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 § 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.

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 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.

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.

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]

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]

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]

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 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]

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]

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]

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]

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]

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 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]

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

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]

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 shareholders should be allowed to aggregate their holdings.^[49]

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]

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]

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]

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.

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.

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.

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.

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 constituents and May 2020 for the Russell 3000 Index constituents: ^[66]

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.

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]

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 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.

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.

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]

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.

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 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.

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.

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]

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]

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]

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]

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 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]

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]

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]

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]

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.

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-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.

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.

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]

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]

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 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]

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]

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]

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 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]

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.

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.

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 shareholder-proponent's availability in advance.

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.

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.

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.

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.

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.

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 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]

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]

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]

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 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]

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]

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.

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.

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 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]

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]

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]

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]

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]

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 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]

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]

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.

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.

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.

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-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.

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]

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.

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.

The thresholds reflect a careful and appropriate calibration of 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 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]

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.

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]

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]

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]

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 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]

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]

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.

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]

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.

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 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.

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.” <sup>[247]</sup> 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]

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]

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]

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]

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

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.

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).

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.

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]

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.

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 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.

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]

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 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.

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]

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]

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.

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 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.

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.

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]

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 significantly reduce shareholder engagement.^[297]

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.

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.

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.

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 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]

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]

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.

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]

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]

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]

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.

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]

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.

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 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]

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]

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.

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]

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]

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]

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]

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]

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]

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.

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]

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.

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 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.

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.

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.

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]

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

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]

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.

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.

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 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.

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]

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]

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 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.

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.

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.

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 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.

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.

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]

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.

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 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]

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.

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

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.

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.

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.

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 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]

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 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]

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.

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.

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] 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.

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]

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.

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]

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 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]

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.

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.

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]

• the effects of changes implemented without the passage of a shareholder proposal but following the passage of similar proposals at many other companies; ^[439]

• the effects of proposals that received low levels of support but resulted in a company's implementation of beneficial measures; ^[440] and

• 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 submitted if the company does not agree to make satisfactory changes.^[441]

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]

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]

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 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.

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.

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.

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]

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]

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.

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]

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.

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.

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 decided against adopting this alternative.

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]

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]

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:

“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.

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.

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.

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]

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.

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.

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]

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.

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

The paperwork burden estimate for Regulation 14A includes the burdens 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.

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]

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

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.

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]

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]

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 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

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, 78 l, 78m, 78n, 78n-1, 78 o, 78 o-4, 78 o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78 ll, 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.

2. Amend § 240.14a-8 by:

i. Revising paragraphs (b)(1) and (2);

ii. Effective January 4, 2021, through January 1, 2023, adding paragraph (b)(3);

iii. Revising paragraph (c); and

iv. Revising paragraph (i)(12).

The revisions and addition read as follows:

Footnotes