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CEOs notch victory as SEC adds hurdles for shareholder campaigns

The Securities and Exchange Commission rules overhaul follows years of C-suite complaints that proxy regulations are outdated and play into the hands of dissident shareholders. But investor advocates, religious groups and proponents of what’s known as environmental, social and governance, or ESG, investing argue the changes are a gift to business lobbyists that will muzzle corporate critics.

At issue are the criteria that stockholders must meet in order to submit, or resubmit, proposals that investors vote on at companies’ annual meetings. The regulations that SEC commissioners are set to consider Wednesday largely track with a plan first proposed in 2019, according to SEC officials.

Under rule, the value of stock that an investor needs to hold to submit a plan would generally increase, officials said. The level of support needed to resubmit failed proposals would also increase.

In a response to a question about concerns expressed by ESG advocates, SEC Chairman Jay Clayton told reporters ahead of the meeting that the requirements that smaller shareholders hold stock for longer before submitting plans was “not much of an incremental cost and it provides a demonstrable alignment of interests.” He added that he was “completely comfortable that this was done by the staff in a content neutral way.”

In July, the SEC approved a related rule that curbed the power of so-called proxy advisory firms, which are paid by pension funds to advise stockholders on how to vote their shares. Those advisers have drawn the ire of executives in part because of the outsize role they can play in determining whether activist campaigns succeed.

Key details:

— According to agency officials, the new SEC rule will require new shareholders who have only held stock for one year to have $25,000 worth to submit a plan for the first time. The previous threshold of $2,000 would apply to investors who have had their positions for at least three years.

— The regulations would also increase to 5% the support level needed to resubmit a plan within five years of it failing to pass, from 3% currently, the officials said. The amount of backing needed increases in additional attempts.

— Vanguard Group Inc., the Business Roundtable and the U.S. Chamber of Commerce wrote letters in support of the plan.

— The Council of Institutional Investors, the Presbyterian Church (U.S.A.) and Neuberger Berman were among those commenting in opposition.

— In a separate rule change, the SEC on Wednesday voted 3-2 on rule changes to give the agency additional flexibility in determining whistleblower awards.

— Agency officials said that they don’t expect the changes to diminish the program and that the final rule doesn’t include a controversial plan to let commissioners reduce awards in cases where penalties are $100 million or more. Whistleblowers are now eligible to get 10% to 30% of the amount collected in enforcement cases where penalties exceed $1 million.

Democratic Commissioner Allison Lee said before the vote that she opposed the rule in part because it involved the SEC claiming additional “discretion” to reduce whistleblower awards based on the size of the penalty involved.