be eligible to submit a shareholder proposal to those companies due to
shorter holding periods.\397\ However, to the extent current longer-
term shareholders continue to hold a sufficient investment following a
company's entry into the index, this potential change in eligibility
would be lower. Further, a shift into an index could increase the
number of shareholders eligible to submit a proposal over time because
shareholders that follow an index-based strategy hold shares in the
index longer.
---------------------------------------------------------------------------

    \397\ See, e.g., letter from International Brotherhood of
Teamsters dated February 3, 2020.
---------------------------------------------------------------------------

    In addition, as share turnover increases and thus investors hold
shares for a shorter period of time, the number of investors who will
meet the ownership duration thresholds would be expected to decrease to
the extent share turnover reflects entry and exit from a particular
investment as opposed to increasing or decreasing the extent of that
particular investment.\398\ For example, market-weighted index
strategies require regular rebalancing of positions, which, in turn,
may lead others to alter positions in anticipation or as a result of
such rebalancing. Literature has documented a general upward trend in
share turnover.\399\ This general trend in turnover likely reflects
other factors that also are unrelated to the ability or desire to
submit shareholder proposals.
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    \398\ Proponents may have some discretion in how frequently they
trade shares, and thus they may decide to hold shares for a longer
period of time to satisfy the amended ownership duration thresholds.
However, several commenters argued that the duration of
stockholdings is not discretionary, although they did not provide
data to support this statement. See, e.g., letters from Interfaith
Center on Corporate Responsibility dated January 27, 2020; UAW
Retiree Medical Benefits Trust dated January 30, 2020.
    \399\ See, e.g., Tarun Chordia, Richard Roll & Avanidhar
Subrahmanyam, Recent Trends in Trading Activity and Market Quality,
101 J. Fin Econ. 243 (2011). Some commenters noted that considering
market trends of greater diversification and lower average holding
times is important for describing how the rule amendments may effect
investors. See, e.g., letter from As You Sow dated February 3, 2020.
---------------------------------------------------------------------------

    We are not arbiters of the type or substance of a proposal. That
said, the final amendments also may have effects that vary for
different types of proposals. Based on historical data, the final
amendments to Rule 14a-8(i)(12) may have a greater impact on the
resubmission of shareholder proposals relating to environmental and
social issues compared to shareholder proposals on governance issues
because: (i) Shareholder proposals on environmental and social issues
historically have tended to receive lower shareholder support than
those on governance issues, on average; (ii) proposals on environmental
and social issues are more likely to be resubmitted compared to
proposals on governance issues with similar levels of shareholder
support, and thus will be more likely to be affected by the changes in
the resubmission thresholds; and (iii) shareholder proposals on social
and environmental issues historically have tended to take longer to
gain support than proposals on governance issues. Again, however, to
the extent that these proposals are excludable because they have
received low levels of shareholder support in the past, companies and
their non-proponent shareholders may benefit from their exclusion
subject to a right to resubmit after a cooling-off period. Second and
relatedly, the final amendments to the resubmission thresholds may have
a greater effect on shareholder proposals submitted by non-individual
proponents because these proponents have tended to submit environmental
and social proposals at a higher frequency than individual investors
do.
    Several commenters argued that voting support may fluctuate across
years for many reasons and this volatility may not be associated with
the value of the shareholder proposals. In particular, voting support
may fluctuate due to changes in the company performance, changes in the
phrasing of the proposal, changes in shareholder base, changes in the
proponent, exercise of stock options and equity awards, or changes in
market circumstances.\400\ To the extent that the voting support for
certain types of proposals may be more volatile, companies may be more
or less likely to exclude these proposals from their proxy statements
as a result of the rule amendments.\401\ We find that the dispersion in
the change in voting support from a prior submission to a resubmission
is higher for governance proposals than for environmental or social
proposals.\402\ In addition, we find that the dispersion in the change
in voting support is higher among proposals submitted to non-S&P 500
companies than those submitted to S&P 500 companies.\403\ As a result,
changes to the resubmission thresholds may have a different effect on
proposals of different types and submitted to companies of different
sizes.
---------------------------------------------------------------------------

    \400\ See, e.g., letters from Center for Political
Accountability dated January 31, 2020; Council of Institutional
Investors dated January 30, 2020; International Brotherhood of
Teamsters dated February 3, 2020; James McRitchie dated February 2,
2020; Morningstar, Inc. dated February 3, 2020; Principles for
Responsible Investment dated February 3, 2020; Segal Marco Advisors
dated February 3, 2020; Teachers Insurance and Annuity Association
of America (TIAA) dated February 3, 2020; UAW Retiree Medical
Benefits Trust dated January 30, 2020; US SIF dated January 31,
2020. See also Recommendation of the IAC, supra note 18.
    \401\ See letters from As You Sow dated February 3, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020; UAW Retiree Medical Benefits Trust dated January 30, 2020.
    \402\ To measure how voting support fluctuates across multiple
submissions of a proposal to the same company, we compute the
standard deviation of the change in voting support from a prior
submission to a subsequent submission. We find that the standard
deviation is 10.7% for governance proposals as compared to 9.0% for
environmental proposals and 7.6% for social proposals. Differences
between these standard deviation estimates are statistically
significant.
    \403\ We find that the standard deviation is 9.3% for proposals
submitted to S&P 500 companies and 11.5% for proposals submitted to
non-S&P 500 companies. Differences between these standard deviation
estimates are statistically significant.
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2. Economic Effects of Final Rule Amendments on the Quality of
Shareholder Proposals
    The rule amendments are likely to result in the exclusion of
certain proposals that would have otherwise been included in the proxy
statement and submitted for a vote.\404\ Certain commenters have noted
that, if by increasing companies' ability to exclude certain proposals
the final amendments decrease shareholders' willingness to submit
certain proposals,\405\ the final

amendments may limit information available to management about
shareholder views on issues raised in shareholder proposals and inhibit
communication among shareholders.\406\ In a similar vein, commenters
have asserted that a potential decrease in the number of proposals may
limit or slow the consideration of changes that may benefit companies
and their shareholders.\407\ Commenters have also noted that by
potentially increasing the number of proposals companies can exclude
from being put to a vote on an initial submission or a resubmission,
the final amendments may prompt proponents to utilize (or utilize to a
greater extent) alternative avenues of influence, such as public
campaigns, litigation over the accuracy of proxy materials, ``vote no''
campaigns on corporate directors, or demands to inspect company
documents. These and other means of engagement may be effective, but
also have their own associated costs. Because of the varied number of
ways shareholders can engage with management in lieu of submitting a
proposal, companies may confront lesser or greater uncertainty in their
interaction with shareholders, proponents in certain instances may
incur lower or higher costs to engage with management, and the
efficiency of management's engagement with shareholders may increase or
decrease.\408\ While we lack data to determine whether these other
forms of engagement, in the aggregate, will be more costly and
disruptive, we nonetheless believe that it is appropriate to alter the
ownership thresholds to ensure greater alignment of interests in the
context of shareholder proposals. To the extent companies perceive that
their exclusion of shareholder proposals increases the overall costs
associated with shareholder engagement, they may partially mitigate
these costs by including proposals that would otherwise be excludable
under the final amendments.\409\
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    \404\ In addition to the exclusion of proposals that would have
otherwise been included in the proxy statements, certain commenters
have asserted that there may be a reduction in negotiated
resolutions between management and proponents. See, e.g., letters
from AFL-CIO dated February 3, 2020; Institute for Policy Integrity
dated February 3, 2020; Lucian A. Bebchuk dated February 3, 2020.
Because the rule amendments do not prevent proponents from
communicating their views to management by means other than through
the company's proxy materials, we believe that the rule amendments
are unlikely to result in a reduction in negotiated resolutions.
    \405\ 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 rule amendments will
discourage proponents from submitting certain proposals, the rule
amendments will have an effect that may be different than and
incremental to the effect of companies' ability to exclude certain
proposals.
    \406\ See supra Section V.C for discussion of factors that may
mitigate any such effects.
    Commenters argued that shareholder proposals are a valuable form
of communication between management and shareholders as well as
among shareholders because they can challenge management's group
thinking, allow the introduction of outside points of view on
emerging issues, raise issues that cut across various departments in
a company, and provide information to management that management
would otherwise pay to obtain (e.g., through the hiring of
consulting firms). See, e.g., letters from As You Sow dated February
3, 2020; Lucian A. Bebchuk dated February 3, 2020; CalPERS dated
February 3, 2020. See also Recommendation of the IAC, supra note 18.
Commenters also noted that, through the engagement process motivated
by the submission of shareholder proposals, management may provide
information that is relevant to shareholders. See, e.g., letters
from Center for Political Accountability dated January 31, 2020;
Shareholder Rights Group dated January 6, 2020. Relatedly,
commenters stated that even proposals that receive low voting
support may be beneficial because the voting outcome of shareholder
proposals may provide accurate aggregated information regarding
shareholders' preferences on various topics, and this information
becomes even more valuable as it is aggregated across various
companies. See, e.g., letters from Council of Institutional
Investors dated January 30, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; Tom Shaffner dated December
17, 2019. Commenters also stated that shareholder proposals are a
unique form of communication with management because--in contrast to
other forms of communication such as social media--shareholder
proposals can motivate management to engage with shareholders and
the prospect of receiving shareholder proposals can incentivize
management to proactively adopt certain resolutions. See, e.g.,
letters from Council of Institutional Investors dated January 30,
2020; Impax Asset Management dated January 20, 2020; Interfaith
Center on Corporate Responsibility dated January 27, 2020. Some
commenters argued that shareholder proposals are beneficial not only
because they encourage communication between management and
shareholders but also because they encourage both proponent and non-
proponent shareholders to communicate with each other through the
submission of proposals, deliberation on existing proposals, and the
voting process. See, e.g., letters from Council of Institutional
Investors dated January 30, 2020; Tom Shaffner dated December 17,
2019; Shareholder Rights Group dated January 6, 2020. In addition,
other commenters noted that shareholder proposals may have market-
wide benefits that extend beyond the companies receiving them. See,
e.g., letters from Interfaith Center on Corporate Responsibility
dated January 27, 2020; Pulte Institute for Global Development dated
January 31, 2020; Shareholder Rights Group dated January 6, 2020.
Some commenters argued that shareholder proposals may provide a
valve to release tensions and avoid more costly and disruptive forms
of engagement such as proxy contests, litigation, efforts related to
regulatory change, books and records requests, etc. See, e.g.,
letters from Center for Political Accountability dated January 31,
2020; Council of Institutional Investors dated January 30, 2020;
Pulte Institute for Global Development dated January 31, 2020.
    \407\ See, e.g., letters from Lucian A. Bebchuk dated February
3, 2020; Center for Political Accountability dated January 31, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020; Shareholder Rights Group dated January 6, 2020; US SIF dated
January 31, 2020; Council of Institutional Investors et al. dated
July 29, 2020 (arguing that the amendments might result in the
exclusion of valuable proposals).
    Commenters stated that the implementation of shareholder
proposals has helped companies manage risk, enhance disclosures,
limit insiders' entrenchment, and implement long-term value-
enhancing changes. See, e.g., letters from Lucian A. Bebchuk dated
February 3, 2020; Council of Institutional Investors dated January
30, 2020; Interfaith Center on Corporate Responsibility dated
January 27, 2020; Richard A. Liroff dated January 28, 2020; Pulte
Institute for Global Development dated January 31, 2020; Shareholder
Rights Group dated January 6, 2020; UAW Retiree Medical Benefits
Trust dated January 30, 2020.
    \408\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; CtW
Investment Group dated February 3, 2020; Oxfam dated February 3,
2020; Pulte Institute for Global Development dated January 31, 2020;
UAW Retiree Medical Benefits Trust dated January 30, 2020. See also
Brown (2017), supra note 320, at 24-25; 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; Ceres et al., The Business Case for the
Current SEC Shareholder Proposal Process, (2017), at 11-12,
available at https://www.ussif.org/files/Public_Policy/Comment_Letters/Business%20Case%20for%2014a-8.pdf (``Ceres Business
Case''), at 11; 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.
    Some commenters, however, argued that alternative methods of
communication, such as social media, are not a substitute for
shareholder proposals because they do not ``allow aggregation of
shareholder preferences or accommodate discussions about complex
subjects of the type raised in shareholder proposals.'' See, e.g.,
letter from Interfaith Center on Corporate Responsibility dated
January 27, 2020. Relatedly, one commenter criticized the economic
analysis because it did not empirically examine the effects of
technological advances on the shareholder proposal process. See
letter from Council of Institutional Investors et al. dated July 29,
2020. Based on the Commission's decades-long experience with Rule
14a-8 and the various forms of outreach on the proxy process that
the Commission has conducted over the years, we continue to believe
that technological advances over recent years have facilitated
shareholder engagement.
    \409\ For example, our analysis shows that, in our sample, 10
shareholder proposals submitted to nine companies were resubmitted
and voted on despite being eligible for exclusion under the current
resubmission thresholds. Five of these proposals were resubmitted in
the year following a previous vote during 2011 to 2017. See
Proposing Release, at n.200.
    Companies could also reach an agreement with the shareholder-
proponent.
---------------------------------------------------------------------------

