Rule14a-8 Supporting Statement.final

SUPPORTING STATEMENT FOR PROPOSED RULES
UNDER THE SECURITIES EXCHANGE ACT OF 1934
This is a submission pursuant to the Paperwork Reduction Act of 1995, 44 U.S.C.
§3501, et seq.
A.

JUSTIFICATION

1.

CIRCUMSTANCES MAKING THE COLLECTION OF INFORMATION
NECESSARY

On November 5, 2019, the Securities and Exchange Commission (the
“Commission”) proposed amendments to its rules that currently require companies
subject to the federal proxy rules to include shareholder proposals in their proxy
statements.1 The existing rules governing shareholder proposals permit a company to
exclude a shareholder proposal from its proxy statement if the proposal fails to meet any
of several specified substantive or procedural requirements, or if the shareholderproponent does not satisfy certain eligibility or procedural requirements. The proposed
amendments would update certain eligibility criteria, including the ownership
requirements that a shareholder must satisfy to be eligible to require a company to
include a proposal in its proxy statement. Specifically, the proposed amendments would
disallow aggregation of holdings for purposes of satisfying the ownership requirements,
require shareholder-proponents to provide written documentation regarding their ability
to meet with the company and, if applicable, documentation relating to the appointment
of a designated representative submitting proposals on behalf of a shareholder-proponent.
The proposed amendments would also clarify that a person may submit no more than one
shareholder proposal for the same shareholders meeting, whether the person submits a
proposal as a shareholder or as a representative of a shareholder. In addition, the
proposed amendments would update the levels of shareholder support a proposal must
receive to be eligible for resubmission at the same company’s future shareholder
meetings.
The Paperwork Reduction Act burdens associated with the following collections
of information will be affected by the proposed amendments:
“Regulation 14A and Schedule 14A” (OMB Control No. 3235-0059)

1

See Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8, Release
No. 34-87458 (November 5, 2019) [84 FR 66458 (Dec. 4, 2019)] (“Proposing Release”).

Regulation 14A,2 which includes Schedule 14A, sets forth the disclosure and
other requirements for proxy statements, as well as the exemptions therefrom, filed by
registrants and other soliciting persons to help investors make informed voting decisions.3
If adopted, the proposed amendments are expected to reduce the annual number
of shareholder proposals, resulting in an overall reduction in the average paperwork
burden for respondents. The estimated decrease in annual submissions is anticipated to
be a consequence, in large part, of proposed changes to the minimum ownership holding
period and market value of shares that eligible shareholders must satisfy in order to
submit a proposal.4 In addition, the Commission proposed various other amendments to
the substantive and procedural requirements for shareholder proposals, the net effect of
which is expected to further reduce the overall annual paperwork burden associated with
the shareholder proposal rule contained in Rule 14a-8.
A detailed description of the proposed amendments, including the need for the
information and its proposed use, as well as a description of the likely respondents, can
be found in Section II of the Proposing Release, and a discussion of the expected
economic effects of the proposed amendments can be found in Section IV of the
Proposing Release.
A copy of the Proposing Release is attached.
2.

PURPOSE AND USE OF THE INFORMATION COLLECTION

By giving shareholder-proponents the ability to have their proposals included
alongside management’s in the company’s proxy statement, Rule 14a-8 enables
shareholder-proponents to easily present their proposals to all other shareholders, and to
have proxies solicited for their proposals, at little or no expense to themselves. The rule
thus facilitates shareholders’ traditional ability under state law to present their own
proposals for consideration at a company’s annual or special meeting, and it facilitates
the ability of all shareholders to consider and vote on such proposals.
However, this mechanism for shareholders to require inclusion of their proposals
in companies’ proxy materials is not without limits. Rule 14a-8 permits a company to
exclude a shareholder proposal from its proxy statement if the proposal fails to meet any
of several specified substantive requirements, or if the shareholder-proponent does not
satisfy certain eligibility or procedural requirements. All of these requirements are
generally designed to ensure that the ability under Rule 14a-8 for a shareholder to have a
2

17 CFR 240.14a-1 et seq.

3

The paperwork burden estimate for Regulation 14A includes the burdens imposed by the
Commission’s rules that may be incurred by all parties involved in the proxy process leading up to and
associated with the filing of a Schedule 14A. This would include both the time that a shareholderproponent spends to prepare its proposals for inclusion in a company’s proxy statement, as well as the
time that the company spends to respond to such proposals.

