Compliance Briefing — September 23, 2020
Guidance for navigating the SEC's 2020 Rule 14a-8 amendments, covering eligibility verification, engagement protocols, proxy process updates, and board oversight.
Executive briefing: On 23 September 2020, the U.S. Securities and Exchange Commission (SEC) adopted amendments to Exchange Act Rule 14a-8 that raise eligibility and resubmission thresholds, tighten proof-of-ownership and representation mechanics, and extend the one-proposal limitation to any person acting as a proponent or representative. Public companies need to refresh shareholder engagement scripts, proxy calendar controls, and board oversight to accommodate the new requirements, which apply to proposals submitted for annual or special meetings on or after 1 January 2022 for ownership-related elements and 60 days after Federal Register publication for resubmission and one-proposal rules.
Boards should emphasise investor outreach to minimise surprise filings, ensure that eligibility verification letters meet the SEC’s updated standards, and track cure periods to avoid disputes. While the amendments were framed as modernising access to the proxy, they materially change how smaller or first-time proponents qualify and how issuers evaluate duplicative or low-support proposals.
Threshold changes
The final rule replaces the prior single US$2,000 for one-year ownership test with three tiered alternatives: continuous ownership of at least US$2,000 for three years, US$15,000 for two years, or US$25,000 for one year. Shareholders may not aggregate holdings with other investors to meet these minimums. The SEC added a transition: investors who satisfied the former US$2,000/one-year test as of the rule’s effective date may continue to use that level for meetings held before 1 January 2023 if they maintain continuous ownership and provide updated proof.
These thresholds tighten access for smaller proponents but still allow long-tenured holders with modest stakes to participate. Companies should map their share register to identify likely proponents capable of meeting the three-year US$2,000 requirement and tailor outreach accordingly. Investor relations teams can prioritise dialogue with holders just below the higher US$15,000 and US$25,000 tiers to address concerns before they materialise as proposals.
Resubmission thresholds and one-proposal limit
Resubmission requirements now stand at 5%, 15%, and 25% support for matters previously voted on once, twice, or three or more times within the past five calendar years (up from 3%, 6%, and 10%). The SEC declined to adopt the proposed “momentum” exclusion that would have allowed omission based on declining support, so companies must rely on the raised thresholds alone. The change applies to proposals voted on after the rule’s effective date, which was 60 days after publication in the Federal Register.
The amendments also clarify that the one-proposal limit applies to each person, not just each shareholder. A single individual cannot submit one proposal in their own name and simultaneously act as a representative for another shareholder at the same meeting. Issuers should screen proponents and their representatives to detect multiple submissions that could render a proposal excludable under Rule 14a-8(c).
Filing mechanics and proof of ownership
Proponents must provide a written statement of their intent to continue holding the required amount of securities through the date of the shareholder meeting. When using a representative, the proponent must furnish documentation identifying the shareholder, authorising the named representative to act, and describing the shareholder’s objectives and share ownership. This requirement is designed to curb misuse of form letters and ensure the company can engage the actual beneficial owner.
The rule also obligates proponents to include contact information and at least two specific calendar windows of availability during the 10–30 day period after submission when they can discuss the proposal with the company. Issuers should log these windows, attempt outreach promptly, and retain evidence of engagement attempts in case disputes later arise.
Companies must continue to verify ownership through a letter from the record holder, typically a Depository Trust Company (DTC) participant or intermediary. The documentation should show continuous ownership for the entire required period and meet the SEC’s formatting expectations (dates, share amounts, and a statement of continuous ownership). Legal and corporate secretary teams should provide templates to investor relations to request compliant letters quickly when deficiencies are identified.
Compliance steps
Legal, corporate secretary, and investor relations functions should align processes before the next proxy season:
- Update intake checklists: Incorporate the three-tier ownership alternatives, non-aggregation rule, and one-proposal limitation into initial screening. Configure tracking tools to flag proposals lacking proof of continuous ownership or representative authority.