    To the extent that some excludable shareholder proposals may, if
they had been submitted, have benefited companies and their
shareholders, the exclusion of those proposals could impose costs on
companies and their shareholders and decrease the efficiency of the
shareholder-proposal process.\410\ Some commenters disagreed that the
final amendments will result in the

exclusion of beneficial proposals, stating instead that these
amendments will be beneficial to companies and their shareholders
because they will result in the exclusion of proposals that are not
related to long-term shareholder value.\411\ In particular, the
benefits of shareholder proposals as a result of the rule amendments
may increase because the average stockholdings of shareholder-
proponents will likely increase as a result of the amendments to the
ownership thresholds. A shareholder with a larger ownership stake in a
company will bear a larger percentage of the passed-through costs
associated with processing a shareholder proposal relative to a
proponent with a lower ownership stake. This differential may, in
theory, cause larger shareholders to be less likely to submit proposals
that are unlikely to garner majority support and/or be implemented by
management.\412\
---------------------------------------------------------------------------

    \410\ See Proposing Release at 66494-66495 for a detailed
discussion of potential benefits to companies and shareholders
associated with the submission and consideration of shareholder
proposals.
    The potential decrease in the number of shareholder proposals
also may be costly to the various providers of administrative and
advisory services related to shareholder voting because the demand
for the services of these providers may decrease. Examples of these
service providers include proxy voting advice businesses, tabulators
of voting, and proxy solicitors, and others who seek to profit from
shareholder proposals (such as investment advisers who market their
services as shareholder-proponent for their clients).
    \411\ See letters from American Securities Association dated
February 3, 2020; Business Roundtable dated February 3, 2020; Center
for Capital Markets Competitiveness dated January 31, 2020; Compass
Lexecon dated December 23, 2019; National Association of
Manufacturers dated February 3, 2020.
    \412\ See, e.g., letter from Center for Capital Markets
Competitiveness dated January 31, 2020 (arguing that shareholders
who submit proposals under the rule amendments ``will have to have a
little bit more skin in the game'').
---------------------------------------------------------------------------

    Relatedly, by eliminating shareholders' ability to aggregate their
holdings with those of other shareholders, the final amendments will
require each proponent to have a higher economic stake or investment
interest in the company. As a result, we expect that shareholder-
proponents that would have otherwise aggregated their shares with other
shareholders in order to meet the eligibility thresholds would need to
increase their holding amount or duration to submit a proposal under
the final amendments. Such shareholder-proponents would bear a larger
percentage of the costs of processing a shareholder proposal and
therefore, also in theory, may be marginally less likely to submit
proposals that are unlikely to garner majority support and/or be
implemented by management.
    Nevertheless, to the extent that the amendments to the ownership
thresholds and the ability to aggregate will exclude proposals that may
benefit companies and investors, the rule amendments will impose costs
on companies and their investors. Several commenters asserted that
there is no relation between proponents' level and duration of
ownership and the value of submitted shareholder proposals, so the
amendments to Rule 14a-8(b) would not effectively distinguish
shareholder proposals on the basis of their potential benefits.\413\
The rules, however, do not attempt to distinguish proposals on the
basis of their potential benefits. As already discussed, an attempt to
determine in advance which proposals will be beneficial would be
inherently speculative and our proxy rules are not designed to do so.
Rather, the proxy rules have long relied on ownership thresholds as
indicia of an economic stake or investment interest in the company to
infer a reasonably sufficient alignment of interest with non-proponent
shareholders such that it is appropriate to include a proposal in the
company's proxy materials at the expense of other shareholders.\414\
Consistent with this purpose, the amendments update those thresholds.
---------------------------------------------------------------------------

    \413\ See, e.g., letters from AFL-CIO dated February 3, 2020; As
You Sow dated February 3, 2020; Better Markets dated February 3,
2020; Council of Institutional Investors dated January 30, 2020;
Lila Holzman dated January 25, 2020; International Corporate
Governance Network dated December 4, 2019; Institute for Policy
Integrity dated February 3, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; Maryknoll Sisters of St.
Dominic, Inc. dated January 17, 2020; Newground Social Investment
dated February 3, 2020; Segal Marco Advisors dated February 3, 2020;
Shareholder Commons dated January 31, 2020; UAW Retiree Medical
Benefits Trust dated January 30, 2020.
    \414\ See 1982 Proposing Release, supra note 2; 1983 Adopting
Release, supra note 2.
---------------------------------------------------------------------------

    Relatedly, some commenters stated that certain companies may be in
urgent need of reform and the increase in the holding period at the
$2,000 ownership threshold may in theory delay the implementation of
such reforms.\415\ To the extent a company is in urgent need of reform,
it may be more likely that a proposal, or a similar one, that addresses
the issue will be submitted by another shareholder who meets the
eligibility thresholds and, more generally, that the issues in need of
urgent attention will be the subject of other forms of engagement.
---------------------------------------------------------------------------

    \415\ See, e.g., letters from Segal Marco Advisors dated
February 3, 2020; UAW Retiree Medical Benefits Trust dated January
30, 2020.
---------------------------------------------------------------------------

    The benefits of submitted proposals may also marginally increase as
a result of the one-proposal-per-person requirement because proponents
may prioritize the submission of proposals with higher expected
benefits ahead of those with lower expected benefits for a given
company.\416\ On the other hand, some commenters argued that the one-
proposal-per-person requirement may increase costs to companies and
their shareholders because the one-proposal-per-person amendment could
discourage proponents from using a representative to help craft
proposals and supporting statements.\417\ Further, commenters described
additional costs the one-proposal final amendment may impose, assuming
that shareholders' reliance on representatives will change.\418\
Commenters noted that these costs may arise from (i) companies having
to deal with multiple proponents instead of dealing with few
representatives, which will make engagement less efficient; (ii)
companies having to submit and Commission staff having to review more
no-action requests because the proposals submitted by inexperienced
proponents may be less well-drafted than those submitted by experienced
representatives and thus may be more likely to be sought to be
excluded; \419\ and (iii) less frequent and meaningful dialogue between
proponents and companies because proponents may have less experience
and expertise than representatives at effectively communicating with
management.\420\ Relatedly, several commenters argued that the one-
proposal final amendment will interfere with proponents' fiduciary
relationships with their investment advisers, who might act as their
representatives, or other entities with whom proponents have
contractual relationships.\421\ As a result, the commenters asserted
that the proposed amendments may impose costs on investment advisers
and their clients.\422\

We expect that any costs related to the one-proposal amendment will be
small, including because we estimate that the amendment to Rule 14a-
8(c) will only affect a small number of proposals and proponents.\423\
In addition, the amendment will restrict the representative's ability
to submit a proposal on the proponent's behalf but otherwise will not
limit or interfere with the representative's ability to assist the
proponent with drafting a proposal, navigating the submission process,
or presenting the proposal at the annual meeting, and thus any
potential effects of the rule amendment will be limited.
---------------------------------------------------------------------------

    \416\ See letter from Robeco dated January 16, 2020.
    \417\ See, e.g., letters from AFL-CIO dated February 3, 2020;
James McRitchie dated February 2, 2020.
    In addition, some commenters argued that the one-proposal
amendment may impose costs on proponents associated with proponents
incurring higher recordkeeping costs to comply with the requirement.
We generally expect any such costs will be minimal. See, e.g.,
letter from AFL-CIO dated February 3, 2020.
    \418\ See, e.g., letter from James McRitchie dated February 2,
2020. See also Recommendation of the IAC, supra note 18.
    \419\ See, e.g., letters from CalPERS dated February 3, 2020;
Paul Rissman dated January 15, 2020.
    \420\ See, e.g., letters from As You Sow dated February 3, 2020;
Boston Trust Walden et al. dated January 27, 2020; CalPERS dated
February 3, 2020; Council of Institutional Investors dated January
30, 2020; First Affirmative Financial Network, LLC dated January 24,
2020; James McRitchie dated February 2, 2020; Paul Rissman dated
January 15, 2020; Tom Shaffner dated December 17, 2019; Trillium
Asset Management dated February 3, 2020; US SIF dated January 31,
2020.
    \421\ See, e.g., letters from As You Sow dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; First
Affirmative Financial Network, LLC dated January 24, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020; James McRitchie dated February 2, 2020; Trillium Asset
Management dated February 3, 2020; US SIF dated January 31, 2020.
    \422\ Some commenters argued that this aspect of the amendments
is unworkable for institutional investors who always rely on
representatives to submit a proposal because they are not natural
persons. In particular, for institutional investors that share an
investment adviser or pension plan administrator, the amendment will
impose unintended ``first to file'' constraints. See, e.g., letter
from AFL-CIO dated February 3, 2020. Other commenters, however,
argued that that this aspect of the amendments will create a bias
towards institutional investing because anyone whose investments are
made through institutions is automatically and necessarily
represented in the course of filing a shareholder proposal, but
individual investors will be more limited in their ability to use a
representative. See, e.g., letter from Shareholders Rights Group
dated March 18, 2020.
    \423\ See supra tbl.1.
---------------------------------------------------------------------------

    Lastly, the final amendments to the resubmission thresholds may
benefit companies and their shareholders to the extent that they change
proponents' behavior in ways that result in proposals that obtain
higher levels of support. In particular, due to the higher thresholds,
proponents may formulate proposals that are more likely to garner
sufficient levels of shareholder support to avoid future
exclusion.\424\ In addition, proponents may market and communicate
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/or be implemented by management.
Similarly, the amended resubmission thresholds may discourage the
submission of proposals that are less likely to garner majority voting
support and/or be implemented by management.\425\
---------------------------------------------------------------------------

    \424\ See, e.g., letters from Center for Capital Markets
Competitiveness dated January 31, 2020; National Association of
Manufacturers dated February 3, 2020.
    One commenter disagreed with the assertion that that the
resubmission thresholds will improve proposal quality because
proponents already request feedback on their proposals prior to
submitting them to the company. See letter from Interfaith Center on
Corporate Responsibility dated January 27, 2020.
    \425\ 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.
---------------------------------------------------------------------------

