exclude value-enhancing proposals, or whether the proposed amendments
would have a disproportionate effect on proposals that are more or less
value enhancing.
---------------------------------------------------------------------------

    \209\ See, e.g., Vicente Cu[ntilde]at, Mireia Gine, & Maria
Guadalupe, The Vote Is Cast: The Effect of Corporate Governance on
Shareholder Value, 67 J. Fin. 1943 (2012) (``Cu[ntilde]at et al.
(2012)'').
    \210\ See, e.g., Bach & Metzger (2017), supra note 174.
    \211\ See, e.g., J. Robert Brown, Jr., Corporate Governance,
Shareholder Proposals, and Engagement Between Managers and Owners
(University of Denver Sturm College of Law, Legal Research Paper
Series, Working Paper No. 17-15, 2017) (``Brown (2017)'').
    \212\ For a related argument, see the letter in response to the
Proxy Process Roundtable from Business Roundtable dated November 9,
2018.
---------------------------------------------------------------------------

    In addition, companies and their shareholders may bear opportunity
costs associated with considering proposals that are ultimately not
supported by a majority of shareholders or implemented by a company
instead of engaging in other value-enhancing activities.\213\
Therefore, the value of a shareholder proposal depends fundamentally on
the tradeoff between the potential for value-creation and the cost
borne by companies and their shareholders. Furthermore, the value of
shareholder proposals is limited by the

extent to which shareholders participate in the voting process and the
extent to which management implements those proposals.
---------------------------------------------------------------------------

    \213\ See, e.g., CCMC Report, supra note 84; Rulemaking
Petition, supra note 82, at 8-9; Roundtable Transcript, supra note
13, comments of Ning Chiu, Counsel, Capital Markets Group, Davis
Polk & Wardwell LLP, at 127; Tom Quaadman, Executive Vice President,
U.S. Chamber of Commerce Center for Capital Markets Competitiveness,
at 136; Dannette Smith, Secretary to the Board of Directors and
Senior Deputy General Counsel, UnitedHealth Group, at 148-49;
letters in response to the Proxy Process Roundtable from Blackrock,
Inc. dated November 16, 2018; Business Roundtable dated November 9,
2018; Society for Corporate Governance dated November 9, 2018
(discussing costs associated with shareholder proposals).
---------------------------------------------------------------------------

    Some empirical literature has examined whether proposals are value
enhancing by studying the stock price reaction around announcements
associated with shareholder proposals, and finds that shareholder
proposals are, on average, associated with small or negligible changes
in target companies' market value.\214\ More specifically, a literature
review of prior studies in this area shows that shareholder proposals
are associated, with an average 0.06 percent short-window stock price
reaction.\215\ These results, however, mask significant cross-sectional
variation in the valuation effects of shareholder proposals. In
particular, literature finds significant stock market reaction to
shareholder proposals that pass by a small margin relative to proposals
that fail by a small margin on the day of the vote. For example, one
study found a 1.3 percent higher increase in stock price on the day of
the vote for proposals that pass by a small margin compared to
proposals that fail by a small margin.\216\
---------------------------------------------------------------------------

    \214\ The majority of prior studies find no long-term effects of
shareholder proposals on companies' returns, earnings, operations,
and corporate governance. See, e.g., Matthew R. Denes, Jonathan M.
Karpoff, & Victoria B. McWilliams, Thirty Years of Shareholder
Activism: A Survey of Empirical Research, 44 J. Corp. Fin. 405
(2017) (``Denes et al. (2017)''). We focus our discussion on short-
term market reactions to shareholder proposals because findings on
the long-term effects are less reliable than the findings on the
short-term effects as it can be hard to attribute the long-term
effects to the shareholder proposals.
    \215\ See Denes et al. (2017), supra note 214. The results of
these studies should be interpreted with caution because they do not
identify a clean announcement date for proposals by which to gauge
the market reaction. For example, companies frequently include
multiple proposals in the same proxy statement and they announce
other news, such as dividends, at shareholder meetings. For related
arguments, see Thomas & Cotter (2007), supra note 180.
    \216\ See Cu[ntilde]at et al. (2012), supra note 209. One reason
why the market reaction is concentrated in proposals that pass by a
small margin is that for proposals that pass or fail by a large
margin, the stock price may already reflect the voting outcome
because it is largely anticipated. For proposals that fail by a
small margin, there is typically negligible or no stock price
reaction because proposals that fail even by a small margin are
significantly less likely to be implemented than proposals that pass
by a small or large margin. See also Bach & Metzger (2017), supra
note 174.
    Nevertheless, Bach & Metzger also argue that the estimates of
stock price reaction around majority support thresholds likely are
biased because of the ability of management to sway the outcome of
the vote, although the direction of this bias is difficult to
estimate. Laurent Bach & Daniel Metzger, How Close Are Close
Shareholder Votes?, 32 Rev. Fin. Stud. 3183 (2019) (``Bach & Metzger
(2019)'').
---------------------------------------------------------------------------

    The market reaction can differ with the topic of the shareholder
proposal. For example, one study finds more positive market reaction
for shareholder proposals related to eliminating poison pills and
proposals seeking the adoption of cumulative voting relative to other
types of governance proposals.\217\ Another study finds larger market
reaction for shareholder proposals that reduce antitakeover protection
than other types of governance-related proposals.\218\ Some literature
provides evidence that environmental and social proposals that pass by
a small margin elicit a positive stock market reaction on the day of
the shareholder meeting.\219\
---------------------------------------------------------------------------

    \217\ Stuart L. Gillan & Laura T. Starks, Corporate Governance
Proposals and Shareholder Activism: The Role of Institutional
Investors, 57 J. Fin. Econ. 275 (2000) (``Gillan & Starks (2000)'').
This study examines a sample of proposals submitted between 1987 and
1994. Hence, the generalizability of some of the findings of this
study could be limited.
    \218\ See Cu[ntilde]at et al. (2012), supra note 209.
    \219\ Caroline Flammer, Does Corporate Social Responsibility
Lead to Superior Financial Performance? A Regression Discontinuity
Approach, 61 Mgmt. Sci. 2549 (2015). Nevertheless, the study also
notes that ``although [the] results imply that adopting close call
[environmental and social] proposals is beneficial to companies,
they do not necessarily imply that [environmental and social]
proposals are beneficial in general.'' Id. In particular, the study
finds that shareholder proposals on social and environmental issues
receive low shareholder support, on average, and only a small and
unrepresentative sample of shareholder proposals on social and
environmental issues is associated with positive stock market
reactions. Id.
---------------------------------------------------------------------------

    Market reaction to shareholder proposals also can depend on the
type of the proponent. For example, Gillan and Starks (2000) find that
market reaction is higher for proposals sponsored by individuals than
institutions, whereas Cu[ntilde]at et al. (2012) show that market
reaction is higher for proposals submitted by institutions than
individuals.\220\ Gantchev and Giannetti (2018) show that market
reaction is higher for proposals submitted by individuals that submit
proposals infrequently.\221\ Matsusaka et al. (2019) find a negative
market reaction to shareholder proposals submitted by labor unions in
years that a new labor contract must be negotiated.\222\
---------------------------------------------------------------------------

    \220\ The different findings of the cited papers likely are
attributable to different samples and methodologies used.
    \221\ Gantchev & Giannetti (2018), supra note 166.
    \222\ John G. Matsusaka, Oguzhan Ozbas, & Irene Yi,
Opportunistic Proposals by Union Shareholders, 32 Rev. Fin. Stud.
3215 (2019). For similar evidence of stock market reaction to union-
sponsored proposals, see Jie Cai & Ralph A. Walkling, Shareholders'
Say on Pay: Does it Create Value?, 46 J. Fin. & Quantitative
Analysis 299 (2011) and Andrew K. Prevost, Ramesh P. Rao, & Melissa
A. Williams, Labor Unions as Shareholder Activists: Champions or
Detractors?, 47 Fin. Rev. 327 (2012).
---------------------------------------------------------------------------

    Finally, the market reaction to shareholder proposals typically is
higher for firms that would benefit the most from the changes sought by
the shareholder proposal. For example, Renneboog and Szilagyi (2011)
find that the market reaction around the dates the proposals were first
announced is higher for firms with poor governance quality,\223\ and
Cu[ntilde]at et al. (2012) show that market reaction to governance-
related proposals on the day of the shareholder meeting is higher for
firms with a large number of antitakeover provisions in place.\224\
---------------------------------------------------------------------------

    \223\ Luc Renneboog & Peter G. Szilagyi, The Role of Shareholder
Proposals in Corporate Governance, 17 J. Corp. Fin. 167 (2011). The
dates the proposals were first announced were (i) the mailing dates
of the definitive proxy statements; (ii) the dates of a preliminary
statement released by the target firm; or (iii) the dates that the
proxy materials were filed by the proponent in the event of a proxy
contest. Governance quality is measured using two separate indices:
(i) An index that tracks 24 antitakeover provisions and (ii) an
index that tracks the following six provisions: Staggered boards,
limits to shareholder bylaw amendments, poison pills, golden
parachutes, and supermajority requirements for mergers and charter
amendments.
    \224\ Cu[ntilde]at et al. (2012), supra note 209, use a sample
of shareholder proposals that Riskmetrics classifies as governance-
related. These proposals are broadly classified into the following
six categories: (i) Antitakeover proposals, (ii) compensation, (iii)
voting, (iv) auditors, (v) board structure, and (vi) other.
---------------------------------------------------------------------------

    As mentioned above, companies may bear both direct and opportunity
costs associated with the consideration of a proposal, and these costs
may be passed down to shareholders.\225\ In particular, to the extent
applicable, companies incur costs to: (i) Review the proposal and
address issues raised in the proposal; (ii) engage in discussions with
the proponent(s); (iii) print and distribute proxy materials, and
tabulate votes on the proposal; (iv) communicate with proxy advisory
firms and shareholders (e.g., proxy solicitation costs); (v) if they
intend to exclude the proposal, file a notice with the Commission; and
(vi) prepare a rebuttal to the submission.
---------------------------------------------------------------------------

    \225\ Costs would not be passed down to shareholders if managers
absorbed some of these costs by decreasing their compensation or by
offsetting the cost increases by decreasing other types of costs.

---------------------------------------------------------------------------

    There is disagreement among commenters regarding the costs
associated with processing shareholder proposals.\226\ Based on data
from a 1996 SEC questionnaire, the average cost for a company to
determine whether to place a proposal on a ballot was $58,309 and the
average cost to print and distribute proxy materials, and tabulate
votes on the proposal was $78,795.\227\ Commenters, however, have
expressed concerns that these cost estimates likely are unreliable
because: (i) They likely cover the cost of all proposals received by a
company in a year, not the cost of a single proposal; (ii) they are
averages, based on a wide range of responses from companies; (iii)
printing and mailing costs have decreased in recent years due to the
increased use of electronic dissemination of proxy materials; \228\ and
(iv) they capture the overall cost of printing and distributing proxy
materials, not the cost of an additional shareholder proposal.\229\
More recently, a representative from an industry group estimated a cost
of $50,000 per proposal.\230\ In response to the Proxy Process
Roundtable, one commenter also stated that the company's cost per
shareholder proposal, including resubmitted proposals, is more than
$100,000,\231\ while another commenter cited to a House Report that
estimated the cost associated with shareholder proposals to be
$150,000.\232\ In addition, the Commission has previously estimated
that companies spend, on average, $11,600 to file with the Commission a
notice that they intend to exclude a shareholder proposal, which is
equivalent to $13,602 today.\233\ We lack data to estimate the dollar
cost of the remaining activities associated with shareholder proposal
submissions, but we request comment and data on these costs in Section
IV.E below.
---------------------------------------------------------------------------

