of estimated proponents whose proposals appeared in proxy statements
during 2018 (i.e., 170) to the number of direct and indirect investors
in companies subject to the proxy rules (i.e., 65 million) is extremely
small (i.e., 0.0000026 to one). The ratio is less than three
shareholder-proponents per million investors. In other words, for both
institutional and retail shareholders, the pool of shareholders that
has demonstrated an interest in submitting shareholder proposals
generally is separate and distinct from the overall general pool of
shareholders. As a result, extrapolating from the general pool of
shareholders to the pool of shareholders with an interest in submitting
a proposal (and vice versa) is unlikely to provide a meaningful basis
for analysis and insight.
---------------------------------------------------------------------------

    \303\ Data is retrieved from proxy statements (see Proposing
Release at 66487 for a discussion of this data and its limitations).
This data includes only shareholder proposals that appeared on the
companies' proxy statements in 2018. In a broader set of submitted
shareholder proposals, which includes voted, omitted, and withdrawn
proposals, we estimate that 278 unique proponents submitted a
proposal as lead proponent or co-proponent during calendar year
2018. Data is retrieved from ISS Analytics.
---------------------------------------------------------------------------

C. Estimated Reduction in the Number of Shareholder Proposals

    We expect the primary economic effects of the final amendments, in
the aggregate, to derive from the reduction in shareholder proposals
included in companies' proxy statements. Because of the potential ways
in which

proponents may satisfy, or alter their behavior to satisfy, the amended
ownership thresholds for initial submissions, we believe it is more
likely that the reduction in shareholder proposals will result from the
amendments to the resubmission thresholds. The magnitude of the overall
reduction will determine the magnitude of the benefits and costs
discussed in Section V.D below.\304\
---------------------------------------------------------------------------

    \304\ Some commenters stated that the economic analysis should
consider the interaction of the effects of the amendments to Rule
14a-8 with the effects of the amendments to Rule 14a-2(b). See,
e.g., letter from Senator Sherrod Brown dated August 21, 2020. In
particular, commenters argued that the amendments to Rule 14a-2(b)
will make it harder for shareholder proposals to meet the amended
resubmission thresholds because the amendments to Rule 14a-2(b) will
allow management to influence proxy voting advice businesses'
recommendations related to proposals that management considers
unfavorable to them. See, e.g., letters from Ceres et al. dated
February 3, 2020; Shareholder Rights Group dated January 6, 2020;
Trillium Asset Management dated February 3, 2020. A commenter also
stated that the amendments to Rule 14a-2(b) will increase
shareholders' costs of processing shareholder proposals because the
cost of proxy voting advice businesses will increase and proxy
voting advice will be issued with a delay. See, e.g., letter from
Council of Institutional Investors dated January 30, 2020. To the
extent that there is an increase in shareholders' costs of
processing shareholder proposals from the amendments to Rule 14a-
2(b), any cost savings associated with the increase in excludable
proposals as a result of the amendments to Rule 14a-8 may be higher.
Nevertheless, we believe that any such effects that result from the
interaction between the amendments to Rule 14a-8 and Rule 14a-2(b)
likely will be small because the final amendments to Rule 14a-2(b)
include certain revisions intended to mitigate the unintended
consequences identified by commenters (i.e., undue influence and
increased costs).
---------------------------------------------------------------------------

    We received two comments on the Preliminary Staff Analysis and the
August 14, 2020 memorandum.\305\ One of these commenters asserted that
the Commission should have provided the public notice of and an
opportunity to comment on the Preliminary Staff Analysis in the
Proposing Release.\306\ As discussed above and in the August 14, 2020
memorandum, when Commission staff receives a data set in the context of
a rulemaking, it often will attempt to conduct preliminary analyses
with the data in an effort to determine whether analysis of the data
could reliably inform the Commission's decision-making, including
assessing limitations in the data and assumptions regarding the data
that would be necessary or appropriate as well as its analytical value
to the proposed rulemaking in light of those limitations and
assumptions. Consistent with that approach, staff analyzed the data set
provided by Broadridge in connection with the Commission's
consideration of the proposed amendments to Rule 14a-8. However, as
described in the August 14, 2020 memorandum from the Commission's Chief
Economist accompanying the Preliminary Staff Analysis, due to the
significant limitations in the data and the extent and nature of the
related assumptions that would be necessary to make use of it, neither
the data set nor the associated Preliminary Staff Analysis could be
used to reliably assess the potential impact of our rule amendments on
retail shareholders and accordingly, neither the data nor the related
analysis were included in the Proposing Release. This is not an
unprecedented occurrence in the context of a proposed rulemaking, and
we note that in the Proposing Release the Commission requested that
commenters submit data that would allow the Commission to reliably
assess the impact of the proposal.\307\
---------------------------------------------------------------------------

