that the Momentum Requirement would 
have resulted in an additional 57 (4 percent) excludable resubmitted 
proposals over the 2011-2018 sample period.\466\ We considered the 
costs of the proposed Momentum Requirement in the Proposing Release and 
recognized costs the proposed Momentum Requirement would have likely 
imposed on shareholder-proponents and companies. We considered how the 
Momentum Requirement would have imposed costs on shareholder-proponents 
and companies because it would have made the determination of 
shareholder proposal eligibility more complex. We also acknowledged 
that the requirement's potential effects, including the costs 
associated with the exclusion of beneficial proposals, could vary 
across different types of companies, proposals, and share-class 
structures. Several commenters argued that a 10 percent decrease in 
voting support does not necessarily imply a persistent waning of voting 
support, and so the proposed Momentum Requirement could result in the 
exclusion of proposals that would meet resubmission thresholds.\467\ As 
a response to those commenters, we examined the subset of resubmitted 
proposals that had not garnered majority support in prior rounds of 
voting and experienced a 10 percent or greater decline in voting 
support relative to the immediately prior submission, but were still 
eligible to be resubmitted in the subsequent year under the current 
resubmissions thresholds. We found 264 such resubmissions, 139 (53 
percent) of which were actually subsequently resubmitted. Among these 
139 proposal resubmissions, 56 proposals (40 percent) experienced a 
further decline in support, while 33 (24 percent) saw an increase in 
support lower than ten percent and 50 (36 percent) saw an increase in 
support greater than ten percent.\468\
---------------------------------------------------------------------------

    \465\ See, e.g., National Association of Manufacturers, dated 
February 3, 2020.
    \466\ See Proposing Release at 66500. We estimate that the 
Momentum Requirement would have resulted in an additional 7 
excludable resubmitted proposals in 2018 alone.
    \467\ See, e.g., letters from Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Principles for Responsible 
Investment dated February 3, 2020.
    \468\ We find that 2 (1%) shareholder proposals received 
majority support in a resubmission, which followed a 10% drop in 
support. Among the 56 proposals that experienced a further decline 
in support, the average decline was 16%. Among the 83 proposals that 
experienced an increase in support, the average increase was 35%.
---------------------------------------------------------------------------

    Relatedly, some commenters argued that there are various factors 
that might create volatility in voting support across years (e.g., 
changes in company performance, changes in the phrasing of the 
proposal, changes in shareholder base, changes in the proponent, market 
developments, etc.), and so relying on year-over-year changes in voting 
support to decide whether a proposal may be resubmitted likely is 
inappropriate.\469\ Some commenters also argued that the Momentum 
Requirement is problematic because it would allow proposals with lower 
levels of support that have not lost momentum to be resubmitted while 
excluding proposals with higher levels of support.\470\ Other 
commenters argued that the proposed Momentum Requirement is unclear 
\471\ and that it would increase the complexity of the shareholder 
proposal eligibility requirements.\472\ In addition, some commenters 
argued that the Momentum Requirement relies on voting outcomes and 
those numbers are unreliable because of issues with the counting of 
votes.\473\ Finally, some commenters argued that the Momentum 
Requirement would impose costs because it would require more detailed 
vote counts.\474\
---------------------------------------------------------------------------

    \469\ See supra note 400.
    Some commenters also suggested that the economic analysis should 
analyze which proposals have higher volatility in voting support and 
thus would be more likely to be affected by the momentum 
requirement. See, e.g., letters from As You Sow dated February 3, 
2020; Interfaith Center on Corporate Responsibility dated January 
27, 2020; Segal Marco Advisors dated February 3, 2020; UAW Retiree 
Medical Benefits Trust dated January 30, 2020. See supra Section 
V.C.2.iii for this analysis.
    \470\ See, e.g., letter from AFL-CIO dated February 3, 2020.
    \471\ See, e.g., letters from Council of Institutional Investors 
dated January 30, 2020; James McRitchie dated February 2, 2020.
    \472\ See also letter from CalPERS dated February 3, 2020.
    \473\ See supra note 444.
    \474\ See letter from CalPERS dated February 3, 2020.
---------------------------------------------------------------------------

    Based on our additional analysis and the comments received, we are 
not adopting the proposed Momentum Requirement.

VI. Paperwork Reduction Act

A. Background

    Certain provisions of our rules and schedules that would be 
affected by the amendments contain ``collection of information'' 
requirements within the meaning of the Paperwork Reduction Act of 1995 
(``PRA'').\475\ We published a notice requesting comment on changes to 
these collection of information requirements in the Proposing Release 
and have submitted these requirements to the Office of Management and 
Budget (``OMB'') for review in accordance with the PRA.\476\ The hours 
and costs associated with preparing, filing, and sending the schedules, 
including preparing documentation required by the shareholder-proposal 
process, constitute paperwork burdens imposed by the collection of 
information. An agency may not conduct or sponsor, and a person is not 
required to comply with, a collection of information unless it displays 
a currently valid OMB control number. Compliance with the information 
collection is mandatory. Responses to the information collections are 
not kept confidential and there is no mandatory retention period for 
the information disclosed. The title for the affected collection of 
information is:
---------------------------------------------------------------------------

    \475\ 44 U.S.C. 3501 et seq.
    \476\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Regulation 14A (Commission Rules 14a-1 through 14a-21 and 
Schedule 14A)'' (OMB Control No. 3235-0059).
    We adopted the existing regulations and schedule pursuant to the 
Exchange Act. The regulations and schedules set forth the disclosure 
and other requirements for proxy statements filed by issuers and other 
soliciting parties.