    \226\ See supra notes 21-25 and accompanying text.
    \227\ The cumulative rate of inflation between May 1998 and
August 2019 is 157.6%. See Consumer Price Index (CPI) Inflation
Calculator, U.S. Dep't of Labor, Bureau of Labor Statistics (last
visited Oct. 31, 2019), https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11%2C600.00&year1=201011&year2=201906. The average
costs to companies were $37,000 and $50,000, respectively. See 1998
Adopting Release, supra note 8.
    $58,309 = $37,000 x 1.576.
    $78,795 = $50,000 x 1.576.
    \228\ The processing fee for the electronic dissemination of
proxy materials cannot exceed 50 cents per set of proxy materials.
See NYSE Rule 451.90. Automatic Data Processing Inc. estimated that
``the average cost of printing and mailing a paper copy of a set of
proxy materials during the 2006 proxy season was $5.64.'' See
Shareholder Choice Regarding Proxy Materials, Release No. 34-56135,
(Jul. 26, 2007) [72 FR 42221 (Aug. 1, 2007)]. There is also a
processing fee for the dissemination of proxy materials via mail.
The processing fee for the dissemination of proxy materials via mail
can be lower than the processing fee for the dissemination of proxy
materials via email. See letter from the Investment Company
Institute (Jan. 17, 2019), at 3, available at https://www.ici.org/pdf/18_ici_nysefees_ltr.pdf (noting that ``[e]very beneficial
account pays the NYSE schedule maximum fee of 15 cents in processing
fees to receive a paper shareholder report in the mail. . . . Every
beneficial account pays the NYSE schedule maximum fee of 25 cents
(15 cents plus 10 cents) to receive a shareholder report by
email.''). The letter from the Investment Company Institute refers
to processing fees to disseminate a shareholder report, but we
expect that the processing fees to disseminate proxy materials would
be comparable. Nevertheless, the cost of printing and mailing the
proxy materials would offset any cost savings arising from lower
processing fees for proxy materials disseminated via mail compared
to proxy materials disseminated via email. See, e.g., Broadridge,
2019 Proxy Season Key Statistics and Performance Rating (2019),
available at https://www.thecorporatecounsel.net/member/Memos/Broadridge/09_19_2019.pdf (estimate of cost savings as a result of
the increased electronic dissemination of proxy materials).
    \229\ See, e.g., letter in response to the Proxy Process
Roundtable from the Shareholder Rights Group dated December 4, 2018;
Kanzer (2017), supra note 104, at 2-3; Brown (2017), supra note 211.
    \230\ See Statement of Darla C. Stuckey, President and CEO,
Society for Corporate Governance, Before the H. Comm. on Financial
Services Subcomm. on Capital Markets and Government Sponsored
Enterprises, Sept. 21, 2016, at 8 (noting ``a lower legal cost
estimate based on anecdotal discussions with [the Society for
Corporate Governance] members of $50,000 per proposal'').
    \231\ See letter in response to the Proxy Process Roundtable
from Exxon Mobil Corporation dated July 26, 2019.
    \232\ See letter in response to the Proxy Process Roundtable
from the American Securities Association dated June 7, 2019, at 4.
    \233\ See Facilitating Shareholder Director Nominations, Release
No. 34-62764 (Aug. 25, 2010) [75 FR 56668 (Sept. 16, 2010)], at
56742 n. 797. $11,600 = 116 hours/notice x 0.25 time of outside
professionals x $400 hourly wage of outside professionals; $13,602 =
$11,600 x 1.173 cumulative rate of inflation between November 2010
and August 2019. See Consumer Price Index (CPI) Inflation
Calculator, U.S. Dep't of Labor, Bureau of Labor Statistics (last
visited Oct. 31, 2019), https://data.bls.gov/cgi-bin/cpicalc.pl?cost1=11%2C600.00&year1=201011&year2=201906.
---------------------------------------------------------------------------

    We note that the cost of processing a resubmission may be lower
than the cost of processing a first-time proposal.\234\ Further, some
of the above mentioned costs, such as the expenses to draft a no-action
request or campaigning to increase retail voters' participation,
involve a degree of management discretion as to the level of expenses
incurred, and there is disagreement about the level of such expenses
that is value-enhancing.\235\
---------------------------------------------------------------------------

    \234\ See, e.g., letter in response to the Proxy Process
Roundtable from the Shareholder Rights Group dated December 4, 2018,
at 14 (noting ``[o]ur experience as proponents of proposals leads us
to believe that companies expend less resources on proposals that
are resubmitted. If resources are expended in opposition to
proposals, the lion's share of those resources and board attention
to a proposal are most likely expended in the first effort to oppose
the proposal''). In certain instances, however, resubmissions could
be costlier than initial submissions. For example, companies might
decide to challenge a resubmission and incur the associated costs
following low support for the initial submission.
    \235\ See, e.g., Brown (2017), supra note 211, at 21; Kanzer
(2017), supra note 104, at 2; James McRitchie, SRI Funds & Advisors
Send Open Letters on Lawsuits Against Shareholders, CorpGov.net
(Mar. 24, 2014), https://www.corpgov.net/2014/03/sri-funds-advisors-send-open-letters-on-lawsuits-against-shareholders/; see also letter
in response to the Proxy Process Roundtable from Investor Voice, SPC
dated November 14, 2018, at 3.
---------------------------------------------------------------------------

    Shareholder proposals also impose opportunity costs on companies
and their shareholders because management, the board, and the voting
shareholders could spend the time spent on processing a shareholder
proposal and voting on the proposal to engage in other value-enhancing
activities. We are unable to estimate the dollar amount of some of the
direct administrative costs and opportunity costs associated with
shareholder proposals because we lack the necessary data. Thus, we seek
comment on these costs, and any corresponding cost savings of the
proposed amendments, in Section IV.E below.
    As mentioned above, in addition to the costs to companies that may
be passed down to shareholders, individual shareholders may bear costs
associated with their own consideration and voting on a proposal.
Although these costs may be difficult to quantify, many investment
advisers (among others) retain proxy advisory firms to perform a
variety of services to reduce the burdens associated with proxy voting
determinations, including determinations on shareholder proposals.
2. General Economic Effects of the Proposed Amendments
i. Discussion Specific to Proposed Amendments to Rule 14a-8(b) and Rule
14a-8(c)
    The proposed amendments to the ownership thresholds in Rule 14a-
8(b) would allow companies to exclude the following additional
proposals relative to the proposals that can be excluded under the
current ownership thresholds: \236\ (i) Proposals submitted by
shareholders that hold at least $2,000 and less than $15,000 worth of
shares for a period between one and three years and (ii) proposals
submitted by shareholders that hold at least $15,000 and less than
$25,000 worth of shares for a period between one and two

years.\237\ The proposed amendments to Rule 14a-8(b) would not allow
shareholders to aggregate their holdings, and, therefore, companies
would be able to exclude proposals submitted by shareholders that do
not individually meet the minimum ownership thresholds under Rule 14a-
8. In addition, the proposed amendments to Rule 14a-8(b) would require
a shareholder-proponent to provide contact information as well as
availability to discuss the proposal with the company, and, where a
representative is used, documentation authorizing the representative to
submit the proposal on the shareholder-proponent's behalf. Lastly, the
proposed amendments to 14a-8(c) would allow companies to exclude
proposals where the proponent, either individually or serving as a
representative, has submitted more than one proposal for the same
meeting. As a result, the proposed amendments could increase the number
of excludable shareholder proposals because they could discourage
proponents from submitting proposals that would not satisfy the
requirements of the proposed amendments to Rule 14a-8(b) and Rule 14a-
8(c) and they could allow issuers to exclude proposals that do not
satisfy the requirements of the proposed amendments to Rule 14a-8(b)
and Rule 14a-8(c).\238\
---------------------------------------------------------------------------

    \236\ As of August 2019, the $2,000 threshold as adopted in May
1998 would be equal to $3,152 after adjusting for inflation, see
supra note 55, and it would be equal to $8,379 after adjusting for
the growth in Russell 3000 index, see supra note 56.
    \237\ Proposals submitted by shareholders that hold less than
$2,000 worth of shares or hold the shares for less than one year are
excludable under the current rule, and thus are not listed as
additional excludable proposals under the proposed amendments to the
ownership thresholds.
    \238\ The effect of the proposed rule amendments on proponents'
willingness to submit proposals is distinct from the effect of the
proposed rule amendments on company's ability to exclude certain
proposals because companies occasionally allow proposals that do not
meet the current eligibility thresholds to be voted on. At the same
time, companies may expend additional time and resources to exclude
proposals that are submitted despite not being eligible for
submission. Hence, to the extent that the proposed rule amendments
would discourage proponents from submitting certain proposals, the
proposed rule amendments would have an effect that may be different
than and incremental to the effect of companies' ability to exclude
certain proposals.
---------------------------------------------------------------------------

    To estimate the number of proponents and proposals that could be
excludable as a result of the proposed amendments to Rule 14a-8(b) and
Rule 14a-8(c), we analyze proponents' ownership information using data
from proxy statements (see Table 1 above). With respect to any dollar
ownership category, the data does not indicate whether the proponents
in that category held their shares for more than one year. Assuming all
proponents held the shares for at least three years, the proposed
amendments to the ownership thresholds would not result in the
exclusion of any additional proponents or proposals to be considered in
shareholder meetings held in 2018 relative to the current
threshold.\239\ On the other hand, if one were to assume (again,
without any data to support the assumption) that all proponents bought
the shares one year in advance of the shareholder submission and plan
to hold those shares only through the date of the meeting, we find that
the increase in the ownership threshold from $2,000 with a one-year
holding period to $25,000 with a one-year holding period could result
in the exclusion of 51 percent of the proponents and 56 percent of the
proposals that were submitted to be considered at shareholder meetings
held in 2018, assuming also that none of those proponents would
increase their holdings to meet the new thresholds in order to be able
to file a proposal.\240\
---------------------------------------------------------------------------

    \239\ We have data that shows which shareholder-proponents held
varying minimum holdings, based on information the companies
provided in the proxy statements. However, we have not prepared
estimates of excludable proposals under the proposed amendments
based on that data since it is not clear how much each shareholder-
proponent actually holds and why the company selected the specific
minimum that they decided to report.
    \240\ 51% = 43% + 8%. We estimate that the total number of
excludable proponents is 101. Eighty-five proponents, or 43 percent,
held between $2,000 and $15,000, while 16 proponents, or 8 percent,
held between $15,000 and $25,000 worth of shares.
    56% = (84 excludable proposals)/(150 proposals with exact
information on proponents' ownership). Note that the number of
proposals that would be excludable is different from the summation
of the proposals from the ``# of proposals'' column in Table 1 above
because the latter double-counts proposals that were submitted by
multiple proponents.
    In estimating the number of excludable proposals, we make the
following assumptions about proposals that are submitted by multiple
proponents. First, we assume that a proposal would still be
submitted if at least one of the co-proponents met the proposed
dollar ownership threshold. Assuming that a proposal with multiple
proponents would be excludable if at least one proponent does not
meet the proposed eligibility requirements, the number of excludable
proposals would be 90 or 60 percent.
    Second, in cases where we have data on exact ownership for some
proponents and minimum ownership for the remaining proponents
submitting a joint proposal (there are two such proposals), we
assume proponents reporting minimum holdings would continue to be
eligible to submit the proposal under proposed amendments. Assuming
that a proposal would be submitted only in cases where the
proponents reporting minimum holdings have reported minimum holdings
in excess of $25,000, the number of excludable proposals would be 84
or 56 percent.
---------------------------------------------------------------------------

    The proposed rule amendments also would prohibit shareholders from
aggregating their holdings to meet the applicable minimum ownership
thresholds to submit a Rule 14a-8 proposal. As shown in Table 1 above,
there are three proponents that submitted two unique proposals, whose
individual holdings were below the $2,000 threshold. One of the two
proposals was submitted by two co-proponents, whose both aggregate and
individual holdings did not meet the $2,000 current ownership
threshold, and this proposal is excludable under the current rules. For
the other of the two proposals, there were four co-proponents, whose
aggregate holdings met the $2,000 threshold, but the individual
holdings of one of the co-proponents did not meet the $2,000 threshold.
Assuming that a proposal would be submitted if at least one of the co-
proponents met the ownership threshold and assuming no change in the
ownership threshold, the proposed amendments to proponents' ability to
aggregate their holdings would not result in the exclusion of any
proposals relative to the current requirements.
    Finally, our analysis of proxy statements suggests that 7, or 2
percent of, additional proposals would be excludable under the proposed
amendments to Rule 14a-8(c) (i.e., one-proposal limit).\241\
---------------------------------------------------------------------------

    \241\ 2% = (7 excludable proposals)/(363 proposals with
proponents' identity information in the proxy statements submitted
to be considered in 2018 shareholder meetings).
    Our analysis assumes that persons that submitted multiple
proposals to the same company and for the same shareholder meeting,
either directly or indirectly, would withdraw all but one proposal.
---------------------------------------------------------------------------

