Evolution of shareholder proposals during the 2022 proxy period

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July 11, 2022

This Client Alert provides an overview of shareholder proposals submitted to public companies during the 2022 proxy season, including statistics and notable decisions by the staff (the “staff”) of the Securities and Exchange Commission (the “SEC ”) on requests for no action.

I. Summary of key shareholder proposals to take away from the 2022 proxy season

In November 2021, staff published Staff Legal Bulletin No. 14L (3 November 2021) (“SLB 14L”). In SLB 14L, staff rescinded staff guidelines and reversed no-action rulings issued during former division manager Bill Hinman’s tenure, upending staff’s recent approach to enforcing the exclusion from economic relevance in Rule 14a-8(i)(5) and the ordinary business and micromanagement exclusions in Rule 14a-8(i)(7). Additionally, SLB 14L indicated that staff would take a broader view of whether the proposals raised significant policy issues that transcended ordinary business and would be more lenient in interpreting proof of ownership letters. The change of administration at the SEC and the issuance of the SLB 14L appear to have served as a call for competition for proposing shareholders: the number of proposals submitted increased, the percentage of proposals that shareholders were prepared to withdraw at the following negotiations dropped, and the number of proposals excluded by the no-action process dropped. At the same time, recent amendments to Rule 14a-8 have had only a very minor impact on shareholder submissions. As a result, shareholders were presented with more proposals on a wider range of topics with which they disagreed, with overall voting levels falling significantly. We discuss these trends and developments in more detail below:

  • Submissions of shareholder proposals increased again. For the second consecutive year, the number of proposals submitted has increased. In 2022, the number of proposals increased by 8% compared to 2021 to reach 868, the highest number of shareholder proposal submissions since 2016.
  • The number of environmental and citizen engagement proposals has increased significantly, alongside a continued increase in social proposals. Environmental and civic engagement proposals grew significantly, up 51% and 36%, respectively, from 2021. And social proposals continued to grow, up 20% from 2021 and constituting the largest category of proposals submitted in 2022. In contrast, governance proposals decreased 14% and executive compensation proposals decreased 27%, each relative to the number of such proposals submitted in 2021. popular in 2022, representing 49% of all shareholder proposal submissions, were (i) climate change, (ii) special meetings, (iii) anti-discrimination and diversity, (iv) independent chair , and (v) lobbying expenses and political contributions (which tied for the fifth most common proposal topic).
  • There has been a significant decrease in the number of proposals excluded following a request for non-intervention.The number of no-action requests submitted to staff during the 2022 proxy season decreased by 10% compared to 2021, but was still higher compared to previous years, up 5% compared to 2020 and 7% from 2019. Most notably, the overall success rate for no-action requests dropped to 38%, a drastic drop from success rates of 71% in 2021 and 70% in 2020 The 38% pass rate was significantly lower even than the lowest shutout rate in recent times, which occurred in the 2012 proxy season where the pass rate dropped to 66%. Success rates in 2022 declined across all exclusion bases, with the most drastic drop in success rates for procedures (56% in 2022, down from 84% in 2021), substantial implementation (13% in 2022, compared to 55% in 2021), and ordinary professional grounds (24% in 2022, compared to 65% in 2021).
  • While the number of voted proposals increased significantly, overall vote support declined, including average support for social and environmental proposals.In 2022, just over 50% of all submitted proposals were voted on, compared to 41% of submitted proposals that were voted on in 2021. Despite the increase in voted proposals, the average support for all voted shareholder proposals decreased to 30.4% in 2022 from 36.3% in 2021. The decrease in average support is mainly due to the decrease in support for social and environmental proposals, with support for social (non-environmental) proposals decreasing to 23.2 % in 2022 from 32.8% in 2021 and environmental proposals decreasing to 33.3% in 2022 from 43.5% in 2021. And consistent with the general decline in support, the number of shareholder proposals that received the Majority support in 2022 was 55, down from 74 in 2021. But 2022 marked the first year that two hot-button social proposals received majority support – several proposals asking for reports on pay gaps gender/racial ration and calling for racial/civil rights audits have received majority support after growing closer in recent years.
  • Staff’s written responses to each shareholder proposal no-action request are returned mid-season. After abandoning its long-standing practice of sending a written response to every shareholder proposal no-action request in 2019, staff provided response letters to only 5% of no-action requests over the course of 2019. the 2021 proxy season. In December 2021, the staff announced that it was reconsidering its approach and returning to its historic practice of issuing a response letter for each no-action request. Following his announcement, staff immediately stopped posting their responses via an online board and began sending out response letters to every request for no action.
  • Recent changes to Rule 14a-8 appear to have had a marginal impact on shareholder submissions. The 2022 proxy season was the first in which the September 2020 amendments to Rule 14a-8 came into effect. Despite concerns expressed by some shareholder promoters and other stakeholders (including ongoing litigation over the new rules), the new rules do not appear to have materially affected promoter eligibility or resulted in an increase of proposals eligible for procedural or substantive evaluation. exclusion. In fact, as noted above, only 38% of no-action requests succeeded in excluding shareholder proposals during the 2022 proxy season. The SEC should consider proposing amendments to “update Certain Substantive Basis for Exclusion of Shareholder Proposals” under Rule 14a-8 at a public meeting to be held on July 13, 2022.
  • Proponents continued to use waiver applications in record numbers. Exemption requests continued to proliferate, with the number of requests hitting an all-time high again this year and increasing by 34% over last year and 70% since 2020. In line with previous years, the vast majority of exemption requests filed in 2022 were filed by shareholders. promoters on a voluntary basis-that’s to sayoutside the intended scope of SEC rulesto draw attention and publicity to pending shareholder proposals.

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The following Gibson Dunn attorneys assisted in the preparation of this update: Aaron Briggs, Elizabeth Ising, Thomas J. Kim, Julia Lapitskaya, Ronald O. Mueller, Lori Zyskowski, Geoffrey Walter, Victor Twu, Natalie Abshez, Meghan Sherley and Andrea Shen.

Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. To learn more about these matters, please contact the Gibson Dunn lawyer with whom you usually work, or one of the following lawyers in the firm’s Securities Regulation and Corporate Governance Practice Group:

Aaron Briggs – San Francisco, CA (+1 415-393-8297, [email protected])
Elizabeth Ising – Washington, DC (+1 202-955-8287, [email protected])
Thomas J. Kim – Washington, DC (+1 202-887-3550, [email protected])
Julia Lapitskaya – New York, NY (+1 212-351-2354, [email protected])
Ronald O. Mueller – Washington, DC (+1 202-955-8671, [email protected])
Michael Titera – Orange County, CA (+1 949-451-4365, [email protected])
Lori Zyskowski – New York, NY (+1 212-351-2309, [email protected])
Geoffrey E. Walter – Washington, DC (+1 202-887-3749, [email protected])
David Korvin – Washington, DC (+1 202-887-3679, [email protected])

© 2022 Gibson, Dunn & Crutcher LLP

Publicity for Lawyers: The enclosed materials have been prepared for general information purposes only and are not intended to provide legal advice.

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