    Some commenters stated that the Proposing Release's economic
analysis was incomplete because it did not provide a dollar estimate of
the cost of excluding certain proposals as a result of the rule
amendments.\426\ Although some commenters suggested we should attempt
to estimate the hypothetical value of excluded proposals, our analysis
does not attempt to quantify whether excluded proposals would have (in
the event they would have been adopted or would have been adopted
sooner) resulted in benefits (or harm) to companies or their
shareholders. Any such focus would both require us to opine on the
merits of specific proposals and be inherently speculative. Such an
exercise also would not be consistent with the intent of Rule 14a-8,
which is to set thresholds at which it is appropriate for a shareholder
proposal to be considered for inclusion in the company's proxy
materials initially, or on resubmission, without opining on the merits
of specific proposals. The thresholds for initial proposals are
intended to ensure that the interests of those who submit them are
appropriately aligned with fellow shareholders. The thresholds for
resubmissions are designed to exclude temporarily (through a modest
cooling-off period) those proposals that previously were disapproved by
fellow shareholders by a large margin. In neither case are the
thresholds designed to favor or disadvantage particular types of
proposal topics. In addition, we describe additional significant
methodological and empirical challenges of doing this type of analysis
below.
---------------------------------------------------------------------------

    \426\ See letters from Lucian A. Bebchuk dated February 3, 2020;
CalPERS dated February 3, 2020; John Coates and Barbara Roper dated
January 30, 2020; First Affirmative Financial Network, LLC dated
January 24, 2020; Interfaith Center on Corporate Responsibility
dated January 27, 2020; Richard A. Liroff dated January 28, 2020;
James McRitchie dated February 2, 2020; Tom Shaffner dated December
17, 2019; Shareholder Rights Group dated January 6, 2020; UAW
Retiree Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Specifically, some commenters suggested that to estimate the costs
of the rule amendments, the economic analysis should consider studies
documenting a correlation between companies' ESG policies and financial
performance.\427\ In particular, one commenter employed this
methodology to estimate the cost of the rule amendments as ranging from
$223.9 million to $129.7 billion.\428\ We believe that the commenter's
cost estimate of the rule amendments is not instructive for the
following reasons. First, we do not believe that this type of study
accurately predicts the economic effects of the amendments because ESG
policies could be implemented for reasons other than the submission of
shareholder proposals, including shareholder engagement that does not
involve the submission of shareholder proposals. In addition, the
studies cited by the commenter do not provide evidence of a causal
relation between governance, environmental, and social provisions and
firm value. Lastly, the commenter used an estimate of 530 excludable
proposals annually; however, as discussed in more detail above, we
continue to expect that the upper bound estimate of the number of
excludable proposals under the rule amendments will range from 58 to
524 annually and that changes in behavior by shareholder-proponents may
mitigate this effect.\429\
---------------------------------------------------------------------------

    \427\ See, e.g., letters from Athena Capital Advisors dated
January 17, 2020; Lucian A. Bebchuk dated February 3, 2020; Betty
Cawley dated January 8, 2020; Ceres et al. dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; Muriel
Finegold dated January 29, 2020; Impax Asset Management dated
January 20, 2020; Interfaith Center on Corporate Responsibility
dated January 27, 2020; Richard A. Liroff dated January 28, 2020;
Newground Social Investment dated February 3, 2020; Principles for
Responsible Investment dated February 3, 2020; Segal Marco Advisors
dated February 3, 2020; Seventh Generation Interfaith Coalition for
Responsible Investment dated January 28, 2020; Stardust dated
January 29, 2020; Tides dated January 15, 2020; UAW Retiree Medical
Benefits Trust dated January 30, 2020.
    \428\ See letter from Tom Shaffner dated December 17, 2019.
    Another commenter estimated the value of shareholder engagement
to be equal to $19.6 billion per year. See letter from Newground
Social Investment dated February 3, 2020. We do not rely on this
estimate for purposes of estimating the economic effects of the
final amendments because the commenter did not estimate the cost of
the rule amendments but rather the benefit of shareholder proposals
in general. Further, the commenter applied an estimate of value from
a proposal submitted to a single company to all companies in Russell
3000, regardless of whether those companies received a proposal.
Applying the same value estimate to all Russell 3000 companies also
ignores variation in the value of proposals.
    \429\ 58 = (0% minimum upper bound percentage of excludable
proposals as a result of the amendments to 14a-8(b) + 2% upper bound
percentage of excludable proposals as a result of the amendments to
14a-8(c) + 5% upper bound percentage of excludable proposals as a
result of the amendments to 14a-8(i)(12)) x 831 (all proposals
submitted to be considered at 2018 shareholders' meetings). 524 =
(56% maximum upper bound percentage of excludable proposals as a
result of the amendments to 14a-8(b) + 2% upper bound percentage of
excludable proposals as a result of the amendments to 14a-8(c) + 5%
upper bound percentage of excludable proposals as a result of the
amendments to 14a-8(i)(12)) x 831 (all proposals submitted to be
considered at 2018 shareholders' meetings). See supra tbl.1.
---------------------------------------------------------------------------

    Other commenters suggested that the economic analysis should use
estimates of changes in market capitalization around events related to
shareholder proposals that are provided in academic literature to
estimate the cost of exclusion of certain proposals as a result

of the rule amendments.\430\ Using an average short-run stock price
reaction of 0.06 percent around events related to shareholder proposals
cited in Denes et al. (2017), one commenter estimated that rule
amendments would result in a $4.3 billion reduction in annual stock
market valuations.\431\
---------------------------------------------------------------------------

    \430\ See, e.g., Lucian A. Bebchuk dated February 3, 2020.
    \431\ See letter from AFL-CIO dated February 3, 2020. See also,
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)'').
---------------------------------------------------------------------------

    In the Proposing Release, we summarized the findings of empirical
literature that examines whether proposals are economically beneficial
by studying short-run abnormal stock returns \432\ around key events
related to shareholder proposals.\433\ Several commenters criticized
our discussion of short-term stock price reactions studies, arguing
that the economic analysis instead should look at the long-run effects
of shareholder proposals.\434\ We agree with commenters that there are
significant limitations to using short-term market reactions to measure
the benefits of shareholder proposals because these estimates: (i) May
confound the benefits of shareholder proposals with the benefits of
other concurrent information releases (e.g., submission of management
proposals); (ii) may not capture anticipatory effects of shareholder
proposals as information about the submission of a shareholder proposal
may leak prior to the event date considered by the academic study;
(iii) may reflect the benefits of the average shareholder proposal
rather than the benefits of the excludable shareholder proposals as a
result of the rule amendments; and (iv) may capture various effects
such as signaling effects (e.g., the submission of a proposal may
signal that the targeted company is underperforming or that the initial
negotiations between proponent and company failed), market expectations
regarding the voting outcome, market expectations regarding the
probability of implementation of a proposal, etc.\435\ We also believe
that the limitations observed in short-run studies are even more
pronounced in long-run studies.\436\ For these reasons, we do not rely
on either short-run return studies or long-run return studies to
measure the benefits of excludable shareholder proposals in our
economic analysis.
---------------------------------------------------------------------------

    \432\ We refer to abnormal stock returns because they are
adjusted for changes in prices that are attributable to events that
have market-wide implications (e.g., changes in interest rates,
natural disasters, etc.) and thus only capture the effect of firm-
specific information releases.
    \433\ See Proposing Release at 66495. The main events related to
shareholder proposals studies in academic literature comprise the
initial press announcement of submission of a shareholder proposal,
the proxy mailing date, and the date of the shareholder meeting. See
Denes et al. (2017), supra note 431.
    \434\ See, e.g., letters from Impax Asset Management dated
January 20, 2020; Interfaith Center on Corporate Responsibility
dated January 27, 2020; Segal Marco Advisors dated February 3, 2020;
Tom Shaffner dated December 17, 2019; UAW Retiree Medical Benefits
Trust dated January 30, 2020.
    \435\ See, e.g., 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)''); Diane Del Guercio & Jennifer Hawkins, The
Motivation and Impact of Pension Fund Activism, 52 J. Fin. Econ. 293
(1999).
    Commenters provided additional reasons for why short-term stock
market reaction may be inappropriate to assess the benefits of
shareholder proposals. One commenter argued that stock price
reactions around shareholder meetings may not capture the benefits
of shareholder proposals because companies do not have to disclose
the voting outcome until several days after the shareholder meeting.
See letter from Interfaith Center on Corporate Responsibility dated
January 27, 2020. Another commenter argued that stock returns may
not fully capture the utility shareholders derive from proposals
because investors may seek not only financial returns but also
changes such as the ``integration of environmental and social
concerns in business decisions.'' See letter from Institute for
Policy Integrity dated February 3, 2020. Other commenters argued
that short-term stock market reactions do not capture the long-term
impact of shareholder proposals on firm value. See, e.g., letters
from Tom Shaffner dated December 17, 2019; UAW Retiree Medical
Benefits Trust dated January 30, 2020. Finally, a commenter argued
that event studies capture shareholders' expectations about the
future impact of a proposal but these expectations may turn out not
to be correct. See letter from UAW Retiree Medical Benefits Trust
dated January 30, 2020.
    Academic literature employs various methods to address the
issues with short-window event studies discussed above. For example,
some academic literature uses the date of the initial press
announcement of the shareholder engagement rather than the proxy
mailing date as the event date to isolate the effect of the
shareholder proposals from the effect of other items on the proxy
statements. See, e.g., Jonathan M. Karpoff, Paul H. Malatesta &
Ralph A. Walkling, Corporate Governance and Shareholder Initiatives:
Empirical Evidence, 42 J. Fin. Econ. 365 (1996). Other academic
literature uses techniques such as regression discontinuity to
isolate the anticipatory effects of voting outcomes from the
benefits of implementation of certain shareholder proposals. See
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). Finally, assuming semi-strong form of market
efficiency, companies' short-term stock price reaction should
capture investors' expectations of both the short- and long-term
benefits and costs of shareholder proposals. According to the semi-
strong form of market efficiency, stock prices fully reflect all
publicly available information, not just information related to
short-term changes. See, e.g., Eugene F. Fama, Efficient Capital
Markets: A Review of Theory and Empirical Work, 25 J. Fin. 383
(1970) (discussing the concept of market efficiency); James M.
Patell & Mark A. Wolfson, The Intraday Speed of Adjustment of Stock
Prices to Earnings and Dividend Announcements, 13 J. Fin. Econ. 223
(1984) (testing the efficient market hypothesis).
    \436\ See, e.g., Gillan & Starks (2000), supra note 435.
---------------------------------------------------------------------------

3. Comments Regarding Voting Support and Economic Effects of the Rule
Amendments
    In the Proposing Release, we provide descriptive statistics on the
voting support and the probability of obtaining majority support for
all proposals, by proposal topic, and by proponent type.\437\ This
analysis allowed us to provide some evidence on the effects of the
proposed amendments on proposals that may garner high and/or majority
shareholder support, and to examine whether the proposed amendments to
the resubmission thresholds may have larger effects for some types of
proposals and proponents than for others.
---------------------------------------------------------------------------

    \437\ See Proposing Release at 66483-66487.
---------------------------------------------------------------------------

    Several commenters suggested that shareholder voting support may
not be the best or only metric to assess the economic effects of the
rule amendments because it does not account for:
     The effects of withdrawn proposals that resulted in a
company's implementation of beneficial measures; \438\
---------------------------------------------------------------------------