[[Page 70290]]

B. Summary of Comment Letters and Revisions to PRA Estimates

    In the Proposing Release, we requested comment on the PRA burden 
hour and cost estimates and the analysis used to derive such estimates. 
We received four comment letters that directly addressed the PRA 
analysis of the proposed amendments.\477\ Three of those comment 
letters addressed one of the cost estimates used in informing our PRA 
estimates, and one comment letter addressed several other aspects of 
the PRA analysis. None of those commenters provided additional data for 
consideration. We also received comment letters that, while not 
specifically referencing the PRA analysis, did address the cost 
estimates per proposal cited in both the PRA and the Economic Analysis 
sections of the Proposing Release. We address both types of comments 
below, starting with comments about the numeric estimates.
---------------------------------------------------------------------------

    \477\ See letters from AFL-CIO dated February 3, 2020; 
Interfaith Center on Corporate Responsibility dated January 27, 
2020; Segal Marco Advisors dated February 3, 2020; UAW Retiree 
Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    The Proposing Release used a range of available cost estimates for 
purposes of developing the PRA burden hours and cost estimates, 
including estimates associated with a company's receipt of a 
shareholder proposal of approximately $50,000, $87,000, more than 
$100,000, and approximately $150,000.\478\ As discussed in Section V 
above, while not in direct response to the PRA analysis, a number of 
commenters provided estimates associated with a company's receipt of a 
shareholder proposal.\479\ Many of these estimates were within the 
range of estimates that were used in developing our PRA estimates, and 
we received additional estimates from commenters of $18,982 and 
$20,000.\480\ We have taken these comments into account for purposes of 
developing the PRA burden hours and cost estimates. Additionally, a few 
commenters indicated that there was not an adequate basis for relying 
on an estimated cost per proposal of $150,000 in calculating the PRA 
burden estimate.\481\ Other commenters, however, noted that a cost 
range of $87,000 to $150,000 was ``directionally accurate.'' \482\ 
Overall, we believe that looking to a range of estimates, rather than 
relying on a single figure, is appropriate for purposes of informing 
the PRA burden hours and cost estimates and yields a more comprehensive 
estimation. For this reason, we believe it is appropriate to use the 
$150,000 cost estimate as one data point for purposes of the PRA.
---------------------------------------------------------------------------

    \478\ See infra note 490.
    \479\ See supra note 332.
    \480\ See letters from CalPERS dated February 3, 2020 (stating 
that the marginal cost of submitting a no-action request is less 
than $20,000); John Coates and Barbara Roper dated January 30, 2020 
(stating that the cost estimate of $18,982 to print and mail a 
shareholder proposal ``is a relevant datum for estimating cost 
savings'').
    \481\ See letters from Interfaith Center on Corporate 
Responsibility dated January 27, 2020; Segal Marco Advisors dated 
February 3, 2020; UAW Retiree Medical Benefits Trust dated January 
30, 2020.
    \482\ See letter from General Motors Company dated February 25, 
2020. See also letter from Center for Capital Markets 
Competitiveness dated January 31, 2020.
---------------------------------------------------------------------------

    Another commenter stated that the burden estimate does not 
adequately account for additional paperwork burdens on shareholders 
associated with the proposed ownership thresholds, one-proposal limit, 
and Momentum Requirement.\483\ This commenter also stated that 
``certain shareholders will respond to the proposed amendments to Rule 
14a-8 by increasing their use of independent proxy solicitations in 
order to avoid the more restrictive requirements of the amended 
shareholder proposal rule,'' and that the burden estimate should 
consider the attendant paperwork costs.\484\
---------------------------------------------------------------------------

    \483\ See letter from AFL-CIO dated February 3, 2020.
    \484\ Id.
---------------------------------------------------------------------------

    We are not revising our estimate in response to the commenter's 
suggestion to account for recordkeeping requirements related to the 
revised ownership requirements, one-proposal limit under Rule 14a-8(c), 
and Momentum Requirement. The commenter suggested that there would be 
an increased burden associated with the revised ownership requirements 
because ``shareholders' recordkeeping requirements under Rule 14a-
8(b)(1)(i) will triple from one year to three years to determine 
whether they meet the $2,000 stock ownership requirement.'' We do not 
believe that the revised ownership requirements will result in this 
type of additional paperwork burden because Commission rules currently 
require a shareholder's broker to retain these records for a period 
that exceeds three years.\485\ Thus, there should not be an additional 
burden for a shareholder-proponent associated with obtaining a broker 
letter verifying ownership for a two- or three-year period compared to 
a one-year period.
---------------------------------------------------------------------------

    \485\ See 17 CFR 240.17a-3 and 17a-4.
---------------------------------------------------------------------------