4

See Rule 14a-8 [17 CFR 240.14a-8].

2

proposal included alongside management’s in the company’s proxy materials—and thus
to draw upon company resources and to command the time and attention of other
shareholders—is not excessively or inappropriately used.
The Commission has proposed to establish enhanced requirements under Rule
14a-8 to more appropriately balance the interests of shareholders who seek to use the
company’s proxy statement to advance their own proposals, on the one hand, with the
interests of companies and other shareholders who bear the burdens associated with the
inclusion of such proposals, on the other hand.
3.

CONSIDERATION GIVEN TO INFORMATION TECHNOLOGY

The collection of information requirements of the amendments are set forth in the
affected rules. The affected filings are provided electronically to the Commission using
the Commission’s Electronic Data Gathering, Analysis and Retrieval (“EDGAR”)
system.
4.

DUPLICATION OF INFORMATION
The amendments do not duplicate, overlap, or conflict with other federal rules.

5.

REDUCING THE BURDEN ON SMALL ENTITIES

The proposed amendments would affect some small entities that are either: (i)
shareholder-proponents that submit Rule 14a-8 proposals, or (ii) issuers subject to the
federal proxy rules that receive Rule 14a-8 proposals. In the Proposing Release, the
Commission estimated that there are approximately 881 issuers that are subject to the
federal proxy rules, other than investment companies, that may be considered small
entities.5
If adopted, the proposed amendments would likely reduce the number of
proposals required to be included in the proxy statements of issuers subject to the federal
proxy rules, including small entities. In turn, this would likely reduce the costs to such
issuers of complying with Rule 14a-8.
In addition, the proposed amendments, if adopted, may also reduce the number of
proposals that shareholder-proponents that are small entities would be permitted to
submit to issuers for inclusion in the issuers’ proxy statements. As a result, these small
entities may experience an increase in shareholder engagement costs to the extent such
small entities elect to increase their investment to meet the adjusted eligibility criteria or
pursue alternatives methods of engagement, such as conducting their own proxy
solicitation. The proposed amendments that would require shareholder-proponents to
provide written documentation regarding their ability to meet with the issuer and relating
to the appointment of a representative would slightly increase the compliance burden for
5

In the Proposing Release, the Commission requested comment on the number of potential shareholderproponents that may be considered small entities, as it was unable to provide an estimate of the number.

3

shareholder-proponents, including those that are small entities.
Rule 14a-8 generally does not impose different standards or requirements based
on the size of the issuer or shareholder-proponent. Nor does the Commission believe that
establishing different compliance or reporting obligations in conjunction with the
proposed amendments or exempting small entities from all or part of the requirements is
necessary. The Commission believes the proposed amendments are equally appropriate
for shareholder-proponents of all sizes seeking to engage with issuers through the Rule
14a-8 process. While the Commission does anticipate a moderate increase in burden for
shareholder-proponents, it does not believe that imposing different standards or
requirements based on the size of the shareholder-proponent will accomplish the
purposes of the proposed amendments,
6.

CONSEQUENCES OF NOT CONDUCTING COLLECTION

The proposed amendments relate to Regulation 14A. This regulation and its
associated schedules govern proxy solicitations and set forth the disclosure requirements
for proxy and information statements. Less frequent collection would deprive investors
of access to information that is important to their voting decisions.
7.

SPECIAL CIRCUMSTANCES
There are no special circumstances in connection with these amendments.

8.

CONSULTATIONS WITH PERSONS OUTSIDE THE AGENCY

In the Proposing Release, the Commission solicited public comment on the new
“collection of information” requirements and the associated paperwork burdens.6
Comments on Commission releases are generally received from registrants, investors,
and other market participants. In addition, the Commission and staff participate in
ongoing dialogue with representatives of various market participants through public
conferences, roundtables and meetings. All comments received on the proposal are
available at https://www.sec.gov/comments/s7-23-19/s72319.htm. As of March 11,
2020, we have received four comments on the burden estimate.7 Three commenters
indicated that there is not an adequate basis for the $150,000 per proposal cost estimate
upon which the Commission relies in calculating the burden estimate.8 Another
commenter stated that the burden estimate does not adequately account for the additional
6

See note 1 supra.