    \438\ See, e.g., letters from Lucian A. Bebchuk dated February
3, 2020; CalPERS dated February 3, 2020; Center for Political
Accountability dated January 31, 2020; Institute for Policy
Integrity dated February 3, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; UAW Retiree Medical Benefits
Trust dated January 30, 2020.
---------------------------------------------------------------------------

     the effects of changes implemented without the passage of
a shareholder proposal but following the passage of similar proposals
at many other companies; \439\
---------------------------------------------------------------------------

    \439\ See, e.g., letter from Lucian A. Bebchuk dated February 3,
2020.
---------------------------------------------------------------------------

     the effects of proposals that received low levels of
support but resulted in a company's implementation of beneficial
measures; \440\ and
---------------------------------------------------------------------------

    \440\ See, e.g., letters from Lucian A. Bebchuk dated February
3, 2020; CalPERS dated February 3, 2020; John Coates and Barbara
Roper dated January 30, 2020; Council of Institutional Investors
dated January 30, 2020; Institute for Policy Integrity dated
February 3, 2020; Interfaith Center on Corporate Responsibility
dated January 27, 2020; James McRitchie dated February 2, 2020; UAW
Retiree Medical Benefits Trust dated January 30, 2020; US SIF dated
January 31, 2020.
    Relatedly, commenters have argued that voting support is not a
relevant metric for assessing the amendments' economic effects
because proposals are almost never binding and just learning about
the voting outcome may be valuable information to a company. See,
e.g., letter from Council of Institutional Investors dated January
30, 2020.
---------------------------------------------------------------------------

     the effects of company-shareholder engagement without the
submission of a formal shareholder proposal but against the background
of the company's expectation that a proposal might be

submitted if the company does not agree to make satisfactory
changes.\441\
---------------------------------------------------------------------------

    \441\ See, e.g., letters from Lucian A. Bebchuk dated February
3, 2020; Center for Political Accountability dated January 31, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020.
---------------------------------------------------------------------------

    Commenters also suggested that voting support is becoming a less
informative metric with the increase in uninformed voting by passive
investors that frequently side with management.\442\ A few commenters
argued that voting support may be an unreliable measure of actual
shareholder support for a proposal because of proxy voting advice
businesses' influence of voting outcomes.\443\ In addition, two
commenters stated that voting outcomes are unreliable because of issues
with the counting of votes.\444\ While we acknowledge the views of
commenters, we continue to believe that voting support is a useful and
relevant metric for purposes of our economic analysis because that is
the established metric for shareholder voting generally and most likely
to result in implementation of a shareholder proposal. Further,
substituting other subjective views or metrics could have the effect of
raising the views of others over the views of shareholders. Our
economic analysis acknowledges and seeks to account for the fact that
the rule amendments may affect not only voted proposals but also
omitted and withdrawn proposals by applying the percentage of
excludable proposals estimated over the sample of voted proposals to
all submitted proposals.\445\ Relatedly, some commenters argued that
the economic analysis should examine the effect of resubmission
thresholds on implemented proposals rather than proposals that received
majority support. According to these commenters, certain resubmitted
proposals are withdrawn because management expects that these proposals
are likely to garner majority support, which results in proposal
implementation without going to a vote, and ignoring those withdrawn
proposals in the economic analysis misestimates the effects of the rule
amendments on the likelihood of receiving broad or majority support
upon a resubmission.\446\ More generally, commenters argued that
companies implement proposals even when those proposals do not receive
majority support.\447\ While we agree with commenters that companies
may implement proposals (in whole or in part, or in an alternative
form) even when they do not receive majority support, we lack data to
reliably identify resubmitted proposals that were implemented by
management. Finally, the probability that a shareholder proposal will
be implemented is higher for proposals that receive majority support,
and thus we believe that our statistics on proposals that receive
majority support are a good approximation of statistics for implemented
proposals.\448\
---------------------------------------------------------------------------

    \442\ See, e.g., letter from Tom Shaffner dated December 17,
2020.
    \443\ See, e.g., letters from Business Roundtable dated February
3, 2020; Exxon Mobil Corporation dated February 3, 2020; Society for
Corporate Governance dated February 3, 2020.
    \444\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020. See also
Recommendation of the IAC, supra note 18.
    \445\ See, e.g., supra notes 347 and 348.
    \446\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Institute for Policy Integrity dated February 3, 2020.
    \447\ See, e.g., letter from Institute for Policy Integrity
dated February 3, 2020.
    \448\ See infra note 451.
---------------------------------------------------------------------------

    Some commenters also argued that using a majority-support threshold
in the economic analysis is not appropriate because majority approval
has no legal significance and there is a positive relation between
voting support and the probability of implementation of shareholder
proposals in general, even when voting support falls short of the
majority of shares.\449\ In addition, several commenters cited academic
research that suggests that the passing rate of shareholder proposals
may in some cases be impacted by management expending resources to
influence results for proposals that are close to a majority
threshold.\450\ In the Proposing Release, we examined the percentage of
proposals that received majority support as opposed to some other
voting threshold because studies show that the probability of
implementation of a shareholder proposal increases significantly once
the proposal receives majority support.\451\
---------------------------------------------------------------------------

    \449\ See, e.g., letters from AFL-CIO dated February 3, 2020;
John Coates and Barbara Roper dated January 30, 2020; Council of
Institutional Investors dated January 30, 2020; Impax Asset
Management dated January 20, 2020; Institute for Policy Integrity
dated February 3, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; Tom Shaffner dated December
17, 2019. See also Recommendation of the IAC, supra note18.
    \450\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; Impax Asset Management dated January 20,
2020; Interfaith Center on Corporate Responsibility dated January
27, 2020; New York City Comptroller dated February 3, 2020 (citing
Laurent Bach & Daniel Metzger, How Close Are Close Shareholder
Votes?, 32 Rev. Fin. Stud. 3183 (2019) (``Bach & Metzger (2019)''));
Tom Shaffner dated December 17, 2019. Bach & Metzger (2019) provide
evidence consistent with the idea that management attempts to
influence voting outcomes by encouraging the participation of retail
shareholders, who are more likely to vote with management, and
exercising option packages to obtain additional votes.
    \451\ See Proposing Release at 66485. For example, a 2010 study
by Ertimur et al. shows that ``proposals that won at least one
majority vote in the past are more likely to be implemented (34.2%
versus 22.9%).'' See Yonca Ertimur, Fabrizio Ferri & Stephen R.
Stubben, Board of Directors' Responsiveness to Shareholders:
Evidence from Shareholder Proposals, 16 J. Corp. Fin. 53 (2010)
(``Ertimur et al. (2010)''). Similarly, a 2017 study by Bach and
Metzger showed that ``when the 50%-threshold is passed, there is a
very sizeable jump of about 20% of the implementation likelihood.''
See Laurent Bach & Daniel Metzger, How Do Shareholder Proposals
Create Value? (Working Paper, Mar. 2017) (``Bach & Metzger
(2017)''). However, only crossing the management-defined majority
threshold (as opposed to the simple majority threshold defined as
the ratio of ``for'' votes divided by the sum of ``for'' and
``against'' votes) has a positive effect on the probability that the
proposal is implemented. Id. The management-defined majority
threshold may differ from a simple majority threshold. Id. In 43% of
their sample, the management threshold is the same as the simple
majority threshold. See id. In our analysis, we define majority
support as the simple majority threshold because we lack data on the
management-defined majority threshold.
---------------------------------------------------------------------------

F. Reasonable Alternatives

    We have considered the relative costs and benefits of reasonable
alternatives to the final amendments. The discussion below is limited
to reasonable alternatives within the scope of Rule 14a-8.
1. Alternative Amendments to Rule 14a-8(b) and Rule 14a-8(c)
i. Alternative Ownership Thresholds
    We considered a number of alternative approaches to the ownership
thresholds. First, we considered whether to increase the $2,000/one-
year threshold in the current requirement to a $25,000/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 an upper bound estimate of 56 percent of the proposals
with exact proponents' account ownership information to be considered
at 2018 shareholder meetings.\452\ The

advantage of increasing only the dollar amount in the current threshold
is that the rule would be less costly for shareholder-proponents and
companies 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 adopted approach.
---------------------------------------------------------------------------

    \452\ Companies have discretion in the type of information they
must include in the proxy statements regarding proponents' ownership
(see Rule 14a-8(l)). In particular, the company's proxy statement
must include either proponents' share ownership or a statement that
this information will be provided to shareholders upon request.
Whenever the company discloses proponents' ownership information,
the company may disclose the actual dollar value, the actual number
of shares, a minimum dollar value, or a minimum number of shares
held by the proponent. In addition, whenever the company discloses
proponents' ownership information, the company may disclose
ownership information for a subset of the proponents submitting a
proposal, and the company may disclose actual holdings information
for some of the proponents and minimum holdings information for the
rest of the proponents submitting the same proposal. The type of
ownership information the company discloses (i.e., actual holdings
versus minimum holdings and dollar value versus number of shares)
frequently depends on the type of information provided in the proof-
of-ownership letter furnished by the proponent. In particular,
proponents also have discretion in the type of information they must
provide in the proof-of-ownership letters (see Rule 14a-8(b)(2)).
Proponents may disclose the exact duration and level of their
holdings or they may confirm that they meet the minimum ownership
thresholds. Hence, there is available data in the proxy statements
regarding proponents' exact ownership for only a subset of the
proponents, and data regarding proponents' minimum ownership for the
remaining proponents. More specifically, there were 447 unique voted
proposals for shareholder meetings held in 2018. Out of the 447
proposals, 287, or 64 percent, contained information on proponents'
actual and/or minimum holdings, whereas the remaining 160, or 36
percent, did not contain information on proponents' ownership.
Further, in our sample of proxy statements, there were 198
proponents that submitted 150 unique proposals for which the proxy
statements mentioned the proponents' actual holdings, and 159
proponents that submitted 139 unique proposals for which the proxy
statements mentioned the proponents' minimum holdings.
---------------------------------------------------------------------------

    Alternatively, we considered using a tiered approach, but with
different combinations of minimum dollar amounts and holding periods.
For example, we considered (i) $2,000 for five years, $15,000 for three
years, and $25,000 for one year or (ii) $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 first alternative relative to the effects of
the final amendments discussed in Section V.D above because we lack
data on proponents' ownership duration. Regarding the effects of the
second alternative, 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 65 percent of the proposals based on
the ownership information of proponents at 2018 shareholder
meetings.\453\ On the other hand, assuming all proponents held the
shares for at least three years, the ownership thresholds of the second
alternative would not result in a change in the number of excludable
proposals relative to the current thresholds.
---------------------------------------------------------------------------

    \453\ 65% = 97 (excludable proposals under a $50,000/one-year
threshold)/150 (proposals with exact proponents' ownership
information in proxy statements, see supra note 452). This estimate
assumes that proponents do not own any shares of company stock
outside of the account used to prove ownership. In the case of
institutional shareholders, in particular, this assumption is
overinclusive and our estimate should be viewed as an upper bound.
This estimate assumes that proponents will not be permitted to
aggregate their holdings to meet the ownership threshold. See
Proposing Release at 66506.
---------------------------------------------------------------------------

    We also considered whether to index the adopted ownership
thresholds for inflation or to maintain a single ownership threshold
but index it to inflation, as recommended by several commenters.\454\
The benefit of such an approach would be that the 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 shareholder-proponents would
have to monitor periodically adjusted ownership thresholds.
---------------------------------------------------------------------------