    We also are not revising our assessment in response to the 
commenter's suggestion related to the one-proposal rule. The commenter 
stated that shareholders would ``have additional recordkeeping 
requirements to keep track of . . . their use of representatives under 
the proposed Rule 14a-8(c).'' \486\ The commenter did not explain the 
basis for this statement, but we do not believe that there will be any 
additional paperwork burdens associated with keeping track of a 
shareholder-proponent's use of representatives. As explained in Section 
II.D, the amended rule will not unduly restrict a shareholder-
proponent's options in selecting a representative because, while in 
some cases shareholder-proponents may need to submit a proposal on 
their own, they can otherwise enjoy all of the benefits of being 
represented by a representative of their choosing. Moreover, to the 
extent shareholder-proponents prepare and/or maintain paperwork in 
connection with their use of a representative, we believe the burden 
will be the same under the amendment as under the current rule.
---------------------------------------------------------------------------

    \486\ See letter from AFL-CIO dated February 3, 2020.
---------------------------------------------------------------------------

    We also are not revising our assessment in response to the 
commenter's suggestion related to the Momentum Requirement because we 
are not adopting that requirement. We have revised the estimate of the 
per-hour burden of the resubmission thresholds to reflect that the 
final amendments do not include the Momentum Requirement.
    Finally, we are not revising our estimate in response to the 
commenter's suggestion that ``certain shareholders will respond to the 
proposed amendments to Rule 14a-8 by increasing their use of 
independent proxy solicitations in order to avoid the more restrictive 
requirements of the amended shareholder proposal rule.'' \487\ We are 
not aware and this commenter did not provide evidence of this type of 
response to other amendments to Rule 14a-8. In addition, we believe 
that shareholders who are unable to use Rule 14a-8 as a result of the 
amendments will be more likely to engage with companies through 
alternative avenues rather than conduct their own proxy solicitation in 
light of the costs involved in conducting a non-exempt proxy 
solicitation. In addition, to the extent shareholders elect to engage 
in activities that do not require compliance with Commission rules or 
regulations ``in order to avoid the more restrictive requirements of 
the amended shareholder proposal rule,'' we note that those activities 
would not constitute a burden for purposes of the PRA.\488\
---------------------------------------------------------------------------

    \487\ See letter from AFL-CIO dated February 3, 2020.
    \488\ See 44 U.S.C. 3502(2); 5 CFR 1320.3(b).

---------------------------------------------------------------------------

[[Page 70291]]

    We have modified the overall burden estimates to reflect the most 
current collections of information data from OMB and updated estimates 
on the effects of the amendments.

C. Summary of the Amendments' Impact on Collections of Information

    In this section, we summarize the amendments and their general 
impact on the paperwork burden associated with Regulation 14A.

 PRA Table 1--Estimated Paperwork Burden Effects of the Final Amendments
------------------------------------------------------------------------
             Final amendments                     Estimated effect
------------------------------------------------------------------------
Rule 14a-8(b)(1)(i):
     Revise the ownership           28% decrease in the number
     requirements that shareholders must     of shareholder proposal
     satisfy to be eligible to submit        submissions,\489\ resulting
     proposals to be included in an          in a reduction in the
     issuer's Schedule 14A proxy statement   average burden per response
     to the following levels:                of 5.08 hours.\490\
    [cir] >=$2K to <$15K for at least 3
     years;
    [cir] >=$15K to <$25K for at least 2
     years; or
    [cir] >=$25K for at least 1 year.
Rule 14a-8(b)(1)(iii):
     Require shareholders to        Increase in the average
     provide the company with a written      burden per response of 0.04
     statement that they are able to meet    hours.\491\
     with the company in person or via
     teleconference no less than 10
     calendar days nor more than 30
     calendar days after submission of the
     shareholder proposal, and to provide
     contact information as well as
     business days and specific times that
     they are available to discuss the
     proposal with the company.
Rule 14a-8(b)(1)(iv):
     Require shareholders to        Increase in the average
     provide certain written documentation   burden per response of 0.01
     to companies if the shareholder         hours.\492\
     appoints a representative to act on
     its behalf in submitting a proposal
     under the rule.
Rule 14a-8(b)(1)(vi):
     Disallow aggregation of        No change in the number of
     holdings for purposes of satisfying     shareholder proposal
     the ownership requirements.             submissions,\493\ resulting
                                             in no change in the average
                                             burden per response.
Rule 14a-8(c):
     Provide that shareholders and  2% decrease in the number of
     other persons cannot submit, directly   shareholder proposal
     or indirectly, more than one proposal   submissions,\494\ resulting
     for the same shareholders' meeting.     in a reduction in the
                                             average burden per response
                                             of 0.36 hours.\495\
Rule 14a-8(i)(12):
     Increase the prior vote        5% reduction in the number
     thresholds for resubmission of a        of shareholder proposals by
     proposal that addresses substantially   reducing the number of
     the same subject matter as a proposal   resubmissions,\496\
     previously included in company's        resulting in a reduction in
     proxy materials within the preceding    the average burden per
     5 calendar years if the most recent     response of 0.90
     vote occurred within the preceding 3    hours.\497\
     calendar years to:
    [cir] Less than 5% of the votes cast
     if previously voted on once;
    [cir] less than 15% of the votes cast
     if previously voted on twice; or
    [cir] less than 25% of the votes cast
     if previously voted on three or more
     times.
    Total                                   Net decrease in the average
                                             burden per response of 6.29
                                             hours.\498\
------------------------------------------------------------------------