    \305\ See letters from Council of Institutional Investors et al.
dated September 4, 2020; Sherrod Brown dated August 21, 2020.
    \306\ See letter from Council of Institutional Investors et al.
dated September 4, 2020.
    \307\ See Proposing Release at 66508-66509.
---------------------------------------------------------------------------

    The Commission satisfied its obligation under the Administrative
Procedure Act (``APA'') to include in the Proposing Release ``either
the terms or substance of the proposed rule or a description of the
subjects and issues involved,'' \308\ and to ``give interested persons
an opportunity to participate in the rule making through submission of
written data, views, or arguments.'' \309\ These requirements also
entail a duty ``to identify and make available technical studies and
data that it has employed in reaching the decisions to propose
particular rules.'' \310\ As the Commission's Chief Economist explained
in his August 14, 2020 memorandum accompanying the Preliminary Staff
Analysis, the staff did not rely on the Broadridge data set or the
Preliminary Staff Analysis in formulating its recommendations for the
Commission, having concluded that the data set had limitations that
significantly narrowed its potential value in analyzing the impact of
the proposed amendments. Consequently, the Commission did not rely on
this data or analysis in determining to propose the amendments.
---------------------------------------------------------------------------

    \308\ 5 U.S.C. 553(b)(3).
    \309\ Id. 553(c).
    \310\ Owner-Operator Indep. Drivers Ass'n, Inc. v. Fed. Motor
Carrier Safety Admin., 494 F.3d 188, 201-03 (D.C. Cir. 2007)
(quotation omitted).
---------------------------------------------------------------------------

    Although the Commission was not obligated to do so, it referenced
the Broadridge data set and its limitations in the Proposing Release
and invited commenters to submit data that would allow us to reliably
estimate the potential effects of the rule.\311\ Moreover, we have
provided an opportunity for public comment on the Preliminary Staff
Analysis as well as a memorandum from the Chief Economist discussing
the limitations of that analysis, which were placed in the public
comment file on August 14, 2020.\312\ In formulating the final
amendments, we have considered the comments received since that time,
as discussed further below.\313\
---------------------------------------------------------------------------

    \311\ Broadridge was not identified in the Proposing Release.
Until recently, Broadridge had asked not to be identified as the
source of the data set. Additionally, Broadridge did not submit the
data set to the public comment file in response to the request for
comment. After receiving confirmation that the staff could attribute
the Broadridge data set by name, the staff added the Preliminary
Staff Analysis to the comment file.
    \312\ One commenter noted that the Preliminary Staff Analysis
was added to the comment file after the comment period closed in
February 2020. See letter from Council of Institutional Investors et
al. dated September 4, 2020. The Proposing Release made clear,
however, that we or the staff ``may add studies, memoranda, or other
substantive items to the comment file during this rulemaking.'' See
Proposing Release at 66458. Moreover, the Commission and staff have
historically considered comments submitted after a comment period
closes but before adoption of a final rule, consistent with the
Commission's Informal and Other Procedures (17 CFR 202.6).
Consistent with that practice, we have done so here.
    \313\ We disagree with a commenter who argued that the inclusion
of the Preliminary Staff Analysis in the comment file after the
Proposing Release was inconsistent with the staff's Current Guidance
on Economic Analysis in SEC Rulemakings. See letter from Council of
Institutional Investors et al. dated September 4, 2020 (citing
Current Guidance on Economic Analysis in SEC Rulemakings, available
at https://www.sec.gov/divisions/riskfin/rsfi_guidance_econ_analy_secrulemaking.pdf (``Staff Guidance'')). As
noted above, the Proposing Release specifically indicated that
``studies, memoranda, or other substantive items'' might be added to
the comment file during the rulemaking. Nor does the Staff Guidance
require that the Commission engage in economic analysis based on
data that it reasonably believes cannot reliably inform an
assessment of the benefits and costs of a rule. See Staff Guidance
at 14. Rather, the Staff Guidance is designed to allow for
flexibility in the context of any particular rulemaking (id. at 2)
and the approach taken here was appropriate in the circumstances. In
any event, the Staff Guidance is derived from the Commission's
statutory obligations under the APA and the Exchange Act, among
others, and does not itself impose enforceable obligations
independent of those requirements.
---------------------------------------------------------------------------

