Praxis Mutual Funds® submitted an independent comment letter in support of three specific rule changes under consideration by the Securities and Exchange Commission. The changes relate to portions of Rule 14a-8, which plays an important role in public company corporate governance.
The Rule’s framework provides a way for shareholders to communicate with boards and management – and each other – about issues of concern through the filing of shareholder proposals. Praxis relies on this framework in our shareholder advocacy work. Together with other investors, we file shareholder proposals to prompt dialogue with companies and spur positive change. Sometimes the proposals come to a vote, while other times company management engages in productive dialogue and we withdraw the proposal prior to a vote.
Rule 14a-8 requires companies to bring shareholder proposals to a vote unless they obtain an exemption from the SEC. Not surprisingly, companies will often seek those exemptions to keep specific proposals off their ballot. The process involves management requesting “no action” exemptions from the SEC staff, which then reviews and either grants or denies the exemption request.
The SEC is considering modifications to three specific exemption factors. Praxis strongly supports enactment of all three changes.
Two would narrow exemption criteria for:
- “Substantial implementations,” in which a company argues it’s already made changes close enough to those proposed.
- “Substantial duplication,” in which a company argues that two or more proposals are similar enough that it can reasonably exclude all but one.
The third proposed change, “Resubmission,” would make it easier for engaged shareholders to make their voice heard over time. Currently, if a proposal doesn’t reach a certain threshold of investor support, companies can typically secure an exemption on related topics for of five years. We believe this discourages productive dialogue on key issues and we support the proposed changes that would reduce obstacles to resubmitting proposals.
Overall, we support strong, effective, and efficient company-shareholder engagement on issues of critical concern to both companies and their stakeholders. We applaud the SEC’s efforts to ensure concerned shareholders have a strong framework to promote real-world change. The complete letter submitted by Praxis is available here (PDF).