SEC Continues to Advance ESG Agenda

A sequence of current regulatory actions on the Securities and Trade Fee (SEC) reaffirms the company’s dedication to ESG (environmental-social-governance) points below new Chair Gary Gensler. These actions, which have an effect on shareholder proposals, contested director elections, and proxy advisory corporations, will every influence publicly-traded retailers.

On November 3, 2021, workers within the SEC’s Division of Company Finance issued Staff Legal Bulletin 14L. SLB 14L considerations the workers’s method to shareholder proposals below SEC Rule 14a-8 and is noteworthy as a result of it rescinds three workers authorized bulletins issued in the course of the prior Administration on the subject. As well as to protecting a sequence of technical parts below the rule, SLB 14L addresses the excludability of a shareholder proposal below the SEC’s odd enterprise exception. Underneath SLB 14L, the workers will deal with the “broader societal impact” of a given difficulty, somewhat than evaluating an organization’s argument concerning the significance of the difficulty to its enterprise. For instance, SLB 14L observes that proposals elevating human capital administration points with a broad societal influence wouldn’t be excludable solely as a result of the shareholder proponent didn’t show that the difficulty was important to the corporate, and no matter whether or not the corporate’s board of administrators considers the difficulty to be important to the corporate. SLB 14L additionally units the bar increased for firms in search of to exclude a proposal on the bottom that it seeks to micromanage the corporate’s enterprise.  In sum, the online impact of SLB 14L is to make it far harder to exclude many shareholder proposals on ESG subjects.

On November 17, 2021, by a vote of 4-1, the SEC permitted new rules requiring the usage of “universal” proxy playing cards by administration and shareholders soliciting proxy votes for his or her candidates in contested director elections, apart from elections at registered funding firms and enterprise growth firms. Underneath new Rule 14a-19, a common proxy card should embrace all director nominees offered by administration and shareholders for election on the shareholder assembly. Thus, the brand new guidelines dispose of dueling proxy playing cards in contested director elections and can allow shareholders to decide and select nominees from either side in a proxy contest.  To facilitate the usage of common proxy playing cards, the SEC amended the proxy guidelines so both sides is permitted to checklist the opposite’s director candidates on its common proxy card, a apply that prior guidelines prohibited. The brand new guidelines additionally set up new discover and submitting necessities for all soliciting events, in addition to formatting and presentation necessities for common proxy playing cards. Though the ultimate guidelines comprise no eligibility guidelines for shareholders such that an investor proudly owning a single share of widespread inventory could be eligible to use them, the ultimate guidelines do require shareholders presenting their very own director candidates to solicit holders of a minimal of 67 per cent of the voting energy of shares entitled to vote within the election. The expertise in different jurisdictions, similar to Canada the place common proxy playing cards are already permitted, means that sooner or later it will likely be simpler for dissidents to win board seats in proxy contests. Publicly-traded retailers ought to start planning for the effectiveness of the brand new guidelines, which is able to take impact for shareholder conferences held after August 31, 2022.

Additionally on November 17, in a 3-2 party-line vote, the SEC voted to suggest amendments to rules adopted in 2020 governing proxy advisor corporations. The 2020 guidelines sought to present larger safety to traders by requiring proxy advisory corporations to give enhanced disclosures and topic them to extra authorized legal responsibility. If adopted, the amendments proposed in response to a authorized problem by one of many proxy advisory corporations and obvious outcry from some institutional traders take the weird step of scaling again 2020 guidelines that haven’t but taken impact.  The SEC has proposed a public remark interval that may run for 30 days after the publication of the proposed guidelines within the Federal Register. Retailers ought to take into account whether or not to submit feedback on the proposed amendments and these essential points regarding the proxy advisory business.

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