    \454\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; First Affirmative Financial Network, LLC
dated January 24, 2020; Society for Corporate Governance dated
February 3, 2020.
    As of February 2020, the $2,000 threshold as adopted in May 1998
would be equal to $3,178 after adjusting for inflation (see supra
note 58) and it would be equal to $7,470 after adjusting for the
growth in Russell 3000 index (see supra note 59).
    One commenter argued that adjusting the $2,000 threshold for
inflation would result in excessive ownership thresholds because
``the original increase from $1,000 to $2,000 already included a
future inflationary adjustment.'' The same commenter argued that
adjusting the ownership thresholds using the growth in the Russell
3000 ``only makes sense for investors who have been in the market
during this entire time; new entrants to the market would not have
benefitted from market growth and as such the Russell Index
comparison simply doesn't make sense.'' See letter from Tom Shaffner
dated December 17, 2019.
---------------------------------------------------------------------------

    Different thresholds could result in the exclusion of more or fewer
proposals, depending on the particular thresholds. Any set of ownership
thresholds has various tradeoffs associated with any given choice along
the range of potential alternatives, the magnitude of which can vary
based on a shareholder's actual holdings. The final rules attempt to
address the interests of shareholders who seek to use the company's
proxy statement to advance their own proposals at little or no cost to
themselves, while recognizing that other shareholders and companies
bear the burdens associated with the inclusion of such proposals and
thus have an interest in ensuring that the interests of proponents are
sufficiently aligned with those of other shareholders.
ii. Percent-of-Ownership Threshold
    We considered whether to instead adopt 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 an upper
bound estimate of 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 final amendments,
again assuming no change in proponent behavior.\455\
---------------------------------------------------------------------------

    \455\ 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 will 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. See
Proposing Release at 66507.
---------------------------------------------------------------------------

    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, and so the rule
would have similar effects on smaller and larger companies.\456\ The
percentage-of-ownership threshold, however, may be somewhat harder to
implement because of changes in companies' capital structure over time.
We also believe that a percentage-of-ownership threshold of one percent
would prevent the vast majority of shareholders from submitting
proposals,\457\ 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 generally large
institutional investors and commenters noted that these types of
investors are more likely to be able to communicate directly with
management, and thus do not typically use shareholder proposals.\458\
---------------------------------------------------------------------------

    \456\ See supra note 394 and accompanying text.
    \457\ See supra note 9.
    \458\ See, e.g., letters from James McRitchie dated February 2,
2020; Tom Shaffner dated December 17, 2019; Shareholder Rights Group
dated January 6, 2020; Trillium Asset Management dated February 3,
2020; see also letters in response to the Proxy Process Roundtable
from MFS Investment Management dated November 14, 2018; Pax World
Funds dated November 9, 2018; Shareholders Right Group dated
December 4, 2018; see also Ceres Business Case, supra note 408, at
9; Eugene Soltes, Suraj Srinivasan, & Rajesh Vijayaraghavan, What
Else do Shareholders Want? Shareholder Proposals Contested by Firm
Management (Harvard Bus. Sch. Accounting & Mgmt. Unit, Working
Paper, 2017) (``Soltes et al. (2017)'').
    On the other hand, one commenter argued against the assertion
that large institutional investors have certain privileges when
attempting to engage with companies and noted difficulties that
large investors also experience. See letter from CalPERS dated
February 3, 2020.

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

iii. Eligibility Thresholds Based on the Size of a Shareholder's Total
Investment Portfolio
    Some commenters argued that the eligibility thresholds should be a
function of investors' wealth, not an absolute dollar amount.\459\
Setting the eligibility thresholds to be a function of investors'
wealth would ensure that all shareholders, regardless of their wealth,
are able to submit proposals. Nevertheless, imposing such requirements
would increase complexity because measuring and proving one's own
wealth would be complex and time consuming, potentially adding
significant costs to the shareholder-proposal process.
---------------------------------------------------------------------------

    \459\ See, e.g., letters from First Affirmative Financial
Network, LLC dated January 24, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020.
---------------------------------------------------------------------------

2. Alternative Amendments to Rule 14a-8(i)(12)
i. Alternative Resubmission Thresholds
    We estimate that the new resubmission thresholds contained in the
final amendments of 5/15/25 percent would result in an additional five
percent of proposals being excludable relative to current 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 alternative 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 final
amendments and the second and third expected to have larger effects
relative to the final amendments. Under these three alternative
thresholds, we estimate that two percent, eight percent, and 20 percent
of proposals, respectively, would be excludable relative to the
baseline 3/6/10 percent thresholds.\460\
---------------------------------------------------------------------------

    \460\ See Proposing Release at 66490 for a detailed description
of the data on resubmitted proposals.
---------------------------------------------------------------------------

    In addition, we considered 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 15 percent of proposals would be excludable relative to the
baseline.\461\ We decided against adopting these alternative
resubmission thresholds because we believe that the final amended
resubmission thresholds appropriately reduce the costs to companies and
their shareholders of responding to proposals that do not garner
significant shareholder support and may be unlikely to do so in the
near future, while at the same time preserving shareholders' ability to
engage with a company and other shareholders through the shareholder-
proposal process and, through the modest cooling-off period, providing
for resubmission in the future based on the initial submission
criteria.
---------------------------------------------------------------------------

    \461\ This estimate is an upper bound of the number of
excludable proposals under this alternative because it will 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.
---------------------------------------------------------------------------

ii. Different Vote-Counting Methodologies
    We considered whether to change 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 percentage of votes that a proposal received. We also considered
whether to apply a different vote-counting methodology for companies
with dual-class voting structures. Several commenters highlighted how
the presence of a subset of shareholders with special voting rights
could make the voting threshold requirement difficult to satisfy.\462\
Applying different vote-counting methodologies for votes by insiders
and for companies with dual-class shares would make it easier for
shareholder proposals to meet the resubmission thresholds and thus
potentially could allow for the submission of a greater number of
proposals that would benefit companies and their shareholders.\463\
However, because this approach may still require companies and their
shareholders to continue to incur costs associated with processing
proposals that are less likely to garner majority support based on all
votes cast and that are less likely to be implemented by management, we
believe that the adopted approach is more appropriate. In addition,
applying different vote-counting methodologies for votes by insiders
and for companies with dual-class shares could increase the rule's
complexity and thus could increase the costs of rule implementation to
the detriment of shareholders.
---------------------------------------------------------------------------

    \462\ See supra note 203. See also letter in response to the
Proxy Process Roundtable from City of New York Office of the
Comptroller dated January 2, 2019.
    \463\ See Section V.C.3.ii.d for detailed discussion on this
topic.
---------------------------------------------------------------------------

iii. Exception to the Rule if Circumstances Change
    Several commenters pointed out the possibility of an initially
unpopular proposal gaining popularity in subsequent years following
changes in company circumstances or other market developments.\464\ We
acknowledge that changes in circumstances could change a proposal's
voting support across years. For this reason, we considered whether to
provide an exception to the final 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. We
expect that such an exception would lower the number of proposals
eligible for exclusion under the final 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. Shareholders could benefit from the lower number of
proposals eligible for exclusion to the extent that the submitted
proposals would result in changes that would benefit companies and
their shareholders. However, such an exception may impose significant
costs on companies associated with determining whether changes in
circumstances qualify for the exception. In addition, as noted above,
there are various alternative means for shareholder engagement,
including with regard to recent developments, and the amendments
provide shareholder-proponents with the ability to resubmit initially
unpopular proposals after a modest cooling-off period. Hence, we

decided against adopting this alternative.
---------------------------------------------------------------------------

    \464\ See supra notes 203 and 400. See also letters in response
to the Proxy Process Roundtable from the City of New York Office of
the Comptroller dated January 2, 2019; Shareholder Rights Group
dated December 4, 2018; Teachers Insurance and Annuity Association
of America (TIAA) dated June 10, 2019.
---------------------------------------------------------------------------

iv. Momentum Requirement
    In the Proposing Release we considered a Momentum Requirement that
would allow companies to exclude proposals previously voted on by
shareholders three or more times in the preceding five calendar years
if: (i) The most recent vote occurred within the preceding three
calendar years; (ii) at the time of the most recent shareholder vote,
the proposal did not receive a majority of the votes cast; and (iii)
support declined by 10 percent or more compared to the immediately
preceding shareholder vote on the same subject matter.
    We indicated, and a number of commenters agreed, that the main
benefit of the proposed Momentum Requirement would be that it would
decrease the number of proposals that companies and their shareholders
would consider, and thus companies and their shareholders could
experience cost savings.\465\ Relatedly, the proposed Momentum
Requirement would 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. In the
Proposing Release, we estimated that the Momentum Requirement would
have resulted in an additional 57 (4 percent) excludable resubmitted
proposals over the 2011-2018 sample period.\466\ We considered the
costs of the proposed Momentum Requirement in the Proposing Release and
recognized costs the proposed Momentum Requirement would have likely
imposed on shareholder-proponents and companies. We considered how the
Momentum Requirement would have imposed costs on shareholder-proponents
and companies because it would have made the determination of
shareholder proposal eligibility more complex. We also acknowledged
that the requirement's potential effects, including the costs
associated with the exclusion of beneficial proposals, could vary
across different types of companies, proposals, and share-class
structures. Several commenters argued that a 10 percent decrease in
voting support does not necessarily imply a persistent waning of voting
support, and so the proposed Momentum Requirement could result in the
exclusion of proposals that would meet resubmission thresholds.\467\ As
a response to those commenters, we examined the subset of resubmitted
proposals that had not garnered majority support in prior rounds of
voting and experienced a 10 percent or greater decline in voting
support relative to the immediately prior submission, but were still
eligible to be resubmitted in the subsequent year under the current
resubmissions thresholds. We found 264 such resubmissions, 139 (53
percent) of which were actually subsequently resubmitted. Among these
139 proposal resubmissions, 56 proposals (40 percent) experienced a
further decline in support, while 33 (24 percent) saw an increase in
support lower than ten percent and 50 (36 percent) saw an increase in
support greater than ten percent.\468\
---------------------------------------------------------------------------

    \465\ See, e.g., National Association of Manufacturers, dated
February 3, 2020.
    \466\ See Proposing Release at 66500. We estimate that the
Momentum Requirement would have resulted in an additional 7
excludable resubmitted proposals in 2018 alone.
    \467\ See, e.g., letters from Interfaith Center on Corporate
Responsibility dated January 27, 2020; Principles for Responsible
Investment dated February 3, 2020.
    \468\ We find that 2 (1%) shareholder proposals received
majority support in a resubmission, which followed a 10% drop in
support. Among the 56 proposals that experienced a further decline
in support, the average decline was 16%. Among the 83 proposals that
experienced an increase in support, the average increase was 35%.
---------------------------------------------------------------------------

    Relatedly, some commenters argued that there are various factors
that might create volatility in voting support across years (e.g.,
changes in company performance, changes in the phrasing of the
proposal, changes in shareholder base, changes in the proponent, market
developments, etc.), and so relying on year-over-year changes in voting
support to decide whether a proposal may be resubmitted likely is
inappropriate.\469\ Some commenters also argued that the Momentum
Requirement is problematic because it would allow proposals with lower
levels of support that have not lost momentum to be resubmitted while
excluding proposals with higher levels of support.\470\ Other
commenters argued that the proposed Momentum Requirement is unclear
\471\ and that it would increase the complexity of the shareholder
proposal eligibility requirements.\472\ In addition, some commenters
argued that the Momentum Requirement relies on voting outcomes and
those numbers are unreliable because of issues with the counting of
votes.\473\ Finally, some commenters argued that the Momentum
Requirement would impose costs because it would require more detailed
vote counts.\474\
---------------------------------------------------------------------------

    \469\ See supra note 400.
    Some commenters also suggested that the economic analysis should
analyze which proposals have higher volatility in voting support and
thus would be more likely to be affected by the momentum
requirement. See, e.g., letters from As You Sow dated February 3,
2020; Interfaith Center on Corporate Responsibility dated January
27, 2020; Segal Marco Advisors dated February 3, 2020; UAW Retiree
Medical Benefits Trust dated January 30, 2020. See supra Section
V.C.2.iii for this analysis.
    \470\ See, e.g., letter from AFL-CIO dated February 3, 2020.
    \471\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; James McRitchie dated February 2, 2020.
    \472\ See also letter from CalPERS dated February 3, 2020.
    \473\ See supra note 444.
    \474\ See letter from CalPERS dated February 3, 2020.
---------------------------------------------------------------------------

    Based on our additional analysis and the comments received, we are
not adopting the proposed Momentum Requirement.