7

See letters from AFL-CIO dated February 3, 2020; Interfaith Center on Corporate Responsibility dated
January 27, 2020; Segal Marco Advisors dated February 3, 2020; UAW Retiree Medical Benefits Trust
dated January 30, 2020.
8

See letters from Interfaith Center on Corporation Responsibility dated January 27, 2020; Segal Marco
Advisors dated February 3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020.

4

paperwork burdens on shareholders associated with the proposed ownership thresholds.9
The Commission will consider all comments received prior to publishing the final rules,
as required by 5 CFR 1320.11(f).
9.

PAYMENT OR GIFT TO RESPONDENTS
No payment or gift to respondents.

10.

CONFIDENTIALITY
All documents submitted to the Commission are available to the public.

11.

SENSITIVE QUESTIONS

No information of a sensitive nature will be required under the following
collections of information in connection with these rulemaking amendments: Regulation
14A and Schedule 14A. The information collection collects basic personally identifiable
information (PII) that may include a name and job title. However, the agency has
determined that these information collections do not constitute a system of record for
purposes of the Privacy Act. Information is not retrieved by a personal identifier. In
accordance with Section 208 of the E-Government Act of 2002, the agency has
conducted a Privacy Impact Assessment (PIA) of the EDGAR system, in connection with
this collection of information. The EDGAR PIA, published on February 5, 2020, is
provided as a supplemental document and is also available at
https://www.sec.gov/privacy.
12. and 13.

ESTIMATES OF HOUR AND COST BURDENS

The Commission anticipates that the proposed amendments, if adopted, would
reduce the annual number of shareholder proposals, resulting in an overall reduction in
the average paperwork burden for respondents in connection with the collection of
information for Regulation 14A. The burden estimates were calculated by estimating the
number of parties expected to expend time, effort, and/or financial resources to generate,
maintain, retain, disclose or provide information required by the proposed amendments
and then multiplying by the estimated amount of time, on average, each of these parties
would devote in response to the proposed amendments.
The following Table 1 summarizes the estimated effects of the proposed
amendments on the paperwork burdens associated with Regulation 14A.

9

See letter from AFL-CIO dated February 3, 2020.

5

Table 1. Estimated Paperwork Burden Effects of the Proposed Amendments
Proposed Amendments

Estimated Effect

Rule 14a-8(b)(1)(i)


Revise the ownership requirements that shareholders must
satisfy to be eligible to submit proposals to be included in an
issuer’s Schedule 14A proxy statement to the following levels:
o ≥$2K to <$15K for at least 3 years;
o ≥$15K to <$25K for at least 2 years; or
o ≥$25K for at least 1 year.

Rule 14a-8(b)(1)(iii)
 Require shareholders to provide the company with a written
statement that they are able to meet with the company in
person or via teleconference no less than 10 calendar days nor
more than 30 calendar days after submission of the shareholder
proposal, and to provide contact information as well as
business days and specific times that they are available to
discuss the proposal with the company.

28% decrease in the number of
shareholder proposal submissions,
resulting in a reduction in the
average burden per response of
5.08 hours.

Increase in the average burden per
response of 0.04 hours.

Rule 14a-8(b)(1)(iv)


Require shareholders to provide certain written documentation
to companies if the shareholder appoints a representative to act
on its behalf in submitting a proposal under the rule.

Rule 14a-8(b)(1)(v)
 Disallow aggregation of holdings for purposes of satisfying the
ownership requirements.

Rule 14a-8(c)
 Provide that shareholders and other persons cannot submit,
directly or indirectly, more than one proposal for the same
shareholders’ meeting.

Increase in the average burden per
response of 0.01 hours.

0.2% decrease in the number of
shareholder proposal submissions,
resulting in a reduction in the
average burden per response of
0.04 hours.

2% decrease in the number of
shareholder proposal submissions,
resulting in a reduction in the
average burden per response of
0.36 hours.

