The House Financial Services Committee has approved H.R. 5756, an important new bill from Rep. Sean Duffy (R-WI) that would make it more difficult for activists to continually place resolutions on a proxy ballot after they have been rejected by a wide majority of shareholders.
Specifically, H.R. 5756 would reform a U.S. Securities and Exchange Commission (SEC) rule that allows a vocal minority of activist investors to hijack a company’s annual proxy ballot.
Shareholders generally have the right to place proposals on a company’s proxy ballot. Under current SEC rules, failed proposals are nevertheless guaranteed a spot on the following year’s ballot if they achieve a minimal level of shareholder support. In fact, proposals opposed by 90 percent of a company’s investors may automatically qualify for a vote in successive years.
Failed proposals automatically qualify for the next year’s ballot if they garner 3 percent shareholder support after one vote, 6 percent after two votes or 10 percent after three votes or more. Under H.R. 5756, proposals would have to meet higher standards of support to be guaranteed a new vote in subsequent years. Specifically, the bill would require proposals to achieve 6 percent shareholder support after one vote, 15 percent after two votes or 30 percent after three or more votes in order to earn a place on the next year’s ballot.
In recent years, activist shareholders have used the SEC’s low resubmission thresholds to focus on political issues that are far outside the scope of a manufacturer’s business. By guaranteeing resubmission for failed proposals with overwhelming shareholder opposition, these outdated thresholds divert management time and company resources and prioritize the whims of a small set of activist investors over the good of the company.
The National Association of Manufacturers called for the committee to approve Rep. Duffy’s bill. Manufacturers support H.R. 5756 because it would empower companies to prioritize the needs of workers who depend on their growth.
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