- Standardise deficiency notices: Under Rule 14a-8(f), issuers must promptly notify proponents of eligibility defects and allow 14 calendar days to cure. Maintain pre-approved notice templates that cite the specific missing elements—such as inadequate proof of ownership duration or missing availability windows—and send them via the communication channel requested by the proponent.
- Revise engagement protocols: Build meeting requests around the proponent’s stated availability and document outreach attempts. If proponents fail to respond within the cure period, preserve timestamps and correspondence to support a no-action request.
- Integrate board oversight: Brief the nominating and governance committee on threshold changes, likely proposal themes, and resubmission implications. Directors should understand when higher thresholds allow omission of serial proposals that previously cleared the 3%, 6%, and 10% bars.
- Coordinate with transfer agents and custodians: Ensure they can deliver timely and complete ownership letters that specify the relevant holding period and confirm continuous ownership through the meeting date.
- Document representative protocols: Require notarised or otherwise authenticated authorisations that name the representative, specify their authority, and include the shareholder’s objectives. Maintain a log of representatives to detect repeat submissions that may implicate the one-proposal limit.
Timeline control and proxy calendar
Work backward from the company’s announced submission deadline (typically under Rule 14a-8(e)) to build an internal calendar. Allocate time for intake, deficiency notices, proponent engagement, internal review, and—if necessary—SEC no-action requests. For proposals targeting meetings in early 2022, ensure the tiered ownership thresholds are applied, and verify whether a proponent claiming transition relief truly held US$2,000 of securities continuously since the rule’s effective date.
When considering exclusion, confirm that resubmission thresholds are calculated using the most recent vote results within the past five calendar years and that votes are compared to shares voted for and against (excluding abstentions, per SEC guidance). Maintain a memo summarising the basis for exclusion, the evidence collected, and the timeline of communications.
Risk mitigation and investor relations
Proactive engagement remains the most effective defence against contentious proposals. Use quarterly calls and ESG-focused outreach to identify issues that could become proposals—such as climate transition plans, political spending disclosure, or diversity reporting—and consider voluntary enhancements that address investor concerns. For new proponents qualifying under the lower three-year US$2,000 tier, offer education on company disclosures and governance practices to encourage negotiated withdrawals where appropriate.
Companies facing activist campaigns should evaluate whether representatives are attempting to place multiple proposals through different clients; the one-proposal limitation may provide a basis for exclusion. Where engagement fails, prepare for potential litigation risk by maintaining a clear evidentiary record, including timestamped emails, call notes, and copies of deficiency notices.
Implementation checklist
To operationalise the rule changes ahead of the next proxy season, executives can deploy a concise readiness checklist:
- Refresh shareholder proposal policies and templates to reflect the three ownership tiers, non-aggregation rule, and enhanced representative documentation.
- Train the corporate secretary team on the 14-day cure process and create scripts for scheduling engagement within the proponent’s provided availability windows.
- Update board education materials on the higher resubmission thresholds (5%, 15%, 25%) and how they affect recurring ESG and governance proposals.
- Integrate proposal tracking into disclosure controls, ensuring that drafts, board reviews, and company responses are preserved for SEC or investor scrutiny.
- Coordinate with counsel on no-action strategies, citing the amended thresholds and one-proposal rule where applicable, and prepare fallback plans if the staff declines relief.
What to watch
The 2020 amendments continue to shape proxy seasons even as later SEC actions, such as the August 2023 guidance narrowing exclusion bases for substantial implementation and duplication, influence no-action outcomes. Companies should monitor additional SEC rulemaking and proxy advisor policy updates that may adjust how proposals are evaluated under the heightened thresholds.
Sources
- SEC Release No. 34-89964 — Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8 — U.S. Securities and Exchange Commission; Final rule detailing tiered ownership thresholds, resubmission levels, representative documentation, and the one-proposal limitation.
- SEC Fact Sheet — Procedural Requirements and Resubmission Thresholds under Rule 14a-8 — U.S. Securities and Exchange Commission; Official fact sheet summarising compliance dates and key elements of the amendments.
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