The new measure comes in the wake of demand for reforms in annual director elections as well as on topics related to corporate governance.
Going by the SEC’s “staff legal bulletin”, companies are likely to block ethical or social matters from coming to a vote at their annual general meetings.
Under the new guidance, which is posted on the SEC’s website, the SEC will only take account of proposals which have “economic relevance” and significance when companies ask for permission to skip votes on measures affecting less than 5% of their assets, earnings or sales.
Although proponents of the guidelines could still argue that their resolutions are significantly related to a company’s business, states the SEC’s legal bulletin, activist shareholders however opine that the new guidance could give companies more room to avoid proposals, including opioid controls at drug companies, where the drugs make up only a small fraction of the company’s revenue.
“Clearly it will put new burdens of proof on investor proponents,” said Tim Smith of Walden Asset Management, a frequent filer of social, governance and climate-related resolutions.
Topics such as climate change have assumed heightened relevance today and have the backing from big asset managers.
Business groups which choose to do the ostrich act, have lately sought to restrict these proposals saying they are not relevant.
SEC officials have said the new guidance was not meant to tilt the scales.
The SEC report states that companies looking for SEC permission to skip votes should offer a board analysis of a proposal’s significance to the company, which could give activists their say with directors.
“We did not set out to try to make things easier or harder for one side or the other, we were trying to improve the process,” said Bill Hinman, director of the SEC’s Division of Corporate Finance.
The SEC bulletin states that its staff will still view most shareholder proposals on corporate governance topics as being significant and thus likely eligible for a company’s proxy.