    Two commenters asserted that the Proposing Release should have
addressed the figures in the Preliminary Staff Analysis, including the
attempts to estimate the percentage of all companies for which less
than 25% or 5% of accounts in the Broadridge data set would be eligible
to have their shareholder proposal included in the company's proxy
statement under the baseline and under the proposed amendments.\314\
---------------------------------------------------------------------------

    \314\ See letters from Council of Institutional Investors et al.
dated September 4, 2020; Sherrod Brown dated August 21, 2020.

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

    As described in the August 14, 2020 memorandum, the Broadridge data
set suffered from significant limitations. As only one example, in
analyzing the potential impact of possible changes to shareholder
proposal eligibility, the staff was unable to determine with reasonable
accuracy from the data set whether the snapshot of account holdings
provided by Broadridge could be used to determine whether individual
investors in fact met ownership and duration thresholds under the
current or revised eligibility requirements (and therefore was unable
to determine with reasonable accuracy the potential impact), because
the data set does not identify account holdings as of the deadline to
submit a shareholder proposal or as of the annual meeting date. Rather,
it only includes data points as of the record date, which do not extend
sufficiently in time to capture the minimum holding requirements.
Additionally, neither Broadridge nor the staff were able to confirm
that the anonymized accounts in the Broadridge data set represented
retail shareholders, and the data was provided on an account-level
basis, not an investor-level basis, while investors may hold securities
in the same company through more than one account. For these and other
reasons, including those set forth in the August 14, 2020 memorandum,
we believe the Broadridge data, including through the Preliminary Staff
Analysis, cannot be used to reliably determine the number of retail
investors who would be affected by the proposed amendments.
    In addition, and apart from the specific issues associated with the
limitations of the Broadridge data and the reliability of the
Preliminary Staff Analysis, we do not believe an analysis of which
companies have, for example, 5%, 10%, or 25% of their accounts eligible
to submit proposals under the current or revised submission thresholds
provides a meaningful basis on which to analyze the impact of the
proposals. We note, for example, that we approximate that only roughly
0.0003% of investors actually submitted shareholder proposals that
appeared in 2018 proxy statements, and that such a general analysis
would not allow us to estimate reliably the impact of the proposals on
that small subset of shareholders that are likely to submit
proposals.\315\
---------------------------------------------------------------------------

    \315\ 0.0003% = 170 unique proponents that submitted proposals
that were included in a company's proxy statement as lead proponent
or co-proponent during calendar year 2018/65 million U.S. investors.
See supra note 72.
    Even looking at a broader set of submitted shareholder
proposals, which includes voted, omitted, and withdrawn proposals,
the estimated 278 unique proponents who submitted a proposal as lead
proponent or co-proponent during calendar year 2018 represent only
approximately 0.0004% of all shareholders. See Memorandum.
---------------------------------------------------------------------------

    Separate from the limitations inherent in extrapolating from a
large pool of shareholders with diversified preferences to a very small
subset of that group that expresses a specific preference, such a
general analysis is static and, therefore, would not reflect the
expectation that shareholders with a specific preference for submitting
a proposal would adjust their holdings to meet the revised submission
thresholds, including by holding shares for an additional period of
time or otherwise adjusting their portfolios. For example, many
investors also invest through investment funds, which would not be
captured by company-specific account-level data. However, these
shareholders could reallocate their fund holdings to increase their
positions in individual companies if they desired to submit a
shareholder proposal and did not want to wait to meet the revised
eligibility requirements. Shareholders also could make various other
adjustments to their holdings to address their individual eligibility
preferences. Because, as discussed below, we do not expect the marginal
cost of these adjustments to be significant, the inability to account
for this behavior significantly narrowed the potential value of the
analysis in analyzing the impact of possible changes to the eligibility
thresholds.
    One commenter expressed the view that it was inappropriate to
distinguish between retail investors who have filed proposals in the
past and those who have not in considering the likely impact of the
proposed amendments on retail shareholders.\316\ This commenter argued
that investors who have not exercised their rights to have a
shareholder proposal included in the company's proxy statement would
nonetheless bear a cost if those rights were taken away, because a
right can have value even if it is not exercised.
---------------------------------------------------------------------------