VI. Paperwork Reduction Act

A. Background

    Certain provisions of our rules and schedules that would be
affected by the amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\475\ We published a notice requesting comment on changes to
these collection of information requirements in the Proposing Release
and have submitted these requirements to the Office of Management and
Budget (``OMB'') for review in accordance with the PRA.\476\ 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 may not conduct or sponsor, and a person is not
required to comply with, a collection of information unless it displays
a currently valid OMB control number. Compliance with the information
collection is mandatory. Responses to the information collections are
not kept confidential and there is no mandatory retention period for
the information disclosed. The title for the affected collection of
information is:
---------------------------------------------------------------------------

    \475\ 44 U.S.C. 3501 et seq.
    \476\ 44 U.S.C. 3507(d); 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Regulation 14A (Commission Rules 14a-1 through 14a-21 and
Schedule 14A)'' (OMB Control No. 3235-0059).
    We adopted the existing regulations and schedule pursuant to the
Exchange Act. The regulations and schedules set forth the disclosure
and other requirements for proxy statements filed by issuers and other
soliciting parties.

B. Summary of Comment Letters and Revisions to PRA Estimates

    In the Proposing Release, we requested comment on the PRA burden
hour and cost estimates and the analysis used to derive such estimates.
We received four comment letters that directly addressed the PRA
analysis of the proposed amendments.\477\ Three of those comment
letters addressed one of the cost estimates used in informing our PRA
estimates, and one comment letter addressed several other aspects of
the PRA analysis. None of those commenters provided additional data for
consideration. We also received comment letters that, while not
specifically referencing the PRA analysis, did address the cost
estimates per proposal cited in both the PRA and the Economic Analysis
sections of the Proposing Release. We address both types of comments
below, starting with comments about the numeric estimates.
---------------------------------------------------------------------------

    \477\ See letters from AFL-CIO dated February 3, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020; Segal Marco Advisors dated February 3, 2020; UAW Retiree
Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    The Proposing Release used a range of available cost estimates for
purposes of developing the PRA burden hours and cost estimates,
including estimates associated with a company's receipt of a
shareholder proposal of approximately $50,000, $87,000, more than
$100,000, and approximately $150,000.\478\ As discussed in Section V
above, while not in direct response to the PRA analysis, a number of
commenters provided estimates associated with a company's receipt of a
shareholder proposal.\479\ Many of these estimates were within the
range of estimates that were used in developing our PRA estimates, and
we received additional estimates from commenters of $18,982 and
$20,000.\480\ We have taken these comments into account for purposes of
developing the PRA burden hours and cost estimates. Additionally, a few
commenters indicated that there was not an adequate basis for relying
on an estimated cost per proposal of $150,000 in calculating the PRA
burden estimate.\481\ Other commenters, however, noted that a cost
range of $87,000 to $150,000 was ``directionally accurate.'' \482\
Overall, we believe that looking to a range of estimates, rather than
relying on a single figure, is appropriate for purposes of informing
the PRA burden hours and cost estimates and yields a more comprehensive
estimation. For this reason, we believe it is appropriate to use the
$150,000 cost estimate as one data point for purposes of the PRA.
---------------------------------------------------------------------------

    \478\ See infra note 490.
    \479\ See supra note 332.
    \480\ See letters from CalPERS dated February 3, 2020 (stating
that the marginal cost of submitting a no-action request is less
than $20,000); John Coates and Barbara Roper dated January 30, 2020
(stating that the cost estimate of $18,982 to print and mail a
shareholder proposal ``is a relevant datum for estimating cost
savings'').
    \481\ See letters from Interfaith Center on Corporate
Responsibility dated January 27, 2020; Segal Marco Advisors dated
February 3, 2020; UAW Retiree Medical Benefits Trust dated January
30, 2020.
    \482\ See letter from General Motors Company dated February 25,
2020. See also letter from Center for Capital Markets
Competitiveness dated January 31, 2020.
---------------------------------------------------------------------------

    Another commenter stated that the burden estimate does not
adequately account for additional paperwork burdens on shareholders
associated with the proposed ownership thresholds, one-proposal limit,
and Momentum Requirement.\483\ This commenter also stated that
``certain shareholders will respond to the proposed amendments to Rule
14a-8 by increasing their use of independent proxy solicitations in
order to avoid the more restrictive requirements of the amended
shareholder proposal rule,'' and that the burden estimate should
consider the attendant paperwork costs.\484\
---------------------------------------------------------------------------

    \483\ See letter from AFL-CIO dated February 3, 2020.
    \484\ Id.
---------------------------------------------------------------------------

    We are not revising our estimate in response to the commenter's
suggestion to account for recordkeeping requirements related to the
revised ownership requirements, one-proposal limit under Rule 14a-8(c),
and Momentum Requirement. The commenter suggested that there would be
an increased burden associated with the revised ownership requirements
because ``shareholders' recordkeeping requirements under Rule 14a-
8(b)(1)(i) will triple from one year to three years to determine
whether they meet the $2,000 stock ownership requirement.'' We do not
believe that the revised ownership requirements will result in this
type of additional paperwork burden because Commission rules currently
require a shareholder's broker to retain these records for a period
that exceeds three years.\485\ Thus, there should not be an additional
burden for a shareholder-proponent associated with obtaining a broker
letter verifying ownership for a two- or three-year period compared to
a one-year period.
---------------------------------------------------------------------------

    \485\ See 17 CFR 240.17a-3 and 17a-4.
---------------------------------------------------------------------------

    We also are not revising our assessment in response to the
commenter's suggestion related to the one-proposal rule. The commenter
stated that shareholders would ``have additional recordkeeping
requirements to keep track of . . . their use of representatives under
the proposed Rule 14a-8(c).'' \486\ The commenter did not explain the
basis for this statement, but we do not believe that there will be any
additional paperwork burdens associated with keeping track of a
shareholder-proponent's use of representatives. As explained in Section
II.D, the amended rule will not unduly restrict a shareholder-
proponent's options in selecting a representative because, while in
some cases shareholder-proponents may need to submit a proposal on
their own, they can otherwise enjoy all of the benefits of being
represented by a representative of their choosing. Moreover, to the
extent shareholder-proponents prepare and/or maintain paperwork in
connection with their use of a representative, we believe the burden
will be the same under the amendment as under the current rule.
---------------------------------------------------------------------------

    \486\ See letter from AFL-CIO dated February 3, 2020.
---------------------------------------------------------------------------

    We also are not revising our assessment in response to the
commenter's suggestion related to the Momentum Requirement because we
are not adopting that requirement. We have revised the estimate of the
per-hour burden of the resubmission thresholds to reflect that the
final amendments do not include the Momentum Requirement.
    Finally, we are not revising our estimate in response to the
commenter's suggestion that ``certain shareholders will respond to the
proposed amendments to Rule 14a-8 by increasing their use of
independent proxy solicitations in order to avoid the more restrictive
requirements of the amended shareholder proposal rule.'' \487\ We are
not aware and this commenter did not provide evidence of this type of
response to other amendments to Rule 14a-8. In addition, we believe
that shareholders who are unable to use Rule 14a-8 as a result of the
amendments will be more likely to engage with companies through
alternative avenues rather than conduct their own proxy solicitation in
light of the costs involved in conducting a non-exempt proxy
solicitation. In addition, to the extent shareholders elect to engage
in activities that do not require compliance with Commission rules or
regulations ``in order to avoid the more restrictive requirements of
the amended shareholder proposal rule,'' we note that those activities
would not constitute a burden for purposes of the PRA.\488\
---------------------------------------------------------------------------

    \487\ See letter from AFL-CIO dated February 3, 2020.
    \488\ See 44 U.S.C. 3502(2); 5 CFR 1320.3(b).

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

    We have modified the overall burden estimates to reflect the most
current collections of information data from OMB and updated estimates
on the effects of the amendments.

C. Summary of the Amendments' Impact on Collections of Information

    In this section, we summarize the amendments and their general
impact on the paperwork burden associated with Regulation 14A.

 PRA Table 1--Estimated Paperwork Burden Effects of the Final Amendments
------------------------------------------------------------------------
             Final amendments                     Estimated effect
------------------------------------------------------------------------
Rule 14a-8(b)(1)(i):
     Revise the ownership           28% decrease in the number
     requirements that shareholders must     of shareholder proposal
     satisfy to be eligible to submit        submissions,\489\ resulting
     proposals to be included in an          in a reduction in the
     issuer's Schedule 14A proxy statement   average burden per response
     to the following levels:                of 5.08 hours.\490\
    [cir] >=$2K to <$15K for at least 3
     years;
    [cir] >=$15K to <$25K for at least 2
     years; or
    [cir] >=$25K for at least 1 year.
Rule 14a-8(b)(1)(iii):
     Require shareholders to        Increase in the average
     provide the company with a written      burden per response of 0.04
     statement that they are able to meet    hours.\491\
     with the company in person or via
     teleconference no less than 10
     calendar days nor more than 30
     calendar days after submission of the
     shareholder proposal, and to provide
     contact information as well as
     business days and specific times that
     they are available to discuss the
     proposal with the company.
Rule 14a-8(b)(1)(iv):
     Require shareholders to        Increase in the average
     provide certain written documentation   burden per response of 0.01
     to companies if the shareholder         hours.\492\
     appoints a representative to act on
     its behalf in submitting a proposal
     under the rule.
Rule 14a-8(b)(1)(vi):
     Disallow aggregation of        No change in the number of
     holdings for purposes of satisfying     shareholder proposal
     the ownership requirements.             submissions,\493\ resulting
                                             in no change in the average
                                             burden per response.
Rule 14a-8(c):
     Provide that shareholders and  2% decrease in the number of
     other persons cannot submit, directly   shareholder proposal
     or indirectly, more than one proposal   submissions,\494\ resulting
     for the same shareholders' meeting.     in a reduction in the
                                             average burden per response
                                             of 0.36 hours.\495\
Rule 14a-8(i)(12):
     Increase the prior vote        5% reduction in the number
     thresholds for resubmission of a        of shareholder proposals by
     proposal that addresses substantially   reducing the number of
     the same subject matter as a proposal   resubmissions,\496\
     previously included in company's        resulting in a reduction in
     proxy materials within the preceding    the average burden per
     5 calendar years if the most recent     response of 0.90
     vote occurred within the preceding 3    hours.\497\
     calendar years to:
    [cir] Less than 5% of the votes cast
     if previously voted on once;
    [cir] less than 15% of the votes cast
     if previously voted on twice; or
    [cir] less than 25% of the votes cast
     if previously voted on three or more
     times.
    Total                                   Net decrease in the average
                                             burden per response of 6.29
                                             hours.\498\
------------------------------------------------------------------------