D. Incremental and Aggregate Burden and Cost Estimates for the Final 
Amendments

    The paperwork burden estimate for Regulation 14A includes the 
burdens

[[Page 70292]]

imposed by our rules that may be incurred by all parties involved in 
the proxy process leading up to and associated with the filing of a 
Schedule 14A. This would include both the time that a shareholder-
proponent spends to prepare its proposals for inclusion in a company's 
proxy statement, as well as the time that the company spends to respond 
to such proposals. Our incremental and aggregate reductions in 
paperwork burden as a result of the proposed amendments represent the 
average burden for all respondents, including shareholder-proponents 
and large and small registrants. In deriving our estimates, we 
recognize that the burdens would likely vary among individual 
proponents and registrants based on a number of factors, including the 
propensity of a particular shareholder-proponent to submit proposals, 
or the number of shareholder proposals received by a particular 
company, which may be related to its line of business or industry or 
other factors.
---------------------------------------------------------------------------

    \489\ See supra note 322. We estimate that the decrease in the 
number of shareholder proposals could range from 0 to 56%, depending 
on proponents' holding periods. For purposes of the PRA, we assume 
an estimated decrease of 28%. The estimated decrease in the number 
of shareholder proposals takes into account the limitation on 
aggregation for purposes of satisfying the ownership thresholds.
    \490\ See Proposing Release at 66510 n.312. See also letters 
from Business Roundtable dated February 3, 2020 (noting that several 
member companies ``reported costs ranging from $50,000 to $100,000 
or more per proposal'' and that ``costs for first-time proposals are 
generally higher than those incurred for resubmitted proposals''); 
CalPERS dated February 3, 2020 (stating that the marginal cost of 
submitting a no-action request is less than $20,000); Center for 
Capital Markets Competitiveness dated January 31, 2020 (stating that 
its members reported that $87,000 to $150,000 per proposal is a fair 
cost estimate, with some exceeding the high end of the range); John 
Coates and Barbara Roper dated January 30, 2020 (stating that the 
cost estimate of $18,982 to print and mail a shareholder proposal 
``is a relevant datum for estimating cost savings''); Exxon Mobil 
Corporation dated February 3, 2020 (estimating the direct cost of 
each shareholder proposal included in its proxy statement to be ``at 
least $100,000''); General Motors Company dated February 25, 2020 
(stating that a cost estimate of $87,000 to $150,000 is 
``directionally accurate'').
    At an estimated hourly cost of $400 per hour, these estimated 
costs would correspond to the following estimated burden hours: 47.5 
hours ($18,982/$400 = 47.5), 50 hours ($20,000/$400 = 50), 125 hours 
($50,000/$400 = 125), 218 hours ($87,000/$400 = 218), 250 hours 
($100,000/$400 = 250), and 375 hours ($150,000/$400 = 375).
    As in the Proposing Release, we continue to estimate that the 
burden hours for a company associated with considering and printing 
and mailing a shareholder proposal (not including burdens associated 
with the no-action process) would be 100 hours (80 hours associated 
with activities unrelated to printing and mailing, and 20 hours 
associated with printing and mailing). In addition, we estimate that 
the burden hours associated with seeking no-action relief would be 
50 hours. See Proposing Release at 66510 n.312. In arriving at these 
estimates, we took into consideration the hourly burdens 
corresponding to the cost estimates provided by commenters, noted 
above, as well as data provided in response to a July 2009 survey of 
Business Roundtable companies. See 2009 BRT Letter, supra note 332. 
We believe it is useful to consider the Business Roundtable survey 
in estimating the burden hours for a company associated with 
considering and printing and mailing a shareholder proposal because 
it provides specific burden hour and cost estimates with respect to 
preparing a no-action request and printing and mailing a single 
shareholder proposal.
    In the Proposing Release, we estimated that 40% of proposals are 
included in the proxy statement without seeking no-action relief, 
16% are included after seeking no-action relief, 15% are excluded 
after seeking no-action relief, and 29% are withdrawn. See Proposing 
Release at 66510 n.312. No commenters provided alternative estimates 
on this point or expressed disagreement with these percentage 
estimates. Thus, for purposes of this PRA analysis, we estimate 107 
burden hours associated with a company's receipt of a shareholder 
proposal, calculated as follows:
    100 hours for 40% of proposals (i.e., proposals that are 
included in the proxy statement without seeking no-action relief);
    150 hours for 16% of proposals (i.e., proposals that are 
included in the proxy statement after seeking no-action relief);
    130 hours for 15% of proposals (i.e., proposals that are 
excluded from the proxy statement after seeking no-action relief); 
and
    80 hours for 29% of proposals (i.e., proposals that are 
withdrawn).
    The reduction in the average burden per response of 5.08 hours 
is calculated by multiplying the expected reduction in proposals 
(28%) by the average number of proposals received between 1997 and 
2018 (946) for a reduction in the total number of proposals of 265. 
This reduction in the number of proposals (265) is then multiplied 
by the estimated burden hours per proposal (107) for a total of 
28,355 burden hours. This total number of burden hours (28,355) is 
then divided by the total number of responses (5,586) for a 
reduction in the average burden per response of 5.08 hours.
    \491\ The increase in the average burden per response of 0.04 
hours is calculated by multiplying the expected amount of time to 
provide this information (20 minutes) by the expected average number 
of expected proposals after taking account of the total reduction in 
proposals submitted as a result of the proposed amendments (644) for 
a total increase of 215 hours. This increase in burden hours (215 
hours) is then divided by the total number of responses (5,586) for 
an increase in the average burden per response of 0.04 hours.
    \492\ The increase in the average burden per response of 0.01 
hours is calculated by multiplying the expected amount of time to 
provide this information (20 minutes) by the expected number of 
proposals submitted by a representative that would be subject to the 
amendment. We estimate that approximately 14% of proposals are 
submitted by such representatives; thus, we multiply the average 
number of expected proposals after taking into account the reduction 
in proposals as a result of the proposed amendments (644) by 14% for 
a total of 90 proposals submitted by such representatives. The 
number of proposals (90) is multiplied by the estimated amount of 
time to provide this information (20 minutes) for a total of 30 
hours. This increase in burden hours (30 hours) is then divided by 
the total number of responses (5,586) for an increase in the average 
burden per response of 0.01 hours.
    \493\ See supra note 322. The effect of this amendment is 
accounted for in the above entry for Rule 14a-8(b)(1)(i).
    \494\ See Proposing Release at 66497 and supra tbl.1.
    \495\ The reduction in the average burden per response of 0.36 
hours is calculated by multiplying the expected reduction in 
proposals (2%) by the average number of proposals received between 
1997 and 2018 (946) for a reduction in the total number of proposals 
of 19. This reduction in the number of proposals (19) is then 
multiplied by the estimated burden hours per proposal (107) for a 
total of 2,033 burden hours. This total number of burden hours 
(2,033) is then divided by the total number of responses (5,586) for 
a reduction in the average burden per response of 0.36 hours.
    \496\ See supra tbl.1 for a discussion regarding the estimated 
decrease in resubmitted proposals. The estimated 5% reduction in the 
number of resubmissions is lower than the estimated reduction in the 
Proposing Release because the proposed Momentum Requirement is not 
being adopted.
    \497\ The reduction in the average burden per response of 0.90 
hours is calculated by multiplying the expected reduction in 
proposals (5%) by the average number of proposals received between 
1997 and 2018 (946) for a reduction in the total number of proposals 
of 47. This reduction in the number of proposals (47) is then 
multiplied by the estimated burden hours per proposal (107) for a 
total of 5,029 burden hours. This total number of burden hours 
(5,029) is then divided by the total number of responses (5,586) for 
a reduction in the average burden per response of 0.90 hours.
    \498\ (5.08 + 0.00 + 0.36 + 0.90) - (0.04 + 0.01) = 6.29 hours 
decrease in average burden per response.
---------------------------------------------------------------------------