Rule 14a-8(i)(12)


Increase the prior vote thresholds for resubmission of a
proposal that addresses substantially the same subject matter as
a proposal previously included in company’s proxy materials
within the preceding 5 calendar years if the most recent vote
occurred within the preceding 3 calendar years to:
o less than 5% of the votes cast if previously voted on once;
o less than 15% of the votes cast if previously voted on
twice; or
o less than 25% of the votes cast if previously voted on
three or more times.
Permit exclusion of proposals that addresses substantially the
same subject matter as proposals that have been previously

6

7% reduction in the number of
shareholder proposals by reducing
the number of resubmissions,
resulting in a reduction in the
average burden per response of
1.26 hours.

voted on three or more times in the last five years,
notwithstanding having received at least 25% of the votes cast
on the most recent submission, if the most recently voted on
proposal (i) received less than 50% of the votes cast and (ii)
experienced a decline in shareholder support of 10% or more
of the votes cast compared to the immediately preceding vote.
Net decrease in the average
burden per response of 6.69
hours.10

Total:

Table 2 below illustrates the incremental change to the total annual compliance
burden in hours and in costs as a result of the proposed amendments. The table sets forth
the percentage estimates the Commission typically uses for the burden allocation for each
response.11

Table 2. Calculation of the Incremental Change in Burden Estimates of Current
Responses Resulting from the Proposed Amendments
Number of
Estimated
Responses
(A)12

Burden Hour
Reduction per
Response
(B)

Reduction in
Burden Hours
for Responses
(C)

Reduction in
Internal Hours
for Responses
(D)

= (A) x (B)13

= (C) x 0.75

Reduction in
Professional
Hours for
Responses
(E)
= (C) x 0.25

5,586

6.69

37,370

28,027

9,343

Reduction in
Professional
Costs for
Responses
(F)
= (E) x $400
$3,737,200

(continued on next page)

10

(5.08 + 0.04 + 0.36 + 1.26) – (0.04 + 0.01) = 6.69 hours decrease in average burden per response.

The Commission’s estimates assume that 75% of the burden is borne by the company and 25% is borne
by outside counsel at $400 per hour. The Commission recognizes that the costs of retaining outside
professionals may vary depending on the nature of the professional services, but for purposes of its
paperwork burden analysis, it estimated that such costs would be an average of $400 per hour. This
estimate was based on consultations with several registrants, law firms, and other persons who regularly
assist registrants in preparing and filing reports with the Commission.
11

The number of estimated affected responses is based on the number of responses in the Commission’s
current OMB PRA filing inventory. The OMB PRA filing inventory represents a three-year average. We
do not expect that the proposed amendments will materially change the number of responses in the current
OMB PRA filing inventory.
12

13

The estimated reductions in Columns (C), (D) and (E) are rounded to the nearest whole number.

7

Finally, Table 3 that follows summarizes the requested paperwork burden, including
the estimated total reporting burdens and costs, under the proposed amendments.

Table 3. Requested Paperwork Burden under the Proposed Amendments
Current Burden
Current
Current Cost
Burden
Burden
Hours
(C)
(B)

Current
Annual
Responses
(A)
5,586

551,101

14.

$73,480,012

Number of
Affected
Responses
(D)
5,586

Program Change
Reduction
Reduction in
in Internal
Professional
Hours
Costs
(E)14
(F)15
(28,027)

($3,737,200)

Requested Change in Burden
Annual
Burden
Cost Burden
Respons
Hours
(I) = (C) es
(H) = (B) (F)
(G) =
- (E)
(A)
5,586
523,074
$69,742,812

COSTS TO FEDERAL GOVERNMENT

The annual cost of reviewing and processing disclosure documents, including
registration statements, post-effective amendments, proxy statements, annual reports and
other filings of operating companies amounted to approximately $103,479,690 in fiscal
year 2019, based on the Commission’s computation of the value of staff time devoted to
this activity and related overhead.
15.

REASON FOR CHANGE IN BURDEN

The proposed amendments in Release No. 34-87458 would update the criteria,
including the ownership requirements that a shareholder must satisfy to be eligible to
require a company to include a proposal in its proxy statement.
In particular, the proposed amendments to Rule 14a-8 would:


Update the current minimum ownership requirement for shareholder-proponents;



Require additional documentation from shareholder-proponents who have
authorized a representative to act on their behalf;



Require each shareholder-proponent to provide contact information to the
company and confirm that he or she is able to meet with the company as specified
by the rule.



Apply the one-proposal rule to “each person” rather than “each shareholder” who
submits a proposal;



Modernize the current thresholds for shareholder proposal resubmissions; and

14

From Column (D) in PRA Table 2.

