Policy Alert: SEC Issues Guidance Regarding Shareholder Proposals, ESG Issues

Action: On February 12, the Securities and Exchange Commission (SEC) issued a staff bulletin providing guidance for companies and shareholders regarding compliance with Rule14a-8, which governs how public companies must handle shareholder proposals. The bulletin rescinded a prior bulletin which made it more difficult for companies to block consideration of shareholder proposals on the grounds that they related to the “ordinary business operations” of the company, which are left to management and the board of directors to address. The rescinded guidance allowed shareholders to introduce proposals that “raise issues of broad social or ethical concern,” even if they lack “economic relevance” to the company.

The SEC also issued guidance addressing the filing of the beneficial ownership reports required of investors who hold more than 5% of stock in a public company. The new guidance reverses previous guidance that allowed investors attempting to influence a company’s policies related to, for example, social, environmental, or political issues to file the shorter Schedule 13G instead of the longer Schedule 13D.

Key Insights

• Corporations’ policies related to environmental, social, and governance (ESG) have gained increased attention in recent years, both from advocates seeking to achieve policy objectives and those who see ESG issues as tied to financial performance.
• Both SEC actions reflect the Administration’s intent to reverse steps taken during the Biden Administration to make it easier for shareholders to change or influence corporate ESG policies.
• In response to the guidance regarding beneficial ownership reports, asset managers Vanguard and Blackrock have reportedly cancelled meetings with companies they typically hold ahead of shareholder activism campaigns and proxy ballot votes.
• Some policymakers have accused asset managers of prioritizing ESG policies over investor returns, which they deny. Blackrock and Vanguard have also been sued by the Texas attorney general over their ESG-related practices.