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New SEC guidance could raise bar for some shareholder measures
November 2, 2017 / 10:34 PM / 14 days ago

New SEC guidance could raise bar for some shareholder measures

((This version of the Nov. 2 story corrects the name of the SEC division to “Corporation Finance,” not “Corporate Finance” in paragraph 7))

FILE PHOTO: The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, DC, U.S. on June 24, 2011. REUTERS/Jonathan Ernst/File Photo

By Ross Kerber

BOSTON (Reuters) - Companies may have new grounds to keep shareholder proposals on social or ethical matters from coming to a vote at their annual meetings under guidance published late on Wednesday by the U.S. Securities and Exchange Commission.

According to the report, known as a “staff legal bulletin” and posted on the agency’s website, the SEC will take new account of a proposal’s “economic relevance” and its significance when companies ask for permission to skip votes on measures affecting less than five percent of their assets, earnings or sales.

Proponents could still argue their resolutions are significantly related to a company’s business, the paper states. But shareholder activists focused on social matters worry the new guidance could give companies more room to avoid proposals such as on opioid controls at drug companies, where the drugs make up just a small fraction of a company’s revenue.

“Clearly it will put new burdens of proof on investor proponents,” Tim Smith of Walden Asset Management, a frequent filer of social, governance and climate-related resolutions, said via e-mail.

Once seen as a distraction, proposals dealing with topics like climate change or gender diversity have gained a higher profile in recent years as they have drawn more backing from big asset managers. At the same time business groups lately have sought to restrict the proposals they say are often irrelevant, such as by raising the amount of shares needed to file them.

SEC officials said the new guidance was not meant to tilt the scales. The 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 Corporation Finance.

The paper also specifies that SEC staff will still view most shareholder proposals on corporate governance topics as being significant and thus likely eligible for a company’s proxy.

Measures calling for reforms like annual director elections have also grown in popularity in recent years.

Reporting by Ross Kerber; Editing by Chris Reese

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