In the first Trump Administration, the Securities and Exchange Commission promulgated certain rules that had the effect of erecting barriers to activist investors seeking to have shareholder proposals–often involving topics of social or environmental concern–considered by corporations. Specifically, the SEC mandated that shareholders had to satisfy higher thresholds–e.g., a longer time period holding the stock, and a larger ownership share–in order to submit proposals (as well as a higher threshold of support for a proposal to be re-submitted). Overall, these regulations were designed to enable corporations to more easily dispose of shareholder proposals proffered by activist investors.
After four years of litigation, a federal district court judge granted summary judgment in favor of the SEC, holding that the SEC satisfied the appropriate administrative procedures and abided by the proper standards when promulgating the rules. The impact of this ruling–which may still be appealed to a higher court–will be to solidify the erection of barriers to shareholder proposals, and ease the ability of corporations to preclude certain activist investors from submitting shareholder proposals. This will likely discourage–at least to a degree–shareholder proposals focused on ESG concerns (e.g., climate change).
The SEC can keep 2020 rules that activist investors say stop some environmental, social and governance proposals from getting votes at companies’ annual meetings, a federal judge ruled Thursday. The Securities and Exchange Commission acted appropriately when it adopted the shareholder proposal submission standards aimed at small investors during the first Trump administration, Judge Reggie B. Walton of the US District Court for the District of Columbia said in an opinion. Walton’s decision to toss a lawsuit challenging the rules ended four years of legal limbo for the regulations, which are backed by companies. The regulations boosted the amount of stock investors need to file proposals and increased the level of shareholder support required to resubmit plans voted down previously, among other actions.