    We also analyze proponents' ownership information using data from
proof-of-ownership letters that have been made available as part of no-
action requests submitted to the staff during calendar year 2018 (see
Table 2 above). With respect to any dollar ownership category, the data
does not indicate whether the proponents in that category held their
shares for more than one year. Assuming proponents held the shares for
three years, the proposed amendments to the ownership thresholds would
not result in the exclusion of any additional proponents or proposals
to be considered in shareholder meetings held in 2018 relative to the
current threshold.\242\ On the other hand, if one were to assume
(again, without any data to support that assumption) that all
proponents bought the shares one year in advance of the shareholder
submission and plan to hold those shares only through the date of the
meeting, we find that the increase in the ownership threshold from
$2,000 with a one-year holding period to $25,000 with a one-year
holding period could result in the exclusion of 56 percent of the
proponents and 40 percent of the proposals, for which the

company submitted a no-action request to Commission staff, assuming
also that none of those proponents would increase their holdings to
meet the new thresholds in order to be able to file a proposal.\243\
---------------------------------------------------------------------------

    \242\ See supra note 239.
    \243\ 56% = 49% + 7%. We estimate that the total number of
excludable proponents is 159. One hundred and forty proponents, or
49 percent, held between $2,000 and $15,000, while 19 proponents, or
7 percent, held between $15,000 and $25,000.
    40% = (62 excludable proposals)/(155 proposals for which the
proof-of-ownership letters provided exact information on proponents'
ownership). Note that the number of proposals that would be
excludable is different from the summation of the proposals from the
``# of proposals'' column in Table 2 above because the latter
double-counts proposals that were submitted by multiple proponents.
    In estimating the number of excludable proposals, we make the
following assumptions about proposals that are submitted by more
than one proponent. First, we assume that a proposal would still be
submitted if at least one of the co-proponents met the proposed
dollar ownership threshold. Assuming that a proposal with multiple
proponents would be excludable if at least one proponent does not
meet the proposed eligibility requirements, the number of excludable
proposals would be 102 or 66 percent.
    Second, in cases where we have data on exact ownership for some
proponents and minimum ownership for the remaining proponents
submitting a joint proposal (there are 27 such proposals), we assume
proponents reporting minimum holdings would continue to be eligible
to submit the proposal under proposed amendments. Assuming that a
proposal would be submitted only in cases where the proponents
reporting minimum holdings have reported minimum holdings in excess
of $25,000, the number of excludable proposals would be 72 or 46
percent.
---------------------------------------------------------------------------

    The proposed rule amendments also would prohibit shareholders from
aggregating their holdings to meet the applicable minimum ownership
thresholds to submit a Rule 14a-8 proposal. As shown in Table 2, there
are nine proponents that submitted seven unique proposals, whose
individual holdings were below the $2,000 threshold. For one of the
seven proposals, there were two co-proponents, whose aggregate holdings
met the $2,000 current ownership threshold. For another one of the
seven proposals, there was only one proponent whose holdings did not
meet the $2,000 threshold, and this proposal is excludable under the
current threshold. For the remaining five proposals, there was at least
one other co-proponent, whose share ownership met the current $2,000
threshold. Hence, assuming that a proposal would be submitted if at
least one of the co-proponents met the ownership threshold and assuming
no change in the ownership thresholds, the proposed amendments could
result in the exclusion of one unique proposal, or 0.4 percent of the
proposals with ownership information for which the company submitted a
no-action request to the Commission staff.\244\
---------------------------------------------------------------------------

    \244\ 0.4% = (1 excludable proposal under the proposed
prohibition to aggregation of holdings)/(227 proposals with
proponents' ownership information attached to the no-action
letters).
---------------------------------------------------------------------------

    The results of the analysis of the proponents' ownership
information using data from proxy statements and proof-of-ownership
letters should be interpreted with caution for several reasons. First,
we are unable to estimate the number of excludable proponents taking
into account the proposed amendments to both the dollar and the
duration thresholds because we lack data on proponents' duration of
ownership, but, as noted above, there would be no impact to long-term
shareholders who have held their shares for three years or more.\245\
While we have limited data on duration of ownership from proxy
statements or proof-of-ownership letters, we recognize that there may
be a relation between duration of ownership and the propensity of a
shareholder to submit a proposal. In particular, longer ownership
duration could be an indicator that a shareholder has sufficient
interest in engaging with the company and is therefore more likely to
submit a shareholder proposal. On the other hand, we may observe
shareholders buying and holding on to their shares for long periods of
time because they are following a passive investment strategy and are
therefore less likely to engage with management or other shareholders.
We hypothesize that these types of shareholders would be less likely to
submit shareholder proposals. Depending on whether the former or the
latter effect is more prevalent, the effect of the proposed amendments
to the ownership thresholds could be closer to the lower or higher end
of the range of excludable proposals discussed above, respectively.
---------------------------------------------------------------------------

    \245\ Staff received some non-public retail share ownership data
from a market participant who requested confidential treatment for
the data. Those data provide some information about level and
duration of ownership but do not allow us to identify those
shareholders that have submitted or are likely to submit shareholder
proposals. Additional challenges posed by the data include that the
sample spans a limited time period and information about holdings
cannot be aggregated to the shareholder level. We would welcome
empirical data to assist in estimating the number of excludable
proponents under the proposed thresholds, and we encourage
commenters to submit data to the public comment file that allow us
to aggregate holdings to the shareholder level, identify
shareholders likely to submit shareholder proposals, and that span a
sufficiently long time period.
---------------------------------------------------------------------------

    Second, our analysis is subject to sample selection bias because
the ownership data in the proof-of-ownership letters only concerns
proponents whose proposals were the subject of a no-action request, and
the ownership data in the proxy statements only concerns proposals that
ultimately were included in the proxy statement and went to a
vote.\246\
---------------------------------------------------------------------------

    \246\ In particular, it is difficult to draw inferences about
the total effect of proposed amendments to the eligibility
requirements on precluding shareholders from submitting proposals or
on the number of excludable submitted proposals using ownership data
from proxy statements or proof-of-ownership letters included with
no-action requests. For example to the extent that companies may be
more likely to choose to request no-action relief for proposals of
certain types of proponents or topics, our results may not be
generalizable for the full set of submitted proposals. We estimate
that of the proposals for which companies have requested no-action
relief, 51% were submitted by individual proponents. Therefore,
compared to the number of total submissions by individual proponents
in 2018 (39% estimated in Section IV.B.3.i above), our analysis may
be over-representative of the proposals submitted by individuals.
---------------------------------------------------------------------------

    Third, our analysis is subject to self-reporting bias because the
proof-of-ownership letters are not required to disclose the proponents'
exact holdings but only need to affirm that proponents meet the minimum
ownership requirements.\247\ Relatedly, companies are not required to
disclose the holdings of the proponents in their proxy statements. In
fact, 34 percent of the proof-of-ownership letters only state that the
proponents meet the minimum ownership requirements rather than report
the proponents' exact holdings.\248\ In addition, there is information
on ownership for only 70 percent of the proponents found in proxy
statements and there is information on minimum ownership for 45 percent
of the proponents with ownership information in the proxy
statements.\249\ Hence, the

generalizability of the results of our analysis to all proponents that
potentially could be affected by the proposed rule amendments is
limited.
---------------------------------------------------------------------------

    \247\ In particular, of the 433 proposal-proponent pairs for
which we collected information on ownership from proof-of-ownership
letters, these letters disclosed exact, as opposed to minimum,
holdings information for 53 percent of individual proponents and 72
percent of non-individual proponents, and this difference is
statistically significant at the 1 percent level. Hence, our results
using only information on exact holdings may under-represent
individual proponents relative to non-individual ones.
    \248\ 34% = 149/(149 + 284) from Table 2 above.
    \249\ 70% = (198 + 159)/(198 + 159 + 156) from Table 1 above.
    45% = 159/(198 + 159) from Table 1 above.
    In particular, of the 348 proposal-proponent pairs for which
companies reported proponent identity and ownership information, the
proxy statements disclosed exact, as opposed to minimum, holdings
information for 41 percent of individual proponents and 69 percent
of non-individual proponents, and this difference is statistically
significant at the 1 percent level. Hence, our results using only
information on exact holdings may under-represent individual
proponents relative to non-individual ones.
    The number of proposal-proponent pairs (i.e., 348) for which
companies reported proponent identity and ownership information is
lower than the sum of proponents with ownership information in Table
1 above (i.e., 357 = 198 + 159) because companies occasionally
provide the count and ownership of the proponents but do not provide
information on the identity of the proponents.
---------------------------------------------------------------------------

    We expect that more proposals would be excludable with increases in
share turnover. Literature documents a general upward trend in share
turnover over time.\250\ As share turnover increases and thus investors
hold shares for a shorter period of time, it becomes less likely that
investors would meet the ownership duration thresholds of the proposed
rule amendments.\251\ Further, the proposed increase in the ownership
requirements would become more difficult to satisfy with decreases in
the issuers' stock prices to the extent investors' holdings are at or
near the ownership thresholds. The reason is that proponents' holdings
are more likely to fall below the ownership dollar thresholds as the
market value of the company decreases.
---------------------------------------------------------------------------

    \250\ See, e.g., Tarun Chordia, Richard Roll, & Avanidhar
Subrahmanyam, Recent Trends in Trading Activity and Market Quality,
101 J. Fin. Econ. 243 (2011).
    \251\ Proponents have discretion in how frequently they trade
shares, and thus they may decide to hold shares for a longer period
of time to satisfy the proposed ownership duration thresholds.
    See supra note 198 for a discussion of changes in investors'
holding period over time.
---------------------------------------------------------------------------

    We do not expect the proposed amendments to the ownership
thresholds to affect all types of shareholders and companies in the
same way. First, the proposed amendments could have a greater effect on
retail investors compared to institutional investors because the
average holdings of retail investors are typically lower than the
average holdings of institutional investors. Second, to the extent that
investors with smaller holdings are more likely to submit proposals on
certain topics, by reducing the number of such investors who are
eligible to submit proposals, the proposed rule amendments could
decrease the number of proposals on those topics more than other types
of proposals. For example, individual investors are more likely to
submit governance proposals than institutional investors. Untabulated
analysis shows that 86 percent of the proposals submitted by individual
investors are governance proposals, whereas 47 percent of the proposals
submitted by institutional investors are governance proposals.\252\
Hence, the proposed rule amendments could decrease the number of
governance proposals more than environmental and social proposals, but
this effect may be mitigated to the extent that institutional
proponents submit a larger fraction of shareholder proposals.\253\
Third, the proposed rule amendments could affect companies with smaller
market capitalization more than those with larger market
capitalization. The reason is that, for firms with smaller market
capitalization, proponents' holdings are more likely to be below the
proposed ownership thresholds, assuming that investors hold stocks
proportionately to the companies' market capitalization (i.e.,
investors hold the market portfolio).\254\ Fourth, the proposed
amendments could decrease the number of proposals received by companies
that have been public for fewer than three years more than the number
of proposals received by seasoned companies because the average
duration of investors' holdings would be, by their nature, shorter for
those firms.\255\
---------------------------------------------------------------------------

    \252\ Data is retrieved from ISS Analytics for Russell 3000
companies between 2004 and 2018. See CII Report, supra note 92
(showing that retail investors largely focus on governance
proposals).
    \253\ See supra Section IV.B.3.i.
    \254\ See, e.g., John Y. Campbell, Household Finance, 61 J. Fin.
1553 (2006) (discussing households' stock holdings).
    We note that smaller companies currently receive proposals less
frequently than larger companies, and thus, while there may be a
greater reduction in eligible proponents under the proposed
amendments at smaller companies, the overall impact of the proposed
increase in the ownership thresholds might be less pronounced for
smaller companies.
    \255\ We note that newly-listed companies currently receive
proposals less frequently than seasoned companies, and thus the
overall impact of the proposed increase in the ownership thresholds
might be less pronounced for newly-listed companies. See Kron &
Rees, supra note 96, at 1; see also Roundtable Transcript, supra
note 13, comments of Jonas Kron, Senior Vice President and Director
of Shareholder Advocacy, Trillium Asset Management, at 142 (``Less
than 9 percent of Russell 3000 companies that have had an IPO since
2004 have received a shareholder proposal.''); Ning Chiu, Counsel,
Capital Markets Group, Davis Polk & Wardwell LLP, at 147
(acknowledging that ``IPO companies don't always get a lot of
proposals'').
---------------------------------------------------------------------------