15

From Column (F) in PRA Table 2.

8



Add a new provision that would allow for exclusion of certain proposal that have
been previously voted on three or more times in the last five years, depending on
the level of shareholder support received for the proposal.

The Commission anticipates that, if adopted, the amendments would have the
overall effect of reducing the number of shareholder proposal submissions, thus reducing
the aggregate burdens and costs of affected parties complying with the relevant
shareholder proposal requirements of Regulation 14A.
(For further detail see the Regulation 14A and Schedule 14A short statement
beginning on page 11)
16.

INFORMATION COLLECTION PLANNED FOR STATISTICAL
PURPOSES
The information collection does not planned for statistical methods.

17.

APPROVAL TO OMIT OMB EXPIRATION DATE

We request authorization to omit the expiration date on the electronic version of
the form. Including the expiration date on the electronic version of the form will result in
increased costs because the need to make changes to the form may not follow the
application’s scheduled version release dates. The OMB control number will be
displayed.
18.

EXCEPTIONS TO CERTIFICATION FOR PAPERWORK REDUCTION
ACT SUBMISSIONS
There are no exceptions to certification for the Paperwork Reduction Act
submissions.

B.

STATISTICAL METHODS
The information collection does not employ statistical methods.

(continued on next page)

9

REGULATION 14A AND SCHEDULE 14A SHORT STATEMENT
The proposed amendments in Release No. 34-87458 would update the criteria,
including the ownership requirements that a shareholder must satisfy to be eligible to
require a company to include a proposal in its proxy statement. The Commission
anticipates that, if adopted, the amendments would reduce the aggregate burdens and
costs of affected parties complying with the relevant shareholder proposal requirements
of Regulation 14A.
In particular, the proposed amendments to Rule 14a-8(b) would:


Update the current requirement that a shareholder-proponent hold at least $2,000
or 1 percent of a company’s securities for at least one year to be eligible to submit
a proposal. In addition to eliminating the 1 percent threshold, the proposal would
amend the rule with the following three alternative thresholds, any one of which a
shareholder could satisfy to be eligible to submit a proposal:
o

continuous ownership of at least $2,000 of the company’s securities for at
least three years;

o

continuous ownership of at least $15,000 of the company’s securities for at
least two years; or

o

continuous ownership of at least $25,000 of the company’s securities for at
least one year.



Require that a shareholder-proponent who elects to use a representative for the
purpose of submitting a shareholder proposal provide documentation to make
clear that the representative is authorized to act on the shareholder-proponent’s
behalf and to provide a meaningful degree of assurance as to the shareholderproponent’s identity, role and interest in a proposal that is submitted for inclusion
in a company’s proxy statement; and



Require that each shareholder-proponent state that he or she is able to meet with
the company, either in person or via teleconference, no less than 10 calendar days,
nor more than 30 calendar days, after submission of the shareholder proposal, and
provide contact information as well as business days and specific times that the
shareholder-proponent is available to discuss the proposal with the company.

The proposed amendment to Rule 14a-8(c) would:


Apply the one-proposal rule to “each person” rather than “each shareholder” who
submits a proposal, such that a shareholder-proponent would not be permitted to
submit one proposal in his or her own name and simultaneously serve as a
representative to submit a different proposal on another shareholder’s behalf for
consideration at the same meeting. Likewise, a representative would not be

10

permitted to submit more than one proposal to be considered at the same meeting,
even if the representative were to submit each proposal on behalf of different
shareholders.
The proposed amendments to Rule 14a-8(i)(12) would:


Modernize the current resubmission thresholds of 3 percent, 6 percent and 10
percent for matters voted on once, twice or three or more times in the last five
years, respectively, with thresholds of 5 percent, 15 percent and 25 percent,
respectively; and



Add a new provision that would allow for exclusion of a proposal that has been
previously voted on three or more times in the last five years, notwithstanding
having received at least 25 percent of the votes cast on its most recent submission,
if the proposal (i) received less than 50 percent of the votes cast and (ii)
experienced a decline in shareholder support of 10 percent or more compared to
the immediately preceding vote.

For purposes of its Paper Reduction Act analysis, the Commission estimates that
the proposed amendments to Regulation 14A would result in a net deduction of 28,027
burden hours and a net reduction $3,737,200 in outside professional costs.

11