    As shown in PRA Table 1, the burden estimates were calculated by 
estimating the number of parties expected to expend time, effort, and/
or financial resources to generate, maintain, retain, disclose, or 
provide information required by the amendments and then multiplying by 
the estimated amount of time, on average, each of these parties would 
devote in response to the amendments. For purposes of the PRA, the 
burden is to be allocated between internal burden hours and outside 
professional costs. For Regulation 14A we estimate that 75% of the 
burden is carried by the company or the shareholder-proponent 
internally and that 25% of the burden of preparation is carried by 
outside professionals retained by the company or the shareholder-
proponent at an average cost of $400 per hour.\499\
---------------------------------------------------------------------------

    \499\ We recognize that the costs of retaining outside 
professionals may vary depending on the nature of the professional 
services, but for purposes of this PRA analysis, we estimate that 
such costs would be an average of $400 per hour. This estimate is 
based on consultations with several issuers, law firms, and other 
persons who regularly assist issuers in preparing and filing reports 
with the Commission.

             PRA Table 2--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                              Reduction in             Reduction in
   Number of estimated     Burden hour  reduction      Reduction in burden      Reduction in internal   professional  hours for  professional  costs for
        responses               per response           hours for responses       hours for responses            responses                responses
(A) \500\                                   (B)                         (C) = (A) x (B) \501(D) = (C) x 0.75         (E) = (C) x 0.25(F) = (E) x $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
                5,586                      6.29                    35,136                    26,352                    8,784               $3,513,600
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following table summarizes the requested paperwork burden, 
including the estimated total reporting burdens and costs, under the 
final amendments.
---------------------------------------------------------------------------

    \500\ The number of estimated affected responses is based on the 
number of responses in the Commission's current OMB PRA filing 
inventory. The OMB PRA filing inventory represents a three-year 
average. We do not expect that the final amendments will materially 
change the number of responses in the current OMB PRA filing 
inventory.
    \501\ The estimated reductions in Columns (C), (D), and (E) are 
rounded to the nearest whole number.