D. Incremental and Aggregate Burden and Cost Estimates for the Final
Amendments

    The paperwork burden estimate for Regulation 14A includes the
burdens

imposed by our rules that may be incurred by all parties involved in
the proxy process leading up to and associated with the filing of a
Schedule 14A. This would include both the time that a shareholder-
proponent spends to prepare its proposals for inclusion in a company's
proxy statement, as well as the time that the company spends to respond
to such proposals. Our incremental and aggregate reductions in
paperwork burden as a result of the proposed amendments represent the
average burden for all respondents, including shareholder-proponents
and large and small registrants. In deriving our estimates, we
recognize that the burdens would likely vary among individual
proponents and registrants based on a number of factors, including the
propensity of a particular shareholder-proponent to submit proposals,
or the number of shareholder proposals received by a particular
company, which may be related to its line of business or industry or
other factors.
---------------------------------------------------------------------------

    \489\ See supra note 322. We estimate that the decrease in the
number of shareholder proposals could range from 0 to 56%, depending
on proponents' holding periods. For purposes of the PRA, we assume
an estimated decrease of 28%. The estimated decrease in the number
of shareholder proposals takes into account the limitation on
aggregation for purposes of satisfying the ownership thresholds.
    \490\ See Proposing Release at 66510 n.312. See also letters
from Business Roundtable dated February 3, 2020 (noting that several
member companies ``reported costs ranging from $50,000 to $100,000
or more per proposal'' and that ``costs for first-time proposals are
generally higher than those incurred for resubmitted proposals'');
CalPERS dated February 3, 2020 (stating that the marginal cost of
submitting a no-action request is less than $20,000); Center for
Capital Markets Competitiveness dated January 31, 2020 (stating that
its members reported that $87,000 to $150,000 per proposal is a fair
cost estimate, with some exceeding the high end of the range); John
Coates and Barbara Roper dated January 30, 2020 (stating that the
cost estimate of $18,982 to print and mail a shareholder proposal
``is a relevant datum for estimating cost savings''); Exxon Mobil
Corporation dated February 3, 2020 (estimating the direct cost of
each shareholder proposal included in its proxy statement to be ``at
least $100,000''); General Motors Company dated February 25, 2020
(stating that a cost estimate of $87,000 to $150,000 is
``directionally accurate'').
    At an estimated hourly cost of $400 per hour, these estimated
costs would correspond to the following estimated burden hours: 47.5
hours ($18,982/$400 = 47.5), 50 hours ($20,000/$400 = 50), 125 hours
($50,000/$400 = 125), 218 hours ($87,000/$400 = 218), 250 hours
($100,000/$400 = 250), and 375 hours ($150,000/$400 = 375).
    As in the Proposing Release, we continue to estimate that the
burden hours for a company associated with considering and printing
and mailing a shareholder proposal (not including burdens associated
with the no-action process) would be 100 hours (80 hours associated
with activities unrelated to printing and mailing, and 20 hours
associated with printing and mailing). In addition, we estimate that
the burden hours associated with seeking no-action relief would be
50 hours. See Proposing Release at 66510 n.312. In arriving at these
estimates, we took into consideration the hourly burdens
corresponding to the cost estimates provided by commenters, noted
above, as well as data provided in response to a July 2009 survey of
Business Roundtable companies. See 2009 BRT Letter, supra note 332.
We believe it is useful to consider the Business Roundtable survey
in estimating the burden hours for a company associated with
considering and printing and mailing a shareholder proposal because
it provides specific burden hour and cost estimates with respect to
preparing a no-action request and printing and mailing a single
shareholder proposal.
    In the Proposing Release, we estimated that 40% of proposals are
included in the proxy statement without seeking no-action relief,
16% are included after seeking no-action relief, 15% are excluded
after seeking no-action relief, and 29% are withdrawn. See Proposing
Release at 66510 n.312. No commenters provided alternative estimates
on this point or expressed disagreement with these percentage
estimates. Thus, for purposes of this PRA analysis, we estimate 107
burden hours associated with a company's receipt of a shareholder
proposal, calculated as follows:
    100 hours for 40% of proposals (i.e., proposals that are
included in the proxy statement without seeking no-action relief);
    150 hours for 16% of proposals (i.e., proposals that are
included in the proxy statement after seeking no-action relief);
    130 hours for 15% of proposals (i.e., proposals that are
excluded from the proxy statement after seeking no-action relief);
and
    80 hours for 29% of proposals (i.e., proposals that are
withdrawn).
    The reduction in the average burden per response of 5.08 hours
is calculated by multiplying the expected reduction in proposals
(28%) by the average number of proposals received between 1997 and
2018 (946) for a reduction in the total number of proposals of 265.
This reduction in the number of proposals (265) is then multiplied
by the estimated burden hours per proposal (107) for a total of
28,355 burden hours. This total number of burden hours (28,355) is
then divided by the total number of responses (5,586) for a
reduction in the average burden per response of 5.08 hours.
    \491\ The increase in the average burden per response of 0.04
hours is calculated by multiplying the expected amount of time to
provide this information (20 minutes) by the expected average number
of expected proposals after taking account of the total reduction in
proposals submitted as a result of the proposed amendments (644) for
a total increase of 215 hours. This increase in burden hours (215
hours) is then divided by the total number of responses (5,586) for
an increase in the average burden per response of 0.04 hours.
    \492\ The increase in the average burden per response of 0.01
hours is calculated by multiplying the expected amount of time to
provide this information (20 minutes) by the expected number of
proposals submitted by a representative that would be subject to the
amendment. We estimate that approximately 14% of proposals are
submitted by such representatives; thus, we multiply the average
number of expected proposals after taking into account the reduction
in proposals as a result of the proposed amendments (644) by 14% for
a total of 90 proposals submitted by such representatives. The
number of proposals (90) is multiplied by the estimated amount of
time to provide this information (20 minutes) for a total of 30
hours. This increase in burden hours (30 hours) is then divided by
the total number of responses (5,586) for an increase in the average
burden per response of 0.01 hours.
    \493\ See supra note 322. The effect of this amendment is
accounted for in the above entry for Rule 14a-8(b)(1)(i).
    \494\ See Proposing Release at 66497 and supra tbl.1.
    \495\ The reduction in the average burden per response of 0.36
hours is calculated by multiplying the expected reduction in
proposals (2%) by the average number of proposals received between
1997 and 2018 (946) for a reduction in the total number of proposals
of 19. This reduction in the number of proposals (19) is then
multiplied by the estimated burden hours per proposal (107) for a
total of 2,033 burden hours. This total number of burden hours
(2,033) is then divided by the total number of responses (5,586) for
a reduction in the average burden per response of 0.36 hours.
    \496\ See supra tbl.1 for a discussion regarding the estimated
decrease in resubmitted proposals. The estimated 5% reduction in the
number of resubmissions is lower than the estimated reduction in the
Proposing Release because the proposed Momentum Requirement is not
being adopted.
    \497\ The reduction in the average burden per response of 0.90
hours is calculated by multiplying the expected reduction in
proposals (5%) by the average number of proposals received between
1997 and 2018 (946) for a reduction in the total number of proposals
of 47. This reduction in the number of proposals (47) is then
multiplied by the estimated burden hours per proposal (107) for a
total of 5,029 burden hours. This total number of burden hours
(5,029) is then divided by the total number of responses (5,586) for
a reduction in the average burden per response of 0.90 hours.
    \498\ (5.08 + 0.00 + 0.36 + 0.90) - (0.04 + 0.01) = 6.29 hours
decrease in average burden per response.
---------------------------------------------------------------------------

    As shown in PRA Table 1, the burden estimates were calculated by
estimating the number of parties expected to expend time, effort, and/
or financial resources to generate, maintain, retain, disclose, or
provide information required by the amendments and then multiplying by
the estimated amount of time, on average, each of these parties would
devote in response to the amendments. For purposes of the PRA, the
burden is to be allocated between internal burden hours and outside
professional costs. For Regulation 14A we estimate that 75% of the
burden is carried by the company or the shareholder-proponent
internally and that 25% of the burden of preparation is carried by
outside professionals retained by the company or the shareholder-
proponent at an average cost of $400 per hour.\499\
---------------------------------------------------------------------------

    \499\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis, we estimate that
such costs would be an average of $400 per hour. This estimate is
based on consultations with several issuers, law firms, and other
persons who regularly assist issuers in preparing and filing reports
with the Commission.

             PRA Table 2--Calculation of the Incremental Change in Burden Estimates of Current Responses Resulting From the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Reduction in             Reduction in
   Number of estimated     Burden hour  reduction      Reduction in burden      Reduction in internal   professional  hours for  professional  costs for
        responses               per response           hours for responses       hours for responses            responses                responses
(A) \500\                                   (B)                         (C) = (A) x (B) \501(D) = (C) x 0.75         (E) = (C) x 0.25(F) = (E) x $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
                5,586                      6.29                    35,136                    26,352                    8,784               $3,513,600
--------------------------------------------------------------------------------------------------------------------------------------------------------

    The following table summarizes the requested paperwork burden,
including the estimated total reporting burdens and costs, under the
final amendments.
---------------------------------------------------------------------------

    \500\ The number of estimated affected responses is based on the
number of responses in the Commission's current OMB PRA filing
inventory. The OMB PRA filing inventory represents a three-year
average. We do not expect that the final amendments will materially
change the number of responses in the current OMB PRA filing
inventory.
    \501\ The estimated reductions in Columns (C), (D), and (E) are
rounded to the nearest whole number.

                                           PRA Table 3--Requested Paperwork Burden Under the Final Amendments
--------------------------------------------------------------------------------------------------------------------------------------------------------
                  Current burden                                      Program change                                     Revised burden
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                       Number of                        Reduction in
 Current  annual  Current  burden    Current cost       affected       Reduction in     professional        Annual        Burden hours     Cost burden
    responses          hours            burden         responses      internal hours       costs          responses
(A)                          (B)                (C)            (D)        (E) \502\        (F) \503\        (G) = (A)   (H) = (B) - (E)         (I) = (C) - (F)
--------------------------------------------------------------------------------------------------------------------------------------------------------
         5,586           551,101      $73,480,012            5,586           26,352       $3,513,600            5,586          524,749      $69,966,412
--------------------------------------------------------------------------------------------------------------------------------------------------------

VII. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act (``FRFA'') has been prepared
in accordance with the Regulatory Flexibility Act (``RFA'').\504\ It
relates to amendments to Rule 14a-8. An Initial Regulatory Flexibility
Analysis (``IRFA'') was prepared in accordance with the RFA and was
included in the Proposing Release.
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    \502\ From Column (D) in PRA Table 2.
    \503\ From Column (F) in PRA Table 2.
    \504\ 5 U.S.C. 601 et seq.
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A. Need for, and Objectives of, the Final Amendments

    Rule 14a-8 facilitates the proxy process for shareholders seeking
to have proposals considered at a company's annual or special meeting;
however, the burdens associated with this process are primarily borne
by issuers and their shareholders. The amendments are intended to
appropriately consider shareholders' ability to submit proposals as
well as the attendant burdens for companies and other shareholders
associated with the inclusion of such proposals in a company's proxy
statement. The reasons for, and objectives of, the final amendments are
discussed in more detail in Sections I and II above.