    The proposed rule amendment would also eliminate the alternative
one-percent ownership threshold. The one-percent ownership threshold
currently is rarely utilized in light of the $2,000/one-year threshold.
In particular, none of the proxy statements and proof-of-ownership
letters we reviewed refer to the one-percent ownership threshold as
evidence that the proponents met the current ownership thresholds (see
Section IV.B.3.ii above). Further, as of December 2018, there were no
companies for which the one-percent ownership threshold would be
relevant (i.e., the one-percent threshold would result in an ownership
requirement of less than $2,000).\256\ Hence, we believe that the
proposed elimination of the one-percent ownership threshold would not
have a significant economic effect.
---------------------------------------------------------------------------

    \256\ We estimate the number of companies with market
capitalization below $200,000 as of December 2018. Data is retrieved
from CRSP.
---------------------------------------------------------------------------

ii. Discussion Specific to Proposed Amendments for Proposals Submitted
on Behalf of Shareholders
    The majority of shareholders that submit a proposal through a
representative already provide the documentation that would be mandated
by the proposed amendments, consistent with existing staff
guidance.\257\ In particular, as discussed in Section IV.B.3.iii above,
67 percent of the proposals that were submitted through a
representative (67% = \8/12\) included the documentation that would be
mandated by the proposed amendments. For the remaining 33 percent of
the proposals that were submitted through a representative and provide
only some of the documentation mandated by the proposed amendments, we
expect that the cost of providing the proposed additional documentation
would be small because the information that would be required is
readily available to the proponents and the proposed disclosure is not
lengthy. Hence, we expect that the economic effects of this aspect of
the proposed amendments likely would be minimal.
---------------------------------------------------------------------------

    \257\ See SLB 14I, supra note 65.
---------------------------------------------------------------------------

iii. Discussion Specific to Proposed Amendments to Rule 14a-8(i)(12)
    The proposed amendments to Rule 14a-8(i)(12) comprise (i) the
proposed amendments to the resubmission thresholds and (ii) the
proposed Momentum Requirement. Relative to the current thresholds, the
proposed amendments to the resubmission thresholds would allow
companies to exclude the following additional resubmitted proposals:
(i) Those that received shareholder support between 3 and 5 percent on
a first submission; (ii) those that received shareholder support
between 6 and 15 percent on a second submission; and (iii) those that
received shareholder support between 10 and 25 percent on a third or
subsequent submission. In addition to the proposed amendments to the
resubmission thresholds, the proposed Momentum Requirement would allow
companies to exclude proposals previously voted on by shareholders
three or more times in the preceding five calendar years if the most
recent vote occurred within the preceding three calendar years and, at
the time of the most recent shareholder

vote, the proposal did not receive a majority of the votes cast and
support declined by 10 percent or more compared to the immediately
preceding shareholder vote on the same subject matter. As a result, the
proposed amendments to Rule 14a-8(i)(12) could increase the number of
excludable shareholder proposals because they could (i) decrease
proponents' willingness to submit proposals on matters for which it may
be difficult to garner sufficient support in the future or matters that
did not receive sufficient support to qualify for resubmission when
previously voted on and (ii) allow companies to exclude such proposals.
    Using the 2011 to 2018 data on shareholder proposals for Russell
3000 companies, we estimate that the proposed amendments to the
resubmission thresholds would result in an additional 212 resubmitted
proposals being excludable (15 percent of the total resubmitted
proposals in this timeframe) (see Table 9 below).\258\ The largest
increase in the number of excludable proposals would result from the
increase in the third submission threshold. In particular, raising that
threshold from 10 percent to 25 percent would result in the
excludability of 27 percent of proposals that have been submitted three
or more times. Approximately 48 percent (i.e., 101 out of the 212) of
the newly excludable proposals saw no increase in support from the
previous time they were voted on. The other 52 percent (i.e., 111 out
of 212) saw increases in support, averaging 5 percent more votes in
favor of the proposal compared with the proposal's prior submission.
However, almost all of these newly excludable proposals (i.e., 211 of
212 proposals) ultimately failed to generate majority support.
---------------------------------------------------------------------------

    \258\ This analysis assumes that shareholders' voting behavior
and proponents' proposal submission behavior would not change as a
result of the proposed amendments to the resubmission thresholds.
Also, we exclude from this analysis 10 shareholder proposals that
were resubmitted but were eligible for exclusion under the old
resubmission thresholds. See supra note 200.

   Table 9--Resubmitted Shareholder Proposals Ineligible for Resubmission Under Proposed Thresholds, 2011-2018
----------------------------------------------------------------------------------------------------------------
                                                                                Third or
               Resubmitted after:                      First          Second        subsequent         Total
                                                    submission      submission      submission
----------------------------------------------------------------------------------------------------------------
All Proposals:
    Resubmitted proposals.......................             677             322             443           1,442
    Excludable proposals under proposed
     amendments:
        Number (%)..............................         47 (7%)        45 (14%)       120 (27%)       212 (15%)
        Number (%) with support increase........         20 (3%)         29 (9%)        62 (14%)        111 (8%)
        Average increase in support.............              7%              4%              5%              5%
        Number (%) with majority support........          1 (0%)          0 (0%)          0 (0%)          1 (0%)
Governance Proposals:
    Resubmitted proposals.......................             355             191             255             801
    Excludable proposals under proposed
     amendments:
        Number (%)..............................         14 (4%)         12 (6%)        60 (24%)        86 (11%)
        Number (%) with support increase........          5 (1%)         10 (5%)        37 (15%)         52 (6%)
        Average increase in support.............             21%              7%              5%              7%
        Number (%) with majority support........          1 (0%)          0 (0%)          0 (0%)          1 (0%)
Environmental Proposals:
    Resubmitted proposals.......................             118              43              42             203
    Excludable proposals under proposed
     amendments:
        Number (%)..............................         10 (8%)        15 (35%)        12 (29%)        37 (18%)
        Number (%) with support increase........          8 (7%)         9 (21%)         5 (12%)        22 (11%)
        Average increase in support.............              3%              1%              3%              2%
        Number (%) with majority support........          0 (0%)          0 (0%)          0 (0%)          0 (0%)
Social Proposals:
    Resubmitted proposals.......................             204              88             146             438
    Excludable proposals under proposed
     amendments:
        Number (%)..............................        23 (11%)        18 (20%)        48 (33%)        89 (20%)
        Number (%) with support increase........          7 (3%)        10 (11%)        20 (14%)         37 (8%)
        Average increase in support.............              1%              4%              5%              4%
        Number (%) with majority support........          0 (0%)          0 (0%)          0 (0%)          0 (0%)
----------------------------------------------------------------------------------------------------------------
Sources: CII Report, ISS Analytics.

    Further, we estimate that the proposed Momentum Requirement would
result in an additional 57 (4 percent) resubmitted proposals being
excludable. Of these 57, 42 are governance proposals, 12 are social
proposals and 3 are environmental and all would be excludable following
a third or subsequent submission. Overall, the proposed amendments to
rule 14a-8(i)(12) could result in 269 (19 percent) additional
excludable proposals relative to the current resubmission
thresholds.\259\
---------------------------------------------------------------------------

    \259\ The proposed amendments to rule 14a-8(i)(12) could result
in 30 additional excludable proposals in 2018.
---------------------------------------------------------------------------

    We do not expect the proposed amendments to Rule 14a-8(i)(12) to
affect all types of shareholder proposals in the same way. First, the
proposed amendments to Rule 14a-8(i)(12) could have a greater impact on
shareholder proposals relating to environmental and social issues
compared to shareholder proposals on governance issues for the
following reasons. Shareholder proposals on environmental and social
issues tend to receive lower support than those on governance issues,
on average. In particular, as Figure 7B above shows, the average voting
support for governance proposals was 42.1 percent, the average voting
support for environmental proposals was 21.9 percent, and the average
voting support for social proposals was 17.4 percent during our sample
period, and the difference in the voting support between

governance and environmental and social proposals is statistically
significant.\260\ Further, proposals on environmental and social issues
are more likely to be resubmitted compared to proposals on governance
issues, and thus would be more likely to be affected by the changes in
the resubmission thresholds. In particular, as Table 4 above shows, 30
percent of the governance proposals that were eligible for resubmission
were actually resubmitted, while 41 percent of the environmental and 51
percent of social proposals that were eligible for resubmission were
actually resubmitted.
---------------------------------------------------------------------------

    \260\ See supra note 154 for details on the classification of
shareholder proposals into environmental, social, and governance
proposals. Also see letters in response to the Proxy Process
Roundtable from AEquo, et al. dated May 14, 2019; Canadian Coalition
for Good Governance dated May 15, 2019; Shareholder Rights Group
dated December 4, 2018.
---------------------------------------------------------------------------

    In addition, as shown by our analysis in Figure 10 (below),
shareholder proposals on social and environmental issues generally take
longer to gain support than proposals on governance issues.\261\ More
specifically, we analyze all of the shareholder proposals submitted to
Russell 3000 companies during 2011 to 2018 that received more than 25
percent of voting support at some point. Our analysis shows that while
more than 97 percent of the governance-related proposals received more
than 25 percent of the voting support in the first submission, only 83
percent of the social proposals and 90 percent of the environmental
proposals received more than 25 percent of the voting support in the
first submission. Almost all of the governance and environmental
proposals had received more than 25 percent of the voting support by
the third submission, whereas it took more than five submissions for
the social proposals to receive more than 25 percent of the voting
support.\262\ The results of the analysis in Figure 10 (below) suggest
that environmental and social proposals take longer to gain support
than proposals on governance issues. However, it is not clear how much
of the increased support for certain resubmitted environmental and
social proposals is attributable to proposals gaining traction through
the resubmission process as opposed to other factors, such as changing
opinions on environmental and social issues. In particular, various
proposals in each proposal category evolve over time as a result of
various factors, including shareholder engagement. For example, we
would expect that proponents would be incentivized to adjust their
proposals over time based on interactions with companies and other
shareholders with an eye toward garnering more support.
---------------------------------------------------------------------------

    \261\ See, e.g., letter in response to the Proxy Process
Roundtable from CtW Investment Group dated January 16, 2019.
    \262\ The conclusions are qualitatively similar if we analyze
shareholder proposals that receive majority support at some point.
Out of all governance-related shareholder proposals that garnered
majority support, 91% did so in the first submission, while only 61%
of the environmental proposals and 60% of the social proposals did
so in the first submission.
[GRAPHIC] [TIFF OMITTED] TP04DE19.021

    Our analysis above suggests that the increase in the resubmission
thresholds could have a greater effect on shareholder proposals
relating to environmental and social issues compared to shareholder
proposals on governance issues. Out of the 269 additional excludable
proposals under the proposed rule amendments, 128 were related to
governance issues and 40 were related to environmental issues and 101
were related to social issues. Therefore, although environmental and
social proposals made up 44 percent (= 641/1,442) of all resubmitted
proposals in Russell 3000 firms during 2011 to 2018, these types of
proposals made up 52 percent (= 141/269) of newly excludable proposals
under the proposed amendments to the resubmission thresholds and the
Momentum Requirement.
    Second and relatedly, the proposed amendments to Rule 14a-8(i)(12)
could have a greater effect on shareholder proposals submitted by non-
individual proponents because these proponents tend to submit
environmental and social proposals at a higher frequency than do
individual investors.\263\ In particular, the proposed increase in the
resubmission thresholds could increase the number of excludable
proposals

resubmitted by non-individual proponents by 186 (19 percent).\264\ In
contrast, the proposed increase in the thresholds could increase the
number of excludable proposals resubmitted by individual proponents by
92 (17 percent).
---------------------------------------------------------------------------

    \263\ See supra note 252 and accompanying text.
    \264\ Data is retrieved from the CII Report for shareholder
proposals submitted to Russel 3000 companies between 2011 and 2018.
See supra note 197.
    Numbers of newly excludable proposals under proposed
resubmission thresholds are computed relative to the total
resubmitted proposals during the sample period by each type of
proponent.
---------------------------------------------------------------------------