                                           PRA Table 3--Requested Paperwork Burden Under the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Current burden                                      Program change                                     Revised burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Number of                        Reduction in
 Current  annual  Current  burden    Current cost       affected       Reduction in     professional        Annual        Burden hours     Cost burden
    responses          hours            burden         responses      internal hours       costs          responses
(A)                          (B)                (C)            (D)        (E) \502\        (F) \503\        (G) = (A)   (H) = (B) - (E)         (I) = (C) - (F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
         5,586           551,101      $73,480,012            5,586           26,352       $3,513,600            5,586          524,749      $69,966,412
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 70293]]

VII. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act (``FRFA'') has been prepared 
in accordance with the Regulatory Flexibility Act (``RFA'').\504\ It 
relates to amendments to Rule 14a-8. An Initial Regulatory Flexibility 
Analysis (``IRFA'') was prepared in accordance with the RFA and was 
included in the Proposing Release.
---------------------------------------------------------------------------

    \502\ From Column (D) in PRA Table 2.
    \503\ From Column (F) in PRA Table 2.
    \504\ 5 U.S.C. 601 et seq.
---------------------------------------------------------------------------

A. Need for, and Objectives of, the Final Amendments

    Rule 14a-8 facilitates the proxy process for shareholders seeking 
to have proposals considered at a company's annual or special meeting; 
however, the burdens associated with this process are primarily borne 
by issuers and their shareholders. The amendments are intended to 
appropriately consider shareholders' ability to submit proposals as 
well as the attendant burdens for companies and other shareholders 
associated with the inclusion of such proposals in a company's proxy 
statement. The reasons for, and objectives of, the final amendments are 
discussed in more detail in Sections I and II above.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on any aspect of the 
IRFA, including how the proposed amendments can achieve their objective 
while lowering the burden on small entities, the number of small 
entities that would be affected by the proposed amendments, the 
existence or nature of the potential effects of the proposed amendments 
on small entities discussed in the analysis, and how to quantify the 
effects of the proposed amendments. We also requested comment on the 
number of shareholder-proponents that may be considered small entities.
    One commenter stated that the amendments will raise costs on 
smaller shareholders.\505\ Another commenter stated that the Commission 
should exempt small entities from the amended ownership requirements of 
$25,000 for one year or $15,000 for two years because, in the 
commenter's view, ``the existing $2,000 requirement for one year is 
appropriate given that small entities by definition have small 
investment portfolios of less than $5 million.'' \506\
---------------------------------------------------------------------------

    \505\ See letter from Council of Institutional Investors dated 
January 30, 2020.
    \506\ See letter from AFL-CIO dated February 3, 2020.
---------------------------------------------------------------------------

C. Small Entities Subject to the Final Amendments

    The amendments would affect some small entities that are either: 
(i) Shareholder-proponents that submit Rule 14a-8 proposals, or (ii) 
issuers subject to the federal proxy rules that receive Rule 14a-8 
proposals. The RFA defines ``small entity'' to mean ``small business,'' 
``small organization'' or ``small governmental jurisdiction.'' \507\ 
The definition of ``small entity'' does not include individuals. For 
purposes of the RFA, under our rules, an issuer of securities or a 
person, other than an investment company, is a ``small business'' or 
``small organization'' if it had total assets of $5 million or less on 
the last day of its 2018 fiscal year.\508\ We estimate that there are 
approximately 835 issuers that are subject to the federal proxy rules, 
other than investment companies, that may be considered small entities. 
We are unable to estimate the number of potential shareholder-
proponents that may be considered small entities.\509\
---------------------------------------------------------------------------

    \507\ 5 U.S.C. 601(6).
    \508\ 17 CFR 240.0-10(a).
    \509\ For the purposes of our Economic Analysis, we estimate 
that there were 22.2 million retail accounts that held shares of 
U.S. public companies during calendar year 2017. There were 170 
unique proponents that submitted proposals that were included in a 
company's proxy statement as lead proponent or co-proponent during 
calendar year 2018. Out of these 170 unique proponents, 38 were 
individuals and 132 were non-individuals. See supra Section V.B.3. 
Thus, no more than 132 of these unique proponents would be 
considered small entities.
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    As noted above, the primary purpose of the amendments is to 
appropriately consider shareholders' ability to submit proposals as 
well as the attendant burdens for companies and other shareholders 
associated with the inclusion of such proposals. The amendments will 
likely reduce the number of proposals required to be included in the 
proxy statements of issuers subject to the federal proxy rules, 
including small entities. In turn, the amendments will likely reduce 
the costs to these issuers of complying with Rule 14a-8. The proposed 
amendments may reduce the number of proposals that shareholder-
proponents that are small entities will be permitted to submit to 
issuers for inclusion in their proxy statements. In turn, these small 
entities may experience an increase in shareholder-engagement costs to 
the extent these small entities elect to increase their investment to 
meet the eligibility criteria or pursue alternative methods of 
engagement, such as conducting their own proxy solicitation. We are not 
exempting shareholders that are small entities from the amended 
ownership requirements of $25,000/one-year and $15,000/two-years, as 
suggested by one commenter. The amended rule will continue to allow 
shareholders holding at least $2,000 of a company's securities to 
submit a proposal as long as they have held their shares for at least 
three years. In addition, we are adopting a transition provision that 
will exempt certain existing shareholders from the new ownership 
thresholds, which is expected to help with compliance burdens for those 
shareholders.
    The amendments that will require shareholder-proponents to provide 
written documentation regarding their ability to meet with the issuer 
and relating to the appointment of a representative will slightly 
increase the compliance burden for shareholder-proponents, including 
those that are small entities. Compliance with the amendments may 
require the use of professional skills, including legal skills. The 
amendments are discussed in detail in Section II, above. We discuss the 
economic impact, including the estimated costs and benefits, of the 
amendments to all affected entities, including small entities, in 
Section V and Section VI, above.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider alternatives 
that would accomplish our stated objectives, while minimizing any 
significant adverse impact on small entities. In connection with the 
proposed amendments, we considered the following alternatives:
     Establishing different compliance or reporting 
requirements that take into account the resources available to small 
entities;
     Clarifying, consolidating, or simplifying compliance and 
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the 
requirements.
    Rule 14a-8 generally does not impose different standards or 
requirements based on the size of the issuer or shareholder-proponent. 
We do not believe that establishing different compliance or reporting 
obligations in conjunction with the amendments or exempting small 
entities from all or part of the requirements is necessary. While we 
note that one commenter suggested that the Commission provide 
regulatory relief from the proposed amendments

