The top U.S. financial regulator on Friday made permanent its decision to cease judging whether companies may exclude shareholder resolutions from votes at annual meetings, leaving investor activists concerned about diminishing influence.
In practice, the change announced by the U.S. Securities and Exchange Commission extends a freeze put in place last November on deciding whether to approve corporate requests to skip votes on shareholder proposals.
The responses were known as "no-action" letters because they answered corporate requests for assurance the agency would take no action if executives skipped votes on proposals that often deal with hot-button issues like carbon emissions or workforce diversity.
Executives claimed such measures may micromanage operations or deal with ordinary business undeserving of investors' attention.
The latest move will help the SEC's Division of Corporation Finance focus resources on a broader review of filings, the agency said in a statement on its website. It said it has created an "extensive body of guidance" about whether shareholder proposals could be excluded or not.
NOBODY IS HAPPY
The change has not had a big impact so far. A count by law firm Freshfields found that as of June 15, 66% of known proposals were placed on proxies, compared to 59% last year.
But few people seem happy with the status quo. SEC Chairman Paul Atkins in July called CEOs "lackadaisical" about using tools like the new policy. Investor activists complain they often had to file lawsuits to ensure votes on some items.
"Instead of having the SEC operate as an informal referee, now investors will be forced to consider other options if a company decides to unilaterally omit a resolution with inadequate arguments," said Tim Smith, senior policy advisor for the Interfaith Center on Corporate Responsibility, whose members include resolution filers.
Marc Lindsay, managing partner of corporate governance at consulting firm Jasper Street Partners, said while Friday's change was expected, it effectively increases litigation risk for companies excluding proposals. Five of six lawsuits filed over exclusions led to favorable outcomes for proponents, he said.
"While infrequent, litigation – and the resulting distractions and costs – is now a very real concern for companies considering exclusions, and it may be even worse in 2027," Lindsay said.
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