    Third, the proposed amendments to Rule 14a-8(i)(12) could have a
greater effect on larger companies because larger companies are more
likely to receive shareholder proposals.\265\ In particular, we find
that 20 percent of resubmitted shareholder proposals at S&P 500
companies would be excludable under the proposed resubmission
thresholds, as compared to 12 percent of proposals resubmitted to non-
S&P 500 firms.\266\
---------------------------------------------------------------------------

    \265\ See supra Figure 3.
    \266\ Data is retrieved from ISS Analytics and the CII Report
for shareholder proposals submitted to Russel 3000 companies between
2011 and 2018. See supra note 197.
---------------------------------------------------------------------------

    Fourth, the proposed amendments to Rule 14a-8(i)(12) could have a
greater effect on companies with dual-class voting shares for which
insiders hold the majority of the voting shares.\267\ In particular, we
find that 32 percent of resubmitted shareholder proposals at companies
with dual-class shares would be newly excludable under the proposed
resubmission thresholds, as compared to 18 percent in companies without
dual-class shares.\268\ For these companies, shareholder proposals
generally receive lower levels of support than in other companies,
because insiders usually oppose shareholder proposals.\269\
---------------------------------------------------------------------------

    \267\ Shareholder proposals are less likely to exceed the
resubmission thresholds whenever insiders hold a large percentage of
the voting stock. Nevertheless, commenters have expressed concerns
particularly in cases in which insiders hold a large percentage of
the voting stock through dual-class shares. See letters in response
to the Proxy Process Roundtable from the City of New York Office of
the Comptroller dated January 2, 2019; CtW Investment Group dated
January 16, 2019; see also letter in response to the Rulemaking
Petition from the Shareholder Rights Group dated October 5, 2017.
This is because dual-class shares result in the separation of voting
and cash flow rights, giving insiders disproportionate voting power
relative to their cash flow rights.
    \268\ Data is retrieved from ISS Analytics and the CII Report
for shareholder proposals submitted to Russell 3000 companies
between 2011 and 2018. See supra note 197. Our analysis of proposals
submitted to companies with dual-class shares should be interpreted
with caution because our data does not allow us to identify
companies for which insiders hold the majority of dual-class shares.
Our data also does not allows us to distinguish companies for which
the dual-class shares provide differential voting rights as opposed
to other types of rights, such as dividend payments, to
shareholders.
    \269\ Literature provides some evidence that insider holdings of
voting rights are larger in firms with dual-class voting shares, and
that in companies for which insiders hold the majority of the voting
shares, insiders are more likely to vote against shareholder
proposals. See Rob Bauer, Robin Braun, & Michael Viehs, Industry
Competition, Ownership Structure and Shareholder Activism (Working
Paper, Sept. 2010), available at https://ssrn.com/abstract=1633536.
---------------------------------------------------------------------------

3. Benefits and Costs of the Proposed Amendments
i. Benefits
a. General Discussion of Benefits
    As a result of the proposed amendments, companies could exclude
more proposals and shareholders could be discouraged from submitting
proposals that likely would be excluded based on the proposed
amendments. Consequently, companies could experience cost savings
because they would be required to process fewer proposals (see Section
IV.B.3.i above for a detailed discussion of the costs associated with
shareholder proposals).\270\ Shareholders of these companies also could
benefit from the potential decrease in proposals to the extent that any
potential costs savings would be passed down to them in the form of
higher returns on their investment.
---------------------------------------------------------------------------

    \270\ To the extent that proponents would continue submitting
proposals that would be excludable under the proposed rule
amendments, companies would incur costs to exclude those proposals
(e.g., issuers would need to file a notice with the Commission that
they intend to exclude the proposal). These costs would partially
offset any cost savings arising from the proposed rule amendments.
    Any potential cost savings arising from the proposed rule
amendments could be limited by the extent to which proponents change
their behavior. For example, proponents could (i) alter their
portfolio allocation to meet the ownership thresholds; (ii) rotate
proposals on similar topics among different companies; or (iii)
submit proposals to the same company but on a different topic.
---------------------------------------------------------------------------

    Shareholders also could benefit from the decrease in the number of
proposals because they could spend fewer resources reviewing and voting
on shareholder proposals. Relatedly, the decrease in the number of
proposals could result in more efficient use of shareholder
resources.\271\ More specifically, the decrease in the number of
proposals could allow shareholders to focus on the processing of
proposals that are more likely to garner majority support and be
implemented by management, which ultimately could benefit shareholders
because it would result in more efficient use of their resources.
---------------------------------------------------------------------------

    \271\ See letter in response to the Proxy Process Roundtable
from Business Roundtable dated June 3, 2019, at 5 (noting
``shareholders can lose sight of matters of true economic
significance to the company if they are spending time considering
one, or even numerous, immaterial proposals. The resources and
attention expended in addressing shareholder proposals cost the
company and its shareholders in absolute dollars and management time
and, perhaps worse, divert capital resources to removal of an
immediate distraction and away from investment in value-adding
allocations, such as research and development and corporate
strategy.'').
---------------------------------------------------------------------------

b. Discussion Specific to Proposed Amendments to Rule 14a-8(b) and Rule
14a-8(c)
    As discussed in Section IV.C.3.i.a above, the proposed amendments
to Rule 14a-8(b) and Rule 14a-8(c) could decrease the number of
proposals that companies must process, and thus could decrease the
costs associated with processing shareholder proposals. We estimate
that, as a result of the proposed amendments to Rule 14a-8(b) and Rule
14a-8(c), all Russell 3000 companies together could experience annual
cost savings associated with a decrease in the number of voted
proposals of up to $70.6 million per year.\272\ In addition,

the decrease in the number of proposals could free up resources so that
companies and their shareholders could pursue other value-enhancing
activities.
---------------------------------------------------------------------------

    \272\ $70.6 million = $150,000 (i.e., cost estimate provided by
the American Securities Association in their letter in response to
the Proxy Process Roundtable dated June 7, 2019 (see supra note
232)) x 471 (i.e., maximum number of excludable proposals as a
result of the proposed amendments to Rule 14a-8(b) and Rule 14a-
8(c)). 471 = [84 (i.e., maximum number of excludable proposals as a
result of the proposed amendments in Rule 14a-8(b) using only data
for proposals with exact information on proponents' ownership in
proxy statements, see supra note 240) + 1 (i.e., incremental number
of excludable proposals as a result of the proposed amendments to
14a-8(c) using only data for proposals with exact information on
proponents' ownership)] x 831 (i.e., all proposals submitted to be
considered in 2018 shareholders' meetings)/150 (i.e., proposals with
exact information on proponents' ownership in proxy statements).
    The following caveats apply to our cost savings estimates. Our
analysis assumes that the distribution of ownership for proponents
with exact ownership information in the proxy statements is the same
as the distribution of ownership for proponents with minimum or no
ownership information in the proxy statements and the distribution
of ownership for proponents that submitted proposals that were
ultimately withdrawn or omitted. Our analysis also applies the same
per-proposal cost estimate (i.e., $150,000) to voted, omitted, and
withdrawn proposals and it applies the same per-proposal cost
estimate to operating companies and management companies. Lastly,
our analysis assumes that companies will not reallocate the time and
resources that would free up as a result of the reduction in
proposals to process the remaining proposals.
    On the other hand, the lower bound of cost savings would be $1.4
million. $1.4 million = $50,000 (i.e., cost estimate provided by
Darla Stuckey in her 2016 testimony before the House Committee on
Financial Services Subcommittee on Capital Markets and Government
Sponsored Enterprises, see supra note 230) x 28 (i.e., minimum
number of excludable proposals as a result of the proposed
amendments to 14a-8(b) and 14a-8(c)). 28 = [0 (i.e., minimum number
of excludable proposals as a result of the proposed amendments to
14a-8(b) using only proposals with exact information on proponents'
ownership in proxy statements, see supra Section IV.C.2.i) + 5
(i.e., incremental number of excludable proposals as a result of the
proposed amendments to 14a-8(c) using only proposals with exact
information on proponents' ownership in proxy statements)] x 831
(i.e., all proposals submitted to be considered in 2018
shareholders' meetings)/150 (i.e., proposals with exact information
on proponents' ownership).
---------------------------------------------------------------------------

    As a result of the proposed increase in the ownership thresholds,
proponents could bear a larger percentage of the total cost that
companies and their shareholders incur to process a shareholder
proposal. For example, a shareholder that owns $25,000 worth of stock
in a company would bear a larger percentage of the costs associated
with processing a shareholder proposal relative to a proponent that
owns $2,000 worth of stock in a company. As a result of bearing a
larger percentage of the total costs, proponents could be less willing
to submit proposals that are less likely to garner majority support and
be implemented by management.
    In addition, by eliminating shareholders' ability to aggregate
their holdings with those of other shareholders, the proposed
amendments would require each proponent to have a sufficient economic
stake or investment interest in the company to justify the costs
associated with a shareholder proposal.
    Further, by providing that a person, directly or indirectly, may
submit only one proposal for a shareholder's meeting, the proposed
amendments would prohibit shareholders from imposing disproportionate
costs on the company and other shareholders by submitting multiple
proposals for the same meeting.
    Finally, by requiring a statement from the proponent that he or she
is willing to meet with the company after submission of the shareholder
proposal, the proposed amendments could encourage direct communication
between the proponent and the company, which could promote more
frequent resolution of the proposals outside the voting process. Such
resolutions could decrease the costs that companies and their
shareholders incur to process shareholder proposals.
c. Discussion Specific to Proposed Amendments for Proposals Submitted
on Behalf of Shareholders
    To the extent that the practices of certain proponents are not
consistent with the proposed amendments related to proposals submitted
through a representative, the proposed amendments could benefit
companies and other shareholders because they could demonstrate the
existence of a principal-agent relationship and could provide assurance
that the shareholder supports the proposals. Further, the proposed
amendments could result in cost savings to companies that would no
longer be required to expend resources to obtain some of the
information that is not provided by the proponents but would be
required under the proposed amendments.
d. Discussion Specific to Proposed Amendments to Rule 14a-8(i)(12)
    As discussed in Section IV.C.3.i.a above, the proposed increase in
the resubmission thresholds and the proposed Momentum Requirement could
benefit companies and their shareholders because it could decrease the
number of proposals for companies and shareholders to consider. As a
result of the proposed amendments, we estimate that all Russell 3000
companies together could experience annual cost savings associated with
a decrease in the number of voted proposals of up to $8.9 million per
year.\273\
---------------------------------------------------------------------------

    \273\ $8.9 million = $150,000 (i.e., cost estimate provided by
the American Securities Association in their letter in response to
the Proxy Process Roundtable, see supra note 232) x 59 (i.e., number
of excludable proposals as a result of the proposed amendments to
14a-8(i)(12)). 59 = 30 (i.e., number of excludable proposals as a
result of the proposed amendments to 14a-8(i)(12) that were included
in proxy statements to be considered in 2018 shareholder meetings) x
831 (i.e., proposals submitted to be considered in 2018
shareholders' meetings)/423 (i.e., voted proposals in the CII Report
in 2018). The following caveats apply to our cost savings estimates.
Our analysis applies the same per-proposal cost estimate (i.e.,
$150,000) to voted, omitted, and withdrawn proposals and to
operating companies and management companies. In addition, our
analysis assumes that the proposed amendments to 14a-8(i)(12) will
have the same effect on proposal eligibility of voted, withdrawn,
and omitted proposals. Lastly, our analysis assumes that companies
will not reallocate the time and resources that would free up as a
result of the reduction in proposals to process the remaining
proposals.
    On the other hand, the lower bound of cost savings would be $3.1
million. $3.1 million = $50,000 (i.e., cost estimate provided by
Darla Stuckey in her 2016 testimony before the House Committee on
Financial Services Subcommittee on Capital Markets and Government
Sponsored Enterprises, see supra note 230) x 63 (i.e., number of
excludable proposals as a result of the proposed amendments to 14a-
8(i)(12)).
---------------------------------------------------------------------------