[[Page 70294]]

by, for example, exempting small entities from the amended ownership 
requirements of $25,000 for one year or $15,000 for two years, we do 
not believe that such an exemption is necessary because the amended 
rule will continue to allow shareholders holding at least $2,000 of a 
company's securities to submit a proposal as long as they have held 
their shares for at least three years and we do not believe that 
holding $2,000 of a company's securities for up to an additional two 
years in order to submit a proposal will have a significant effect on 
small entities. We believe the amendments are equally appropriate for 
shareholder-proponents of all sizes seeking to engage with issuers 
through the Rule 14a-8 process. While we do anticipate a moderate 
increase in burden for some shareholder-proponents, we do not believe 
that imposing different standards or requirements based on the size of 
the shareholder-proponent will accomplish the purposes of the proposed 
amendments, and may result in additional costs associated with 
ascertaining whether a particular shareholder-proponent may avail 
itself of such different standards. For issuers, the amendments will 
not impose any significant new compliance obligations. To the contrary, 
they will reduce the compliance costs of affected issuers, including 
small entities, by decreasing the number of shareholder proposals that 
may be submitted. For these reasons, we are not adopting differing 
compliance or reporting requirements or timetables for issuers that are 
small entities, or an exception for small entities.
    We believe that the amendments do not need further clarification, 
consolidation, or simplification for small entities. The amendments 
generally use design standards rather than performance standards in 
order to promote uniform submission requirements for all shareholder-
proponents, and we do not believe that there are aspects of the 
amendments for which performance standards would be appropriate.

VIII. Statutory Authority

    The final amendments contained in this release are being adopted 
under the authority set forth in Sections 3(b), 14, and 23(a) of the 
Exchange Act, as amended.

List of Subjects in 17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and 
recordkeeping requirements, Securities.

Text of the Final Amendments

    In accordance with the foregoing, we are amending title 17, chapter 
II, of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read, in part, as 
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f, 
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4, 
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm, 
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et 
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. 
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *


0
2. Amend Sec.  240.14a-8 by:
0
i. Revising paragraphs (b)(1) and (2);
0
ii. Effective January 4, 2021, through January 1, 2023, adding 
paragraph (b)(3);
0
iii. Revising paragraph (c); and
0
iv. Revising paragraph (i)(12).
    The revisions and addition read as follows:


Sec.  240.14a-8   Shareholder proposals.

* * * * *
    (b) * * *
    (1) To be eligible to submit a proposal, you must satisfy the 
following requirements:
    (i) You must have continuously held:
    (A) At least $2,000 in market value of the company's securities 
entitled to vote on the proposal for at least three years; or
    (B) At least $15,000 in market value of the company's securities 
entitled to vote on the proposal for at least two years; or
    (C) At least $25,000 in market value of the company's securities 
entitled to vote on the proposal for at least one year; or
    (D) The amounts specified in paragraph (b)(3) of this section. This 
paragraph (b)(1)(i)(D) will expire on the same date that Sec.  240.14a-
8(b)(3) expires; and
    (ii) You must provide the company with a written statement that you 
intend to continue to hold the requisite amount of securities, 
determined in accordance with paragraph (b)(1)(i)(A) through (C) of 
this section, through the date of the shareholders' meeting for which 
the proposal is submitted; and
    (iii) You must provide the company with a written statement that 
you are able to meet with the company in person or via teleconference 
no less than 10 calendar days, nor more than 30 calendar days, after 
submission of the shareholder proposal. You must include your contact 
information as well as business days and specific times that you are 
available to discuss the proposal with the company. You must identify 
times that are within the regular business hours of the company's 
principal executive offices. If these hours are not disclosed in the 
company's proxy statement for the prior year's annual meeting, you must 
identify times that are between 9 a.m. and 5:30 p.m. in the time zone 
of the company's principal executive offices. If you elect to co-file a 
proposal, all co-filers must either:
    (A) Agree to the same dates and times of availability, or
    (B) Identify a single lead filer who will provide dates and times 
of the lead filer's availability to engage on behalf of all co-filers; 
and
    (iv) If you use a representative to submit a shareholder proposal 
on your behalf, you must provide the company with written documentation 
that:
    (A) Identifies the company to which the proposal is directed;
    (B) Identifies the annual or special meeting for which the proposal 
is submitted;
    (C) Identifies you as the proponent and identifies the person 
acting on your behalf as your representative;
    (D) Includes your statement authorizing the designated 
representative to submit the proposal and otherwise act on your behalf;
    (E) Identifies the specific topic of the proposal to be submitted;
    (F) Includes your statement supporting the proposal; and
    (G) Is signed and dated by you.
    (v) The requirements of paragraph (b)(1)(iv) of this section shall 
not apply to shareholders that are entities so long as the 
representative's authority to act on the shareholder's behalf is 
apparent and self-evident such that a reasonable person would 
understand that the agent has authority to submit the proposal and 
otherwise act on the shareholder's behalf.
    (vi) For purposes of paragraph (b)(1)(i) of this section, you may 
not aggregate your holdings with those of another shareholder or group 
of shareholders to meet the requisite amount of securities necessary to 
be eligible to submit a proposal.
    (2) One of the following methods must be used to demonstrate your 
eligibility to submit a proposal:
    (i) If you are the registered holder of your securities, which 
means that your

