SEC Commissioner Uyeda, one of two Republican commissioners on the Securities & Exchange Commission, delivered remarks yesterday at the Society for Corporate Governance's National Conference, in which he broached the idea that the SEC should adopt a regulation that a shareholder "proposal would be excluded if it focuses on a social policy issue that is not materially related to the company." The primary rationale for this regulation is that "many proposals have been submitted in an attempt to force public companies to take positions on various political issues" and "[s]hareholder meetings were not intended under state corporate laws to be political battlegrounds or debating societies."
To be clear, part of the reason that Commissioner Uyeda believes such a regulation is necessary is that the Biden Administration's SEC adopted a policy in November 2021 that enabled shareholder proposals concerning environmental and social issues to be more easily considered. The position that Commissioner Uyeda advocates here would seek to rollback that lowering of the threshold for consideration of shareholder proposals on such issues.)
Commissioner Uyeda also offers a number of statistics in support of this position. In particular, he notes the recent increase in volume of these policy proposals, as, since the SEC adjusted its prior position in November 2021, "among environmental and social ('E&S') proposals, [] the number of submissions increased by 52% and the number voted on increased by 125%." Yet the increase in overall number has not been matched in overall quality, according to Commissioner Uyeda, since these proposals have been less likely to receive favorable votes or be adopted: "[t]he average percentage of votes cast for E&S proposals was 20% in 2023, compared to 37% in 2021 [and] [o]nly 3% of E&S proposals received a majority of votes cast in 2023, compared to 23% in 2021." Based on these numbers, Commissioner Uyeda argues that the more permissive standard adopted by the SEC in November 2021 has gone too far, as companies are now compelled to expend significant amounts of resources in response to low-quality and inappropriate shareholder proposals focusing on environmental and social concerns.
Of course, the ultimate implication of such a policy that erected barriers to the consideration of shareholder proposals on environmental and social issues would be to de-emphasize such concerns in corporate America. There are certainly cogent arguments that shareholder meetings are an inappropriate forum to debate issues of public policy, and that such debates--even if a shareholder activists' sought policy is ultimately adopted--are relatively ineffectual in producing the meaningful change contemplated by such proposals, as business organizations are often less suited than governmental bodies to address issues of wide public concern. Still, it is important to recognize that such a regulation--which would exclude consideration of "risks that could apply generically to any registrant," and so likely apply to most companies with respect to climate change or similar issues--would have the effect of silencing debate on these public policy issues among shareholders, and likely serve the policy agenda of removing ESG concerns from consideration by American businesses.
Turning to shareholder proposals with social policy issues, since the staff issued SLB 14L, many proposals have been submitted in an attempt to force public companies to take positions on various political issues. Shareholder meetings were not intended under state corporate laws to be political battlegrounds or debating societies. As Chairman Purcell noted, rule 14a-8 was not intended to allow proponents to make political statements through their proposals. ... Hence, a proposal would be excluded if it focuses on a social policy issue that is not materially related to the company. As with any materiality standard, quantitative and qualitative factors specific to a company would be considered.
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