    In addition, the decrease in the number of proposals could free up
resources so that companies and their shareholders could pursue other
value-enhancing activities. Relatedly, the proposed amendments to the
resubmission thresholds and the Momentum Requirement could exclude
proposals that have historically garnered low levels of support and
thus would allow shareholders to focus on the processing of proposals
that may garner higher levels of voting support and may be more likely
to be implemented by management.
    The proposed amendments to the resubmission thresholds could also
benefit companies and their shareholders to the extent that they change
proponents' behavior. In particular, due to the higher thresholds,
proponents may spend more resources to more carefully prepare proposals
that are more likely to garner sufficient levels of shareholder
support. In addition, proponents may spend more resources to market
their proposal to other shareholders to increase support for their
proposal. As a result, companies and their shareholders could benefit
from the submission of shareholder proposals that are more likely to
receive higher levels of support and thus are more likely to be
implemented by management.
    Similarly, the proposed resubmission thresholds may discourage the
submission of proposals that are less likely to garner majority voting
support.\274\ Similarly, the Momentum Requirement may discourage the
submission of proposals that garner significant but not majority
support and recently have experienced a decrease in shareholder
support, which may indicate waning shareholder interest in the
proposal.
---------------------------------------------------------------------------

    \274\ Proponents incur costs to submit proposals, which may
already deter some proponents from resubmitting proposals that have
a low likelihood of receiving sufficient levels of shareholder
support.
---------------------------------------------------------------------------

ii. Costs
a. General Discussion of Costs
    The proposed amendments could result in the exclusion of certain
proposals that would have otherwise been included in the proxy
statement and voted on. To the extent that such shareholder proposals
would be value enhancing, the potential exclusion of value-enhancing
proposals could be detrimental to companies and their
shareholders.\275\ One way the exclusion of certain proposals could be

detrimental is by limiting or slowing the adoption of potential
improvements.
---------------------------------------------------------------------------

    \275\ See supra Section IV.C.I for a detailed discussion of
literature that examines the value of shareholder proposals.
    The potential decrease in the number of shareholder proposals
also could be costly to the various providers of administrative and
advisory services related to shareholder voting because the demand
for the services of these providers could decrease. Examples of
these service providers include proxy advisory firms, tabulators of
voting, and proxy solicitors.
---------------------------------------------------------------------------

    Shareholder proposals are one way for shareholders to communicate
with management and other shareholders. The proposed amendments would
alter the eligibility requirements in a manner that could increase
companies' ability to exclude certain proposals, which could restrict
shareholders' ability to use this avenue of communication with other
shareholders. In addition to increasing companies' ability to exclude
certain proposals, the proposed amendments could decrease shareholders'
willingness to submit certain proposals, which could further inhibit
communication between shareholders and also inhibit shareholders'
engagement with management.\276\
---------------------------------------------------------------------------

    \276\ See supra note 48; see also letter in response to the
Proxy Process Roundtable from American Federation of Labor &
Congress of Industrial Organizations dated November 9, 2018.
---------------------------------------------------------------------------

    By limiting the shareholder proposals channel of communication, the
proposed amendments could lead to proponents seeking alternative
avenues of influence, such as public campaigns, litigation over the
accuracy of proxy materials, or demands to inspect company documents.
As a result, companies could confront greater uncertainty in their
interaction with shareholders.\277\
---------------------------------------------------------------------------

    \277\ See Brown (2017), supra note 211, at 24-25; see also
letter to Jeb Hensarling, Chairman, and Maxine Waters, Ranking
Member, House Financial Services Committee, from Jeffrey P. Mahoney,
General Counsel, Council of Institutional Investors, dated April 24,
2017, available at https://democrats-financialservices.house.gov/uploadedfiles/letter_-_cii_04.27.2017.pdf (stating that the proposed
rule amendments are ``likely to have unintended consequences,
including shareowners more often availing themselves of the blunt
instrument of votes against directors, and increased reliance on
hedge fund activists to push for needed corporate changes.''); Ceres
Business Case, supra note 25, at 11 (noting that ``[a]lternatives to
shareholder proposals include voting against directors, lawsuits,
books and records requests, and requests for additional regulations.
Each of these is more onerous and adversarial than including a 500-
word proposal in the proxy statement for the consideration of
shareholders''); letters in response to the Proxy Process Roundtable
from Council of Institutional Investors dated January 31, 2019; Los
Angeles County Employees Retirement Association dated October 30,
2018; MFS Investment Management dated November 14, 2018; US SIF
dated November 9, 2018.
---------------------------------------------------------------------------

    Any negative effects of the proposed amendments would be more
pronounced for shareholders that follow passive index strategies
because those shareholders are more limited in their ability to sell
shares of an underperforming stock and thus might be more likely to
rely on the proxy proposal process to encourage value-enhancing
changes.\278\
---------------------------------------------------------------------------

    \278\ See letter in response to the Proxy Process Roundtable
from the City of New York Office of the Comptroller dated January 2,
2019, at 1 (noting that ``[b]ecause of our long-term investment
horizon, and the fact that we allocate more than 80% of the funds'
investments in U.S. public equity through passive index strategies,
we cannot readily sell shares in a company when we have concerns
about the company's performance, board composition and quality,
management, executive compensation, workplace practices or
management of risks, including those related to climate change'');
Ceres Business Case, supra note 25, at 10 (noting that ``[w]hile
active investors have the option of selling shares of companies
whose management they do not trust to add value, passive investors'
options are more limited'').
    At the same time, passive investors are more likely to hold
shares for a long period of time than active investors, and thus are
less likely to be affected by the proposed amendments to Rule 14a-
8(b).
---------------------------------------------------------------------------

b. Discussion Specific to Proposed Amendments to Rule 14a-8(b) and Rule
14a-8(c)
    In addition to the costs discussed in Section IV.C.3.ii.a above,
the proposed amendments to 14a-8(b) and 14a-8(c) could impose certain
costs on shareholder-proponents. These costs could arise from: (i)
Shareholder-proponents' efforts to reallocate shareholdings in their
portfolio to satisfy the proposed dollar ownership thresholds; (ii)
decreased diversification of shareholder-proponents' portfolio because
a larger portion of their wealth may be invested in a particular
company; (iii) shareholder-proponents holding the shares for longer
periods of time to satisfy the proposed duration thresholds; and (iv)
shareholder-proponents making themselves available to communicate with
management after submitting a proposal. The latter costs to
shareholder-proponents consist of the direct costs of meeting with
management, and the opportunity costs associated with spending time to
meet with management instead of engaging in other activities. There are
also costs associated with disclosing the times the proponents would be
available to communicate with management but we believe that any such
costs likely are minimal.
    Further the proposed change from a single-tier to three-tiered
ownership thresholds could increase compliance complexity because
companies and proponents would be required to consider multiple
thresholds to establish whether a proposal is eligible for exclusion.
    The proposed increase in the ownership thresholds and the
prohibition of aggregation of shareholdings could disproportionately
affect certain types of shareholder-proponents. In particular, the
proposed amendments could disproportionately affect individuals.\279\
This disproportionate effect would be more costly if individuals submit
more value-enhancing proposals than institutions. Two academic papers
suggest that proposals submitted by individual investors elicit a
stronger market reaction than proposals submitted by institutional
investors,\280\ while one suggests otherwise.\281\ The potentially
negative consequences of this disproportionate effect on individuals
could be amplified by the fact that (i) institutional investors
generally may have more direct channels of communication with companies
than individual investors who rely more on the shareholder-proposal
process to communicate with management and other shareholders \282\ and
(ii) larger shareholders have, on average, greater success in seeing
their contested proposals ultimately included in the proxy.\283\
---------------------------------------------------------------------------

    \279\ See supra Section IV.C.2.i.
    \280\ See, e.g., Gillan & Starks (2000), supra note 217;
Gantchev & Giannetti (2018), supra note 166. Gillan and Starks
(2000) interpret the more positive stock market reaction to
proposals submitted by individuals compared to institutions as
consistent with the idea that the market views shareholder proposals
submitted by an institution as evidence of management's
unwillingness to negotiate with such investors. See Gillan & Starks
(2000).
    \281\ See Cu[ntilde]at et al. (2012), supra note 209.
    \282\ See, e.g., letters in response to the Proxy Process
Roundtable from MFS Investment Management dated November 14, 2018,
at 2 (noting ``[a]s a large institutional investor, we generally
have access to management teams and directors that smaller
shareholders may not have''); Pax World Funds dated November 9,
2018, at 2 (noting ``[w]hile some asset managers or owners with
hundreds of billions in assets can often engage with management and
boards as often as they wish, smaller investors' inquiries to
companies often die in investor relations departments.''); and the
Shareholders Right Group dated December 4, 2018, at 8-9 (noting
``larger investors often do not need the shareholder proposal
process in order to persuade companies to engage with them on their
concerns. In contrast, the shareholder proposal process provides an
appropriate avenue through which all shareholders, including Main
Street's shareholders, as well as their chosen representatives, can
raise issues and elicit consideration and support from their fellow
shareholders''); see also Ceres Business Case, supra note 25, at 9
(noting that ``[a] system that allows shareholders to file proposals
is needed in part because individual investors and smaller
shareholders nearly always lack large enough holdings to get the
board and management's attention in any other way''); Eugene Soltes,
Suraj Srinivasan, & Rajesh Vijayaraghavan, What Else do Shareholders
Want? Shareholder Proposals Contested by Firm Management (Working
Paper, July 2017) (``Soltes et al. (2017)'') (finding that the level
of shareholder ownership is positively associated with the
probability that a contested proposal is withdrawn, which is
consistent with the idea that large shareholders ``are more
influential and are more likely to have dialogue with managers that
would facilitate implementation of their proposal prior to a
shareholder vote'').
    \283\ See Soltes et al. (2017), supra note 282.
---------------------------------------------------------------------------

    As explained above, the proposed amendments could
disproportionately affect smaller companies that receive

proposals.\284\ This is because investors' holdings in smaller
companies are more likely to be below the proposed ownership thresholds
than investors' holdings in larger companies, assuming investors hold
the market portfolio.\285\ As a result, to the extent that the
proposals excluded as a result of the proposed amendments would be
value enhancing, any negative effects of the proposed amendments on
smaller companies could be larger than the effects on larger companies.
At the same time, however, smaller companies would enjoy larger cost
savings as a result of the potentially larger increase in the number of
excludable proposals. Hence, the net effect of the proposed rule
amendments on smaller relative to larger companies is unclear.
---------------------------------------------------------------------------

    \284\ See supra Section IV.C.2.i.
    \285\ See supra note 254.
---------------------------------------------------------------------------

    Any effects of the proposed amendments would be, at least
partially, mitigated by the fact that companies can elect to include in
their proxy materials proposals of proponents that do not meet the
proposed eligibility requirements, if the companies believe that those
proposals would benefit shareholders.\286\
---------------------------------------------------------------------------

    \286\ Our analysis of proponents' ownership information from
proxy statements shows that there was one proposal submitted by two
co-proponents whose aggregate holdings did not meet the $2,000
current ownership threshold. This proposal is excludable under the
current ownership threshold, but nevertheless appeared in the
company's proxy statement. See supra note 189 for caveats related to
this analysis.
---------------------------------------------------------------------------

c. Discussion Specific to Proposed Amendments for Proposals Submitted
on Behalf of Shareholders
    Shareholders that submit a proposal through a representative could
incur minimal costs to ensure that their practices are consistent with
the proposed amendments. In addition, to the extent that the practices
of certain proponents are not consistent with the proposed amendments,
the proposed amendments could impose minimal costs on proponents to
provide this additional documentation. We lack data to quantify these
costs but we request comment on these costs in Section IV.E below.
d. Discussion Specific to Proposed Amendments to Rule 14a-8(i)(12)
    The proposed amendment to the resubmission thresholds and the
proposed Momentum Requirement could impose costs on proponents because
they could spend more resources in preparing a proposal to seek to
garner sufficient levels of support to satisfy the proposed
requirements.
    The proposed amendments also could increase the complexity of the
shareholder proposal eligibility requirements because the Momentum
Requirement would be a new requirement.
    Literature also shows that management may spend resources to
influence the success rate of shareholder proposals.\287\ The Momentum
Requirement would allow companies to exclude proposals that do not meet
but are close to the majority threshold. Hence, the Momentum
Requirement could provide further incentives to management to expend
resources to influence the voting outcome of a shareholder proposal
because the benefit of influencing the voting outcome (i.e., three year
exclusion of the proposal) could be greater than under current rules.
---------------------------------------------------------------------------

    \287\ Management may influence the voting outcome either by
encouraging shareholders that would favor them to vote or by
encouraging shareholders to vote in line with management. See Bach &
Metzger (2019), supra note 216.
---------------------------------------------------------------------------