[[Page 70295]]

name appears in the company's records as a shareholder, the company can 
verify your eligibility on its own, although you will still have to 
provide the company with a written statement that you intend to 
continue to hold the requisite amount of securities, determined in 
accordance with paragraph (b)(1)(i)(A) through (C) of this section, 
through the date of the meeting of shareholders.
    (ii) If, like many shareholders, you are not a registered holder, 
the company likely does not know that you are a shareholder, or how 
many shares you own. In this case, at the time you submit your 
proposal, you must prove your eligibility to the company in one of two 
ways:
    (A) The first way is to submit to the company a written statement 
from the ``record'' holder of your securities (usually a broker or 
bank) verifying that, at the time you submitted your proposal, you 
continuously held at least $2,000, $15,000, or $25,000 in market value 
of the company's securities entitled to vote on the proposal for at 
least three years, two years, or one year, respectively. You must also 
include your own written statement that you intend to continue to hold 
the requisite amount of securities, determined in accordance with 
paragraph (b)(1)(i)(A) through (C) of this section, through the date of 
the shareholders' meeting for which the proposal is submitted; or
    (B) The second way to prove ownership applies only if you were 
required to file, and filed, a Schedule 13D (Sec.  240.13d-101), 
Schedule 13G (Sec.  240.13d-102), Form 3 (Sec.  249.103 of this 
chapter), Form 4 (Sec.  249.104 of this chapter), and/or Form 5 (Sec.  
249.105 of this chapter), or amendments to those documents or updated 
forms, demonstrating that you meet at least one of the share ownership 
requirements under paragraph (b)(1)(i)(A) through (C) of this section. 
If you have filed one or more of these documents with the SEC, you may 
demonstrate your eligibility to submit a proposal by submitting to the 
company:
    (1) A copy of the schedule(s) and/or form(s), and any subsequent 
amendments reporting a change in your ownership level;
    (2) Your written statement that you continuously held at least 
$2,000, $15,000, or $25,000 in market value of the company's securities 
entitled to vote on the proposal for at least three years, two years, 
or one year, respectively; and
    (3) Your written statement that you intend to continue to hold the 
requisite amount of securities, determined in accordance with paragraph 
(b)(1)(i)(A) through (C) of this section, through the date of the 
company's annual or special meeting.
    (3) If you continuously held at least $2,000 of a company's 
securities entitled to vote on the proposal for at least one year as of 
January 4, 2021, and you have continuously maintained a minimum 
investment of at least $2,000 of such securities from January 4, 2021 
through the date the proposal is submitted to the company, you will be 
eligible to submit a proposal to such company for an annual or special 
meeting to be held prior to January 1, 2023. If you rely on this 
provision, you must provide the company with your written statement 
that you intend to continue to hold at least $2,000 of such securities 
through the date of the shareholders' meeting for which the proposal is 
submitted. You must also follow the procedures set forth in paragraph 
(b)(2) of this section to demonstrate that:
    (i) You continuously held at least $2,000 of the company's 
securities entitled to vote on the proposal for at least one year as of 
January 4, 2021; and
    (ii) You have continuously maintained a minimum investment of at 
least $2,000 of such securities from January 4, 2021 through the date 
the proposal is submitted to the company.
    (iii) This paragraph (b)(3) will expire on January 1, 2023.
    (c) Question 3: How many proposals may I submit? Each person may 
submit no more than one proposal, directly or indirectly, to a company 
for a particular shareholders' meeting. A person may not rely on the 
securities holdings of another person for the purpose of meeting the 
eligibility requirements and submitting multiple proposals for a 
particular shareholders' meeting.
* * * * *
    (i) * * *
    (12) Resubmissions. If the proposal addresses substantially the 
same subject matter as a proposal, or proposals, previously included in 
the company's proxy materials within the preceding five calendar years 
if the most recent vote occurred within the preceding three calendar 
years and the most recent vote was:
    (i) Less than 5 percent of the votes cast if previously voted on 
once;
    (ii) Less than 15 percent of the votes cast if previously voted on 
twice; or
    (iii) Less than 25 percent of the votes cast if previously voted on 
three or more times.
* * * * *

    By the Commission.

     Dated: September 23, 2020.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2020-21580 Filed 11-3-20; 8:45 am]
BILLING CODE 8011-01-P


