You might think Congress would be too busy these days—what with a pandemic raging across the U.S., looming economic catastrophe and spiraling unemployment—to worry about the resubmission thresholds for shareholder proposals, but nope, they’re all over it. In the latest version of the appropriations bill passed in the House, known as the ‘‘Defense, Commerce, Justice, Science, Energy and Water Development, Financial Services and General Government, Homeland Security, Labor, Health and Human Services, Education, Transportation, Housing, and Urban Development Appropriations Act, 2021’’ for short, the bill authorizes funding for the SEC, while at the same time, putting the kibosh on various items on the SEC’s Spring RegFlex agenda (see this PubCo post)—and even on regulations that have already been adopted.  But whether these provisions survive or are jettisoned in the Senate is another question.

HR 7617, which began its life as just a defense appropriations bill before it morphed by substitution into a more full-fledged omnibus appropriations bill, appropriates almost $2 billion for the SEC, but the funding comes with a catch—actually several catches.

Shareholder proposals. First, none of the funding can be used “to finalize, issue, or implement any rule, regulation, or order changing the procedural requirements or raising resubmission thresholds” under Rule 14a-8 as proposed by the SEC in November last year.  Among other things, that proposal would modify the criteria for eligibility and resubmission of shareholder proposals; provide that a person may submit only one proposal per meeting, whether as a shareholder or acting as a representative; and require that a shareholder using a representative for submission of a proposal must provide the SEC with specified documentation.  The topic has long been highly controversial, with Clayton observing that a “system in which five individuals accounted for 78% of all the proposals submitted by individual shareholders” needs some work, and former Commissioner Jackson characterizing the proposal as swatting “a gadfly with a sledgehammer.”  (See this PubCo post.)  The proposal was on the SEC’s Spring short-term agenda and characterized as in the final stage.

Exempt offering framework. In addition, none of the funds can be used “to finalize, issue, or implement any rule, regulation, or order regarding the exempt offering framework changes proposed … without previously finalizing, issuing, or implementing a final rule strengthening the filing requirements around exempt offerings in the same or stronger manner as proposed [here in 2013] to enhance the Securities and Exchange Commission’s ability to evaluate the development of market practices in Rule 506 offerings and to address concerns that may arise in connection with permitting issuers to engage in general solicitation.”  The SEC’s proposal to modify the exempt offering framework was designed to harmonize and streamline the patchwork of private placement exemptions and “to expand investment opportunities while maintaining appropriate investor protections.”  (See this PubCo post.)  This proposal was also in the final rule stage on the SEC’s spring short-term agenda.  The 2013 proposal that the prohibition references would  have required, among other things, the filing of a Form D in Rule 506(c) offerings before the issuer engages in a general solicitation, the filing of a closing amendment to Form D after the termination of any Rule 506 offering, that written general solicitation materials used in Rule 506(c) offerings include certain legends and other disclosures, and the submission to the SEC, on a temporary basis, of written general solicitation materials used in Rule 506(c) offerings.

Proxy advisor regulation. Finally, an amendment offered by Representative Maxine Waters, Chair of the House Financial Services Committee, provides that none of the funds can be used “to implement, administer, or enforce” the amendments to Rules 14a-1(l), 14a–2 or 14a-9 adopted on July 22, 2020.  Of course, that refers to the new amendments adopted by the SEC to make proxy voting advice subject to the proxy solicitation rules and to condition exemptions from those rules for proxy advisory firms, such as ISS and Glass Lewis, on disclosure of conflicts of interest and adoption of principles-based policies to make proxy voting advice available to the subject companies and to notify clients of company responses. The amendments also provide two non-exclusive safe harbors designed to satisfy the conditions to the exemptions.  (See this PubCo post.)  According a statement from Waters, these amendments

“dealt a blow to investor protection and to the American people….Proxy advisory firms play an important role in providing research and advice to shareholders regarding matters facing the companies they are investing in, and inform investors about the best way to vote in annual meetings. Thus, the integrity of that advice mandates that it be provided free of company management’s conflicted input and unwarranted interference. Also, the regulations on proxy advisory firms, as adopted, may drive up costs for investors and make it more difficult for them to cast informed votes. The rule will also reduce the already-tight reporting window for providing reports to investors. And, perhaps most importantly, the SEC’s misguided rule may tilt voting advice more favorably towards management. My amendment would prohibit the SEC from using funds appropriated under this Act to implement, administer, or enforce the newly-adopted final rule and will prevent the resulting harm. This latest attack on shareholder rights is only compounded by the SEC’s proposed changes to the shareholder proposal rule, that would make it more difficult for shareholders to offer and resubmit proposals for broad shareholder consideration. I appreciate that H.R. 7617 includes language to prevent the SEC from using funding to implement, administer, or enforce these proposed changes to the shareholder proposal rule.”

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