    \316\ See letter from Council of Institutional Investors et al.
dated September 4, 2020.
---------------------------------------------------------------------------

    The Commission notes that every retail shareholder cited by the
commenter whose current eligibility to submit a proposal is based on
having held at least $2,000 worth of company stock for at least one
year will continue to be eligible to submit a proposal during the
transition period. In addition, while these shareholders' eligibility
may be affected in the future, they can maintain their eligibility at
that time by simply continuing to maintain at least $2,000 of company
stock. More generally, the Commission has considered the potential
costs and benefits of the rule amendments, including those associated
with retail shareholders who, in the future, would meet the current
eligibility thresholds but who may not meet the revised thresholds
because, for example, they choose not to continue to hold at least
their $2,000 worth of company securities for any additional required
time. We continue to believe that, to the extent that any shareholder
who has held at least $2,000 worth of company securities for one year
chooses not to meet the revised eligibility thresholds, including by
simply holding that same dollar amount of stock for a maximum of two
additional years, that shareholder has not demonstrated a sufficient
investment interest in a company to be able to draw on company and
shareholder resources for the purpose of including a proposal in the
company's proxy statement, including requiring fellow shareholders to
potentially review, consider, and vote on that proponent's proposal.
    Moreover, as discussed in more detail below, the costs to the
shareholder-proponent to submit a proposal are low, including when
compared to the costs incurred by companies and non-proponent
shareholders, such as, among others, the costs to the shareholder to
review, consider, and vote on the proposal. To the extent that the
potential shareholder-proponents cited by the commenter incur
additional costs to maintain eligibility under the new thresholds--
including, for example, costs associated with maintaining at least
$2,000 worth of stockholdings for a maximum of two additional years
(which could be offset to some extent by benefits of holding the
shares)--we believe those costs would be appropriate in light of the
related benefits of the rule amendments, including those associated
with an increased alignment of interest between the proponent and the
non-proponent shareholders who would incur costs associated with
reviewing, considering, and voting on the proponent's proposal.\317\
---------------------------------------------------------------------------

    \317\ For the same reason, we disagree with one commenter's
assertion that ``the impact of the proposed amendments would be much
broader than the Commission's release asserted, effectively
depriving most retail shareholders of the rights and ability to use
the shareholder proposal process to protect and advance their
interests as investors.'' See letter from Council of Institutional
Investors et al. dated September 4, 2020. As noted above, every
retail shareholder cited by the commenter who currently is eligible
to submit a proposal by having held $2,000 worth of company stock
for at least one year will continue to be eligible to submit a
proposal by simply continuing to maintain $2,000 of company stock
for a maximum of two additional years.

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

    We also believe that the cost, if any, to shorter-term shareholders
that have not previously demonstrated a desire to submit a shareholder
proposal of the potentially applicable longer holding periods under the
amended thresholds is likely to be small for a number of reasons. For
example, and more specifically, (1) given that such a small number of
total shareholders have submitted proposals over time, it would not be
expected that a significant number of smaller, shorter-term
shareholders that have not previously demonstrated a desire to submit a
shareholder proposal would change their preferences and desire to
submit a proposal, and (2) even if a particular shareholder changed his
or her preferences, he or she could choose to remain eligible by
incurring the marginal cost of holding at least $2,000 of his or her
current shareholding for a total of three years. Accordingly, we
estimate the potential loss in value cited by the commentator, if any,
to be low.
    In the Proposing Release, we estimated the reduction in the number
of shareholder proposals assuming no change in shareholder-proponent
behavior as a result of the rule amendments.\318\ This analysis
provides an upper bound estimate of the reduction in shareholder
proposals that is unlikely to be observed in practice because
shareholder-proponents are expected to respond to the final amendments
by taking actions to mitigate the effects of rule amendments on their
ability to submit proposals. Such actions may reduce the magnitude of
the final amendments' effects on the number of shareholder proposals,
thereby reducing the benefit of the amendments but also reducing the
costs. However, as noted above, extrapolating from the general pool of
shareholders has significant limitations, and it is difficult to
anticipate the shareholder-proponents' responses. Accordingly, it
should be recognized that our efforts to provide a quantitative
analysis are inherently limited. In this section, we first summarize
the analysis included in the Proposing Release from which we estimate
the upper bound of the reduction and then describe how changes in
shareholder-proponent behavior could affect the magnitude of the
reduction in shareholder proposals.
---------------------------------------------------------------------------

