I’ve blogged about the recent speech by SEC Chairman Paul Atkins that effectively cast doubt on the viability of precatory shareholder proposals if state law dictates that result and a company obtains a legal opinion to that effect. What might be the consequences of this new SEC position?
To address that, here’s an excerpt from this Cooley Alert penned by Michael Bergmann and Ali Murata:
What effect might Atkins’ remarks have on compensation-related shareholder proposals?
The new avenue for relief suggested by Atkins for precatory proposals (requesting a no-action letter from the SEC staff under Rule 14a-8a(i)(1)) will likewise consume considerable resources, but a successful outcome will enable the issuer to exclude the proposal from its annual proxy materials altogether. It seems fair to assume that, if successful outcomes become the norm, the number of nonbinding proposals that are submitted will decline significantly.
The strategies Atkins discussed were primarily focused on precatory proposals, leaving open the possibility that some binding bylaw amendment proposals would remain viable For example, during the 2024 proxy season, a shareholder (the longtime shareholder proponent mentioned above) submitted binding compensation-related proposals to several companies that sought to directly amend company bylaws to require an annual shareholder vote to approve director compensation.
Although these proposals performed very poorly when put to a vote, it is possible shareholders would be more supportive of binding bylaw amendments requiring shareholder approval of compensation practices (e.g., golden parachutes) in an environment where precatory proposals are no longer possible. In addition, in a landscape without precatory proposals, compensation-related proposals may gain greater prominence, as they are potentially more readily adaptable into binding proposals compared to other currently more prevalent ESG-focused proposals.
Bottom line
Individuals involved in executive compensation matters at most companies will not need to be steeped in SEC rules and state laws implicated by Atkins’ comments. But they should be aware of the shareholder proposal dynamics at play so they can best serve company management and directors as this issue evolves ahead of and during the upcoming proxy season.
Authored by
Broc Romanek