    As discussed in Section IV.C.2 above, the proposed amendments to
the resubmission thresholds and the proposed Momentum Requirement could
have a larger effect on certain types of proposals and companies. In
particular, the proposed amendments could have a larger effect on
larger companies because larger companies are more likely to receive
shareholder proposals.\288\ To the extent that the proposals excluded
as a result of the proposed amendments would be value enhancing, larger
companies could be more negatively affected by the proposed amendments
than smaller firms. The disproportionate effect on larger companies
could be amplified by the fact that larger companies are less likely to
be the target of hedge fund activism and thus experience improvements
through alternative forms of activism,\289\ and larger companies are
more likely to contest shareholder proposals.\290\ At the same time,
any negative effects could be at least partially mitigated by the fact
that larger companies would enjoy larger cost savings as a result of
the decrease in the number of proposal resubmissions.
---------------------------------------------------------------------------

    \288\ See supra Section IV.B.3.i.
    \289\ Alon Brav, Wei Jiang, Frank Partnoy, & Randall Thomas,
Hedge Fund Activism, Corporate Governance, and Firm Performance, 63
J. Fin. 1729 (2008).
    \290\ Soltes et al. 2017, supra note 282.
---------------------------------------------------------------------------

    The proposed amendments to the resubmission thresholds and the
proposed Momentum Requirement also could have a larger effect on
companies with dual-class voting shares for which insiders hold the
majority of the voting shares.\291\ At such controlled companies, it
may be difficult to get support for a shareholder proposal above the
proposed thresholds. While shareholder proposals may be less likely to
gain majority support and be implemented at these companies,\292\ they
may still provide a valuable communication mechanism between
shareholders. We note that the non-voting stock of companies for which
the majority of voting stock is held by insiders could trade at a
discount to compensate the owners of the non-voting stock for the
reduced ability of shareholder proposals to garner sufficient support
for those companies. In addition, literature suggests that the
probability of a proposal being implemented is negatively related to
insider ownership. Hence, the decrease in the number of resubmitted
proposals as a result of the proposed rule amendments for firms with
dual-class voting stock for which insiders hold the majority of the
voting shares likely would be limited because the probability of a
proposal being implemented in those firms would be already low.\293\
---------------------------------------------------------------------------

    \291\ See supra Section IV.B.3.iv.
    \292\ See Roundtable Transcript, supra note 13, comments of
Brandon Rees, Deputy Director of Corporations and Capital Markets,
American Federation of Labor and Congress of Industrial
Organizations, at 167; CII Report, supra note 197, at 21; Ceres
Business Case, supra note 25, at 14; letter in response to the Proxy
Process Roundtable from the City of New York Office of the
Comptroller dated January 2, 2019, at 11.
    \293\ See, e.g., Ertimur et al. (2010), supra note 174.
    A commenter also suggested that an increase in the resubmission
thresholds could provide stronger incentives to some proponents to
submit proposals on certain topics with the intent of obtaining low
levels of support for certain subject matters, and thus rendering
proposals on the same subject matter excludable for three years.
Nevertheless, we believe that any such activity is unlikely to be
widespread. See letter in response to the Proxy Process Roundtable
from the City of New York Office of the Comptroller dated January 2,
2019, at 11 (noting ``we have seen efforts to pre-empt proposals in
a given year urging stronger policies on climate change by a group
submitting a proposal to go in the opposite direction. With high
resubmission thresholds, that kind of mischief-making would be
encouraged on a broader scale as long as the SEC policy refers to
`the same subject matter' rather than `the same proposal' ''). For
related discussion, see also the letter in response to the Proxy
Process Roundtable from Sustainable Investments Institute dated
November 12, 2018, at 13 (noting ``[n]ew this year were proposals
from the free market activist group the National Center for Public
Policy Research (NCPPR) that used precisely the same resolved clause
as the one used in the main campaign on lobbying. In two instances,
because they were filed first, these resolutions pre-empted
proposals filed later from the disclosure advocates, on lobbying at
Duke Energy and about election spending at General Electric, where
the question turned on third-party spending groups. The NCPPR
proposals went to votes in each case and while the presenters argued
against disclosure in their support statement, investors appeared to
vote on the basis of what was in the resolved clause and support
levels were comparable to those filed by disclosure proponents--34.6
percent at Duke (33.3 percent last year) and 21.2 percent at GE (no
previous election proposals but 28.6 percent on a traditional
lobbying resolution in 2017).'').

---------------------------------------------------------------------------

    The potential costs of the proposed rule amendments would be more
pronounced in instances where material developments could change
shareholder support for the proposal but the proposal is otherwise
ineligible for resubmission under the proposed rule for a period of
time.\294\
---------------------------------------------------------------------------

    \294\ See letter in response to the Proxy Process Roundtable
from the City of New York Office of the Comptroller dated January 2,
2019.
---------------------------------------------------------------------------

    Any negative effects of the proposed amendments would be, at least
partially, mitigated by the fact that companies would be able to
exclude only proposals for which there is an observable measure of low
shareholder interest (i.e., low voting support among shareholders and
lack of momentum toward achieving a more substantial level of
shareholder support). In addition, any negative effects of the proposed
rule amendments would be mitigated by the fact that companies could
elect to include in their proxy materials resubmissions that would
otherwise be excludable if they believed that those resubmissions would
benefit shareholders.\295\ Also, companies' ability to exclude certain
resubmissions would be limited to a three-year cooling-off period
regardless of the level of support the proposal last received.
---------------------------------------------------------------------------

    \295\ Among shareholder proposals resubmitted to Russell 3000
companies during 2011 to 2018, 10 proposals appeared in company
proxies and were voted on despite receiving low voting support in
prior submissions and being eligible for exclusion under the current
resubmission thresholds. See supra note 200.
---------------------------------------------------------------------------

    Finally, any potential effects of the proposed amendments would be
moderated by changes in proponent behavior, such as submitting a
proposal on a different topic when the initial proposal is ineligible
for resubmission or submitting a proposal on the same topic but at a
different company to continue investor conversations on that topic.
4. Effects of Proposed Amendments on Efficiency, Competition, and
Capital Formation
    To the extent that the proposed amendments could reduce the costs
of processing shareholder proposals and could free up management
resources for more valuable activities, the proposed amendments could
result in efficiency improvements. Any improvements in efficiency could
be offset by the costs associated with the exclusion of shareholder
proposals that could have resulted in changes that would have enhanced
efficiency.
    Further, to the extent that the proposed amendments would permit
shareholders to focus on the processing of proposals that are more
likely to receive majority support and be implemented, the proposed
amendments could result in more efficient use of shareholder resources.
    In addition, to the extent that the proposed amendments could
reduce costs to companies associated with the shareholder-proposal
process, the proposed amendments could be a positive factor in the
decision of firms to go public, which could positively affect capital
formation on the margin.\296\ Nevertheless, we believe that any such
effects likely would be minimal because most firms receive only few
proposals each year and the costs of responding to proposals likely are
a small percentage of the costs associated with being a public
company.\297\ In addition, companies that have recently had an initial
public offering infrequently receive shareholder proposals.\298\
---------------------------------------------------------------------------

    \296\ See, e.g., letter in response to the Proxy Process
Roundtable from Center for Capital Markets Competitiveness dated
December 20, 2018, at 7 (noting ``[t]he decline in public companies
is a multifaceted issue with no single solution. . . . Those issues
include proxy advisory firm reforms as discussed earlier as well as
shareholder resubmission thresholds.'').
    \297\ Between 1997 and 2018 for Russell 3000 companies that
received a proposal, the median number of proposals was one per
year. See Roundtable Transcript, supra note 13, comments of Brandon
Rees, Deputy Director of Corporations and Capital Markets, American
Federation of Labor and Congress of Industrial Organizations, at
140, 142 (noting ``the average publicly listed company in the United
States can expect to receive a shareholder proposal once every 7.7
years, and the median number of proposals received is one. . . .
[S]hareholder proposals make up less than 2 percent of the total
number of ballot items. Less than 4 percent of shareholder proposals
were filed at companies with under $1 billion in market
capitalization. Less than 9 percent of Russell 3000 companies that
have had an IPO since 2004.''); see also letters in response to the
Proxy Process Roundtable from Ceres dated November 13, 2019; Mercy
Investment Services, Inc. dated December 3, 2018, at 3; Presbyterian
Church U.S.A. dated November 13, 2018, at 3-4.
    \298\ See supra note 297.
---------------------------------------------------------------------------

    To the extent that the proposed amendments would have
disproportionate effects on U.S. relative to foreign firms because
foreign firms are not subject to federal proxy rules,\299\ the proposed
amendments could improve competition. Further, to the extent that the
proposed amendments to the ownership (resubmission) thresholds would
have disproportionate effects on smaller (larger) companies, the
proposed amendments could harm competition. Nevertheless, we expect
that any such effects likely would be minimal because the cost of
processing shareholder proposals likely is a small percentage of
companies' total cost of operations.
---------------------------------------------------------------------------

    \299\ See supra note 130.
---------------------------------------------------------------------------

    Finally we do not expect that the proposed amendments for proposals
submitted by a representative would have a meaningful effect on
efficiency, competition, and capital formation.

D. Reasonable Alternatives

1. Shareholder Ownership Thresholds
i. Alternative Ownership Thresholds
    We considered a number of alternative approaches to the ownership
thresholds. First, we considered whether to simply increase the $2,000/
one-year threshold in the current requirement to a $50,000/one-year
threshold without providing additional eligibility options. Using
proponents' exact ownership information from the proxy statements and
assuming no change in proponents' ability to aggregate their holdings
to submit a joint proposal, such an increase would have resulted in the
excludability of 96 proposals, or 65 percent of the proposals with
exact proponents' ownership information to be considered at 2018
shareholder meetings.\300\ The advantage of increasing only the dollar
amount in the current threshold is that the rule would be easier to
implement and monitor. The disadvantage of such an approach would be
that shareholders would not have the flexibility to become eligible to
submit shareholder proposals by either increasing their holdings or
holding the shares of a company for a longer period of time as under
the proposed approach.
---------------------------------------------------------------------------

    \300\ 65% = 97 (excludable proposals under a $50,000/one-year
threshold)/150 (proposals with exact proponents' ownership
information in proxy statements). For proposals that are submitted
by more than one proponent, these estimates assume that the
proposals would still be submitted if the aggregate ownership of the
co-proponents met the alternative dollar ownership threshold. For
proposals that are submitted by multiple proponents, some of which
provide exact and others provide minimum holdings information, we
assume that the ownership of the proponents with minimum holdings
information is equal to the lowest end of the ownership range.
---------------------------------------------------------------------------

    Alternatively, we considered using a tiered approach, as proposed,
but with different combinations of minimum dollar amounts and holding
periods. For example, we considered $2,000 for five years, $15,000 for
three years and $25,000 for one year or $2,000 for three years, $10,000
for two years, and $50,000 for one year. We are unable to estimate the
incremental effects of the former alternative (i.e., $2,000 for five
years, $15,000 for three years, and $25,000 for one year) relative to
the

effects of the proposed amendments discussed in Section IV.C.2.i above
because we lack data on proponents' ownership duration. Assuming all
proponents held the shares for only one year, the increase in the
dollar ownership thresholds from $2,000 to $50,000 (i.e., third tier of
the alternative ownership threshold) could result in the exclusion of
97 proposals, or 65 percent of the proposals with exact proponents'
ownership information related to 2018 shareholder meetings.\301\ On the
other hand, assuming all proponents held the shares for at least three
years, the proposed ownership thresholds would not result in a change
in the number of excludable proposals relative to the current
thresholds.
---------------------------------------------------------------------------

    \301\ See supra note 300.
---------------------------------------------------------------------------