B. Significant Issues Raised by Public Comments

    In the Proposing Release, we requested comment on any aspect of the
IRFA, including how the proposed amendments can achieve their objective
while lowering the burden on small entities, the number of small
entities that would be affected by the proposed amendments, the
existence or nature of the potential effects of the proposed amendments
on small entities discussed in the analysis, and how to quantify the
effects of the proposed amendments. We also requested comment on the
number of shareholder-proponents that may be considered small entities.
    One commenter stated that the amendments will raise costs on
smaller shareholders.\505\ Another commenter stated that the Commission
should exempt small entities from the amended ownership requirements of
$25,000 for one year or $15,000 for two years because, in the
commenter's view, ``the existing $2,000 requirement for one year is
appropriate given that small entities by definition have small
investment portfolios of less than $5 million.'' \506\
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    \505\ See letter from Council of Institutional Investors dated
January 30, 2020.
    \506\ See letter from AFL-CIO dated February 3, 2020.
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C. Small Entities Subject to the Final Amendments

    The amendments would affect some small entities that are either:
(i) Shareholder-proponents that submit Rule 14a-8 proposals, or (ii)
issuers subject to the federal proxy rules that receive Rule 14a-8
proposals. The RFA defines ``small entity'' to mean ``small business,''
``small organization'' or ``small governmental jurisdiction.'' \507\
The definition of ``small entity'' does not include individuals. For
purposes of the RFA, under our rules, an issuer of securities or a
person, other than an investment company, is a ``small business'' or
``small organization'' if it had total assets of $5 million or less on
the last day of its 2018 fiscal year.\508\ We estimate that there are
approximately 835 issuers that are subject to the federal proxy rules,
other than investment companies, that may be considered small entities.
We are unable to estimate the number of potential shareholder-
proponents that may be considered small entities.\509\
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    \507\ 5 U.S.C. 601(6).
    \508\ 17 CFR 240.0-10(a).
    \509\ For the purposes of our Economic Analysis, we estimate
that there were 22.2 million retail accounts that held shares of
U.S. public companies during calendar year 2017. There were 170
unique proponents that submitted proposals that were included in a
company's proxy statement as lead proponent or co-proponent during
calendar year 2018. Out of these 170 unique proponents, 38 were
individuals and 132 were non-individuals. See supra Section V.B.3.
Thus, no more than 132 of these unique proponents would be
considered small entities.
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D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements

    As noted above, the primary purpose of the amendments is to
appropriately consider shareholders' ability to submit proposals as
well as the attendant burdens for companies and other shareholders
associated with the inclusion of such proposals. The amendments will
likely reduce the number of proposals required to be included in the
proxy statements of issuers subject to the federal proxy rules,
including small entities. In turn, the amendments will likely reduce
the costs to these issuers of complying with Rule 14a-8. The proposed
amendments may reduce the number of proposals that shareholder-
proponents that are small entities will be permitted to submit to
issuers for inclusion in their proxy statements. In turn, these small
entities may experience an increase in shareholder-engagement costs to
the extent these small entities elect to increase their investment to
meet the eligibility criteria or pursue alternative methods of
engagement, such as conducting their own proxy solicitation. We are not
exempting shareholders that are small entities from the amended
ownership requirements of $25,000/one-year and $15,000/two-years, as
suggested by one commenter. The amended rule will continue to allow
shareholders holding at least $2,000 of a company's securities to
submit a proposal as long as they have held their shares for at least
three years. In addition, we are adopting a transition provision that
will exempt certain existing shareholders from the new ownership
thresholds, which is expected to help with compliance burdens for those
shareholders.
    The amendments that will require shareholder-proponents to provide
written documentation regarding their ability to meet with the issuer
and relating to the appointment of a representative will slightly
increase the compliance burden for shareholder-proponents, including
those that are small entities. Compliance with the amendments may
require the use of professional skills, including legal skills. The
amendments are discussed in detail in Section II, above. We discuss the
economic impact, including the estimated costs and benefits, of the
amendments to all affected entities, including small entities, in
Section V and Section VI, above.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider alternatives
that would accomplish our stated objectives, while minimizing any
significant adverse impact on small entities. In connection with the
proposed amendments, we considered the following alternatives:
     Establishing different compliance or reporting
requirements that take into account the resources available to small
entities;
     Clarifying, consolidating, or simplifying compliance and
reporting requirements under the rules for small entities;
     Using performance rather than design standards; and
     Exempting small entities from all or part of the
requirements.
    Rule 14a-8 generally does not impose different standards or
requirements based on the size of the issuer or shareholder-proponent.
We do not believe that establishing different compliance or reporting
obligations in conjunction with the amendments or exempting small
entities from all or part of the requirements is necessary. While we
note that one commenter suggested that the Commission provide
regulatory relief from the proposed amendments

by, for example, exempting small entities from the amended ownership
requirements of $25,000 for one year or $15,000 for two years, we do
not believe that such an exemption is necessary because the amended
rule will continue to allow shareholders holding at least $2,000 of a
company's securities to submit a proposal as long as they have held
their shares for at least three years and we do not believe that
holding $2,000 of a company's securities for up to an additional two
years in order to submit a proposal will have a significant effect on
small entities. We believe the amendments are equally appropriate for
shareholder-proponents of all sizes seeking to engage with issuers
through the Rule 14a-8 process. While we do anticipate a moderate
increase in burden for some shareholder-proponents, we do not believe
that imposing different standards or requirements based on the size of
the shareholder-proponent will accomplish the purposes of the proposed
amendments, and may result in additional costs associated with
ascertaining whether a particular shareholder-proponent may avail
itself of such different standards. For issuers, the amendments will
not impose any significant new compliance obligations. To the contrary,
they will reduce the compliance costs of affected issuers, including
small entities, by decreasing the number of shareholder proposals that
may be submitted. For these reasons, we are not adopting differing
compliance or reporting requirements or timetables for issuers that are
small entities, or an exception for small entities.
    We believe that the amendments do not need further clarification,
consolidation, or simplification for small entities. The amendments
generally use design standards rather than performance standards in
order to promote uniform submission requirements for all shareholder-
proponents, and we do not believe that there are aspects of the
amendments for which performance standards would be appropriate.

VIII. Statutory Authority

    The final amendments contained in this release are being adopted
under the authority set forth in Sections 3(b), 14, and 23(a) of the
Exchange Act, as amended.

List of Subjects in 17 CFR Part 240

    Brokers, Confidential business information, Fraud, Reporting and
recordkeeping requirements, Securities.

Text of the Final Amendments

    In accordance with the foregoing, we are amending title 17, chapter
II, of the Code of Federal Regulations as follows:

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934

0
1. The authority citation for part 240 continues to read, in part, as
follows:

    Authority:  15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78c-3, 78c-5, 78d, 78e, 78f,
78g, 78i, 78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78n-1, 78o, 78o-4,
78o-10, 78p, 78q, 78q-1, 78s, 78u-5, 78w, 78x, 78dd, 78ll, 78mm,
80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 80b-11, and 7201 et
seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C.
1350; Pub. L. 111-203, 939A, 124 Stat. 1376 (2010); and Pub. L. 112-
106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.
* * * * *

0
2. Amend Sec.  240.14a-8 by:
0
i. Revising paragraphs (b)(1) and (2);
0
ii. Effective January 4, 2021, through January 1, 2023, adding
paragraph (b)(3);
0
iii. Revising paragraph (c); and
0
iv. Revising paragraph (i)(12).
    The revisions and addition read as follows:

Sec.  240.14a-8   Shareholder proposals.

* * * * *
    (b) * * *
    (1) To be eligible to submit a proposal, you must satisfy the
following requirements:
    (i) You must have continuously held:
    (A) At least $2,000 in market value of the company's securities
entitled to vote on the proposal for at least three years; or
    (B) At least $15,000 in market value of the company's securities
entitled to vote on the proposal for at least two years; or
    (C) At least $25,000 in market value of the company's securities
entitled to vote on the proposal for at least one year; or
    (D) The amounts specified in paragraph (b)(3) of this section. This
paragraph (b)(1)(i)(D) will expire on the same date that Sec.  240.14a-
8(b)(3) expires; and
    (ii) You must provide the company with a written statement that you
intend to continue to hold the requisite amount of securities,
determined in accordance with paragraph (b)(1)(i)(A) through (C) of
this section, through the date of the shareholders' meeting for which
the proposal is submitted; and
    (iii) You must provide the company with a written statement that
you are able to meet with the company in person or via teleconference
no less than 10 calendar days, nor more than 30 calendar days, after
submission of the shareholder proposal. You must include your contact
information as well as business days and specific times that you are
available to discuss the proposal with the company. You must identify
times that are within the regular business hours of the company's
principal executive offices. If these hours are not disclosed in the
company's proxy statement for the prior year's annual meeting, you must
identify times that are between 9 a.m. and 5:30 p.m. in the time zone
of the company's principal executive offices. If you elect to co-file a
proposal, all co-filers must either:
    (A) Agree to the same dates and times of availability, or
    (B) Identify a single lead filer who will provide dates and times
of the lead filer's availability to engage on behalf of all co-filers;
and
    (iv) If you use a representative to submit a shareholder proposal
on your behalf, you must provide the company with written documentation
that:
    (A) Identifies the company to which the proposal is directed;
    (B) Identifies the annual or special meeting for which the proposal
is submitted;
    (C) Identifies you as the proponent and identifies the person
acting on your behalf as your representative;
    (D) Includes your statement authorizing the designated
representative to submit the proposal and otherwise act on your behalf;
    (E) Identifies the specific topic of the proposal to be submitted;
    (F) Includes your statement supporting the proposal; and
    (G) Is signed and dated by you.
    (v) The requirements of paragraph (b)(1)(iv) of this section shall
not apply to shareholders that are entities so long as the
representative's authority to act on the shareholder's behalf is
apparent and self-evident such that a reasonable person would
understand that the agent has authority to submit the proposal and
otherwise act on the shareholder's behalf.
    (vi) For purposes of paragraph (b)(1)(i) of this section, you may
not aggregate your holdings with those of another shareholder or group
of shareholders to meet the requisite amount of securities necessary to
be eligible to submit a proposal.
    (2) One of the following methods must be used to demonstrate your
eligibility to submit a proposal:
    (i) If you are the registered holder of your securities, which
means that your

name appears in the company's records as a shareholder, the company can
verify your eligibility on its own, although you will still have to
provide the company with a written statement that you intend to
continue to hold the requisite amount of securities, determined in
accordance with paragraph (b)(1)(i)(A) through (C) of this section,
through the date of the meeting of shareholders.
    (ii) If, like many shareholders, you are not a registered holder,
the company likely does not know that you are a shareholder, or how
many shares you own. In this case, at the time you submit your
proposal, you must prove your eligibility to the company in one of two
ways:
    (A) The first way is to submit to the company a written statement
from the ``record'' holder of your securities (usually a broker or
bank) verifying that, at the time you submitted your proposal, you
continuously held at least $2,000, $15,000, or $25,000 in market value
of the company's securities entitled to vote on the proposal for at
least three years, two years, or one year, respectively. You must also
include your own written statement that you intend to continue to hold
the requisite amount of securities, determined in accordance with
paragraph (b)(1)(i)(A) through (C) of this section, through the date of
the shareholders' meeting for which the proposal is submitted; or
    (B) The second way to prove ownership applies only if you were
required to file, and filed, a Schedule 13D (Sec.  240.13d-101),
Schedule 13G (Sec.  240.13d-102), Form 3 (Sec.  249.103 of this
chapter), Form 4 (Sec.  249.104 of this chapter), and/or Form 5 (Sec.
249.105 of this chapter), or amendments to those documents or updated
forms, demonstrating that you meet at least one of the share ownership
requirements under paragraph (b)(1)(i)(A) through (C) of this section.
If you have filed one or more of these documents with the SEC, you may