Summary#
This bill would change the rules about which shareholder proposals must be included in a company’s proxy materials (the documents shareholders use to vote). It tells the Securities and Exchange Commission (SEC) to rewrite its rule so companies may limit how many shareholder proposals they put on the proxy card and to require that included proposals have a material effect on financial performance. The stated policy aim is to limit nonfinancial or long-term “woke” proposals and focus proxy materials on matters that affect a company’s financial results.
- Main change: Companies would only be required to include a limited number of shareholder proposals on proxy cards: up to 2 for smaller filers, up to 4 for accelerated filers, and up to 7 for large accelerated filers (these size classes are set by SEC rules).
- Materiality test: A proposal must have a material effect on financial performance to be included. “Material” is defined to exclude nonpecuniary goals (for example, political, ideological, environmental or social aims) and risks that are highly uncertain, systemic, general, or not investment-specific.
- Company control and disclosure: Each company decides how it chooses which qualifying proposals to include and must disclose that method to the SEC. The order proposals arrive cannot be used to decide inclusion.
- Grouping and limits: Substantially similar proposals count as one. Board members may not submit proposals for inclusion.
- Scope: The bill requires the SEC to amend its rule; it says it does not force a company to include a proposal that the SEC’s rules otherwise allow a company to omit.
What it means for you#
- Shareholders who file proposals: Fewer proposals may appear on the proxy card. Your proposal must show a material effect on financial performance (as the bill defines it) to be included. Similar proposals from different filers may be treated as one.
- Investors voting at meetings: Fewer shareholder proposals may be presented in proxy materials, so ballots could contain fewer items for shareholder votes.
- Public companies: Companies will decide which qualifying shareholder proposals to include and must disclose their selection method to the SEC. They cannot favor proposals based on the order received. Board members cannot submit proposals for inclusion.
- Smaller vs. larger companies: Companies are grouped by SEC filing status. Non-accelerated filers (generally smaller reporting companies) may be required to include no more than 2 proposals; accelerated filers no more than 4; large accelerated filers no more than 7.
- Securities and Exchange Commission (SEC): The SEC must amend its existing shareholder-proposal rule to reflect these limits and definitions.
Expenses#
No publicly available information.
- The bill would require the SEC to do a rulemaking, which typically uses agency staff time and may have administrative costs. The bill does not provide a cost estimate.
- Companies may incur administrative costs to set and document their proposal-selection method and to disclose that method to the SEC.
- There could be compliance costs for shareholders who must demonstrate a proposal’s material effect on financial performance; the bill does not estimate these costs.
Proponents' View#
- The bill appears intended to focus proxy materials on proposals tied to financial performance and to limit proposals driven by nonfinancial or political goals.
- Supporters may argue this reduces burdens on companies and shareholders by preventing proxy ballots from being crowded with nonfinancial or long-term systemic issues.
- Allowing companies to set and disclose a selection method could create a predictable process for deciding which qualifying proposals appear on the proxy card.
- Counting similar proposals as one could reduce duplication on the ballot.
Opponents' View#
- One concern is that the bill’s materiality definition excludes many environmental, social, and governance (ESG) issues that supporters of such proposals view as financially relevant, especially when effects are long-term or systemic.
- The bill gives companies the power to choose which qualifying proposals appear and only requires disclosure to the SEC; it is unclear how the SEC or shareholders would review or challenge those choices. This could advantage management over minority shareholders.
- It is unclear how companies or the SEC would apply the materiality test in practice. The bill does not set a specific, enforceable standard for judging when a proposal “has a material effect on financial performance.”
- The limits on the number of proposals could prevent valid, financially relevant proposals from reaching shareholders in years with many concerns.