    Different thresholds could result in the exclusion of more or fewer
proposals, depending on the threshold. While we believe that the
proposed tiers would 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, we solicit comment as
to whether any refinements of those thresholds would strike a better
balance.
    We also considered whether to index the proposed ownership
thresholds for inflation. The benefit of such an approach would be that
thresholds would adjust over time without the need for additional
rulemaking. The disadvantage of such an approach would be that
compliance with the rule could be more cumbersome as companies and
proponents would have to monitor periodically evolving ownership
thresholds.
ii. Percent-of-Ownership Threshold
    We considered whether to propose an ownership requirement based
solely on the percentage of shares owned. For example, we considered
eliminating the dollar ownership threshold and retaining the one-
percent ownership threshold. Using proponents' exact ownership
information from the proxy statements and assuming no change in
proponents' ability to aggregate their holdings to submit a joint
proposal, we estimate that using a one-percent ownership threshold and
removing the $2,000/one-year threshold would have resulted in 149
proposals, or 99 percent of the proposals to be considered in 2018
shareholder meetings that provide exact proponents' ownership
information, being excludable under the proposed amendments.\302\
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    \302\ 99% = 149 (number of excludable proposals under a 1%
threshold)/150 (proposals with exact proponents' ownership
information in proxy statements). For proposals that are submitted
by more than one proponent, these estimates assume that the
proposals would still be submitted if the aggregate ownership of the
co-proponents met the alternative percent-of-ownership threshold.
For proposals that are submitted by multiple proponents, some of
which provide exact and others provide minimum holdings information,
we assume that the ownership of the proponents with minimum holdings
information is equal to the lowest end of the ownership range.
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    The advantage of a percentage-of-ownership threshold is that it
would permit shareholders owning the same proportion of a larger
company as of a smaller company to submit a proposal. The percentage-
of-ownership threshold, however, would be marginally harder to
implement because of changes in the stock price of the company over
time. We also believe that a percentage-of-ownership threshold of one
percent would prevent the vast majority of shareholders from submitting
proposals,\303\ which, in turn, could have a chilling effect on
shareholder engagement. In addition, the types of investors that hold
more than one percent of a company's shares are more likely to be able
to communicate directly with management, and thus do not typically use
shareholder proposals.\304\
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    \303\ See supra note 302.
    \304\ See supra note 282.
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2. Shareholder Resubmission Thresholds
i. Alternative Resubmission Thresholds
    We considered proposing different resubmission thresholds,
including raising the thresholds to 5/10/15 percent, 6/15/30 percent,
or 10/25/50 percent. All three alternatives threshold levels would
increase the number of proposals eligible for exclusion relative to the
baseline, with the first expected to have smaller effects relative to
the proposed amendments and second and third expected to have larger
effects relative to the proposed amendments. We estimate that 92 (6
percent), 328 (23 percent), and 668 (46 percent) additional proposals
that were resubmitted between calendar years 2011 and 2018 would have
fallen below the 5/10/15 percent, 6/15/30 percent, and 10/25/50 percent
thresholds, respectively. In addition, we are requesting comment on
whether the rule should remove resubmission thresholds for the first
two submissions and, instead, allow for exclusion if a matter fails to
receive majority support by the third submission. Under this
alternative, no proposal would be eligible for exclusion on its first
two submissions, allowing shareholder proposals at least two years to
gain traction. We estimate that 418 (29 percent) additional proposals
that were resubmitted between calendar years 2011 and 2018 would have
failed to garner majority support by third submission.\305\ We also are
requesting comment on the appropriate cooling-off periods under this
approach, such as three and five years.
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    \305\ This estimate is an upper bound of the number of
excludable proposals under this alternative because it would allow
all proposals following first and second submissions to be
resubmitted. We cannot identify all proposals that would have been
resubmitted but were not because they were eligible for exclusion
under the current resubmission thresholds for first and second
submissions.
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ii. Different Vote-Counting Methodologies
    We considered whether to propose changes to how votes are counted
for purposes of applying the resubmission thresholds. For example, we
considered whether votes by insiders should be excluded from the
calculation of the fraction of votes that a proposal received. We also
considered whether to apply a different vote-counting methodology for
companies with dual-class voting structures. One commenter has
highlighted how the presence of a subset of shareholders with special
voting rights could make the voting threshold requirement difficult to
satisfy.\306\ The advantage of applying different kind of vote-counting
methodologies for votes by insiders and for companies with dual-class
shares is that it would make it easier for shareholder proposals to
meet the resubmission thresholds and thus potentially could mitigate
management entrenchment for those firms.\307\ The disadvantage of such
an approach is that companies and their shareholders would continue to
incur costs associated with processing proposals that are less likely
to garner majority support and be implemented by management.
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    \306\ See letter in response to the Proxy Process Roundtable
from City of New York Office of the Comptroller dated January 2,
2019.
    \307\ See supra note 267.
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iii. Exception to the Rule if Circumstances Change
    We considered whether to propose an exception to the proposed rule
amendments that would allow an otherwise excludable proposal to be
resubmitted if there were material developments that suggest a
resubmitted proposal may garner significantly more votes than when it
was previously voted

on. Several commenters pointed out the possibility of an unpopular
proposal gaining popularity in subsequent years following changes in
company circumstances or other market developments.\308\ We expect that
such an exception would lower the number of proposals eligible for
exclusion under the proposed amendments, but the magnitude of the
decrease would depend on what types of developments qualify for the
exception and how many companies experience these particular types of
developments. We expect the additional costs of such an exception would
include those associated with determining whether changes in
circumstances qualify for the exception. On the other hand,
shareholders may benefit from being able to submit proposals on matters
that would otherwise be excludable under Rule 14a-8(i)(12) and may have
gained popularity among shareholders following a material development
at the company.
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    \308\ See letters in response to the Proxy Process Roundtable
from the Shareholder Rights Group dated December 4, 2018; Teachers
Insurance and Annuity Association of America (TIAA) dated June 10,
2019; City of New York Office of the Comptroller dated January 2,
2019.
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E. Request for Comment

    We request comment on all aspects of our economic analysis,
including the potential costs and benefits of the proposed amendments
and alternatives thereto, and whether the amendments, if adopted, would
promote efficiency, competition, and capital formation. In addition, we
request comments on our selection of data sources, empirical
methodology, and the assumptions we have made throughout the analysis.
Commenters are requested to provide empirical data, estimation
methodologies, and other factual support for their views, in
particular, on costs and benefits estimates. In addition, we request
comment on the following:
    1. Are there any entities affected by the proposed rule amendments
that are not discussed in the economic analysis? In which ways are
those entities affected by the proposed amendments? Please provide an
estimate of the number of any additional affected entities.
    2. Are there any costs or benefits of the proposed rule amendments
that are not discussed in the economic analysis? If so, please describe
the types of costs and benefits and provide a dollar estimate of these
costs and benefits.
    3. What would be the effects of the proposed rule amendments,
including any effects on efficiency, competition, and capital
formation? Would the proposed rule amendments be beneficial or
detrimental to proponents, companies, and the companies' shareholders,
and why in each case?
    4. What is the dollar cost for companies to engage with proponents,
process, and manage a shareholder proposal (including up to or after a
vote on the proposal)? In particular, what is the dollar cost for
companies to: (i) Review the proposal and address issues raised in the
proposal; (ii) engage in discussion with the proponent; (iii) print and
distribute proxy materials and tabulate votes on the proposal; (iv)
communicate with proxy advisory firms and shareholders (e.g., proxy
solicitation costs); (v) if they intend to exclude the proposal, file
with the Commission a notice that they intend to exclude the proposal;
and (vi) prepare a rebuttal to the proposal? Do these costs vary with
the issue raised in the proposal? Do these costs vary with the type of
shareholder-proponent (i.e., institutional versus retail investor)? Are
these costs different for first-time submissions relative to
resubmissions? Do these costs vary with the number of resubmissions? Do
these costs vary with the number of proposals received by the company?
Do these costs vary with company size? Do these costs differ in cases
in which a no-action request is prepared and in other cases, such as
where a proposal's exclusion is challenged in court? Do managers have
discretion with respect to these costs?
    5. In response to a questionnaire the Commission made available in
1997, some respondents indicated that costs associated with determining
whether to include or exclude a shareholder proposal averaged
approximately $37,000 (which figure may have included estimates for
considering multiple proposals). The Commission also sought information
about the average printing cost and 67 respondent companies reported
that the average cost was approximately $50,000. How do these costs
compare with costs today? Has ``notice and access'' or other
technological advancements had an effect on the costs associated with
disseminating proxy materials? If so, what are those effects?
    6. What are the differences in cost incurred by companies with
respect to proposals for which a no-action request is prepared and
submitted to the staff and those for which a no-action request is not
prepared? What are the specific costs incurred?
    7. In general, how do costs differ for proposals that are submitted
during shareholder meetings and not presented in the proxy and those
that are presented in the proxy?
    8. What are the costs, if any, associated with shareholders'
consideration and voting on a shareholder proposal? Do these costs
differ depending on the shareholder proposal topic? Do these costs
differ depending on whether the shareholder proposal is a first-time
submission or a resubmission?
    9. How likely is it that market practices would change in response
to the proposed rule amendments? What type of market practices that are
not discussed in the economic analysis would change in response to the
proposed rule amendments? For example, would larger shareholders become
more likely to submit proposals in cases where smaller shareholders
would no longer be eligible to submit proposals on their own? Are there
frictions associated with this type of reallocation? To what extent
would these changes in market practice or other effects mitigate the
potential effects of the proposed amendments?
    10. To what extent would the proposed amendments affect incentives
for shareholders to engage with companies prior to and/or following the
submission of a shareholder proposal? What are the costs to
shareholders and companies associated with such engagement? To what
extent would the proposed amendments affect the outcome of such
engagement? Would the requirement that the proponent provide a
statement that he or she is willing to meet with the company after
submission of the shareholder proposal promote more frequent resolution
of the proposals outside the voting process? What would be the cost
savings, if any, to proponents and companies associated with such
resolutions? Do answers to the above questions differ when considering
individual or institutional shareholder-proponents?
    11. Relatedly, would the proposed amendments affect shareholder
engagement outside of the shareholder-proposal process? Would the
possible reduction in the number of shareholder proposals allow company
resources to be directed towards alternative engagement efforts? What
are the costs associated with alternative types of shareholder
engagement to companies and shareholders?
    12. What are the opportunity costs to companies and shareholders of
shareholder proposal submissions? Please provide a dollar estimate per
proposal for these opportunity costs. Do these opportunity costs vary
with the type of proposal, the type of proponent, or the type of
company? Please provide an estimate of the hours the board of directors
and management spend to

review and process each shareholder proposal.
    13. Is the distribution of the dollar value and the duration of
firm-specific holdings different for institutional and individual
investors? Are there distributional differences when comparing the
subsets of individual and institutional shareholders likely to submit
shareholder proposals? Please provide any relevant data or summary
statistics of the holdings of retail and institutional investors
recently and over time.
    14. Does the majority of shareholders that submit a proposal
through a representative already provide the documentation that would
be mandated by the proposed rule amendments? To the extent that the
practices of certain proponents are not consistent with the proposed
amendments, would the costs to proponents to provide this additional
documentation be minimal? Are there any costs and benefits of providing
the additional disclosures that we haven't identified in the economic
analysis? If so, please provide a dollar estimate for these costs and
benefits. Would the proposed amendments related to proposals submitted
by a representative have any effect on efficiency, competition, or
capital formation?
    15. What is the relation, if any, between the level and duration of
proponent's ownership and the likelihood of submitting shareholder
proposals? What is the relationship, if any, between the level and
duration of proponents' ownership and the likelihood of submitting
shareholder proposals that are more likely to garner majority support
and be implemented by management? Do answers to the above questions
vary based on the shareholder type or proposal topic?
    16. What are the concerns, if any, associated with drawing
inferences about the effects of the proposed amendments from analysis
of data on proponents' ownership from proxy statements and proof-of-
ownership letters?
    17. To what extent are there additional costs to companies and
shareholders associated with applying a three-tiered ownership
threshold instead of a single-tier threshold in determining a
shareholder's eligibility to submit shareholder proposals?
    18. We have observed instances of shareholder proposals going to a
vote despite being eligible for exclusion under Rule 14a-8. What are
the costs and benefits to companies of including such proposals in the
proxy statement? To what extent may these practices change if proposed
amendments are adopted?

V. Paperwork Reduction Act

A. Summary of the Collections of Information

    Certain provisions of our rules and schedules that would be
affected by the proposed amendments contain ``collection of
information'' requirements within the meaning of the Paperwork
Reduction Act of 1995 (``PRA'').\309\ We are submitting the proposed
amendments to the Office of Management and Budget (``OMB'') for review
in accordance with the PRA.\310\ The hours and costs associated with
preparing, filing, and sending the schedules, including preparing
documentation required by the shareholder-proposal process, constitute
paperwork burdens imposed by the collection of information. An agency