    \318\ See Proposing Release at 66496-66498.
---------------------------------------------------------------------------

    Table 1 below provides an estimated range of the upper bound of the
percentage of current shareholder proposals that we anticipate could be
excludable as a result of the rule amendments assuming no change in
shareholder-proponents' behavior and not taking into account the
temporary effect of the transition period that the final rules
provide.\319\ As discussed in more detail below, we do not believe this
assumption will prove to be correct in practice. We can only estimate
the range, and not a precise number, of the reduction in shareholder
proposals associated with changes to the ownership thresholds because
we do not have data on duration of holdings for shareholder-
proponents.\320\ We do not expect the final amendments relating to the
one-percent ownership threshold and shareholder engagement or the final
amendment requiring certain documentation when using a representative
to meaningfully impact the number of shareholder proposals included in
companies' proxy statements, because the one-percent

ownership threshold currently is rarely utilized in light of the
$2,000/one-year threshold and the majority of shareholders that submit
a proposal through a representative already provide much of the
documentation that is mandated by the final amendments, consistent with
existing staff guidance.\321\
---------------------------------------------------------------------------

    \319\ See Proposing Release at 66496 for details on the
methodology and its limitations. Table 1 does not account for
possible overlap of excludable proposals across final amendments. In
particular, if final amendments result in a particular proposal
being excludable under both amended Rule 14a-8(b) and amended Rule
14a-8(i)(12), we include this proposal in the estimation of the
effects for both of the final amendments.
    \320\ Several commenters provided staff with statistics related
to equity holdings of U.S. investors. In particular, several
commenters provided ownership data regarding themselves or their
clients. See, e.g., letters from CalPERS dated February 3, 2020;
First Affirmative Financial Network, LLC dated January 24, 2020;
James McRitchie dated November 5, 2019; James McRitchie dated July
21, 2020. One commenter cited a Department of Labor study observing
that the median brokerage account balance of U.S. investors was
$6,200 in 2013. See letter from Better Markets dated February 3,
2020 (citing Advanced Analytical Consulting Group & Deloitte,
Brokerage Accounts in the United States (Nov. 30, 2015), available
at https://www.dol.gov/sites/dolgov/files/EBSA/researchers/analysis/retirement/brokerage-accounts-in-the-us.pdf (``Department of Labor
Study'')). Another commenter cited the same Department of Labor
study noting that households with a brokerage account owned $248,000
in stocks on average in 2013. See letter from Jane Bulnes-Fowles
dated February 3, 2020 (citing the Department of Labor Study). A
third commenter cited a Census Bureau study observing that among
U.S. households, the median holdings of stocks and mutual funds was
$47,000 in 2016. See letter from Paul Rissman dated January 15, 2020
(citing Jonathan Eggleston & Robert Munk, Net Worth of Households:
2016, U.S. Census Bureau (Oct. 2019), available at https://www.census.gov/content/dam/Census/library/publications/2019/demo/p70br-166.pdf). A fourth commenter cited a study from the National
Institute on Retirement Security, which analyzed data from the U.S.
Census Bureau and showed that the median U.S. retirement account
balance is zero, and from those accounts with a non-zero balance,
the median account balance is approximately $40,000. See, e.g.,
letter from AFL-CIO dated February 3, 2020 (citing Jennifer Erin
Brown et al., Retirement in America: Out of Reach for Working
Americans?, National Institute on Retirement Security, at 1 (Sept.
2017), available at https://www.nirsonline.org/wp-content/uploads/2018/09/SavingsCrisis_Final.pdf) (``Brown (2017)''). A fifth
commenter cited a report documenting an average 401(k) balance in
the third quarter of 2019 of $105,200. See letters from Shareholder
Commons dated January 31, 2020 (citing Fidelity Investments,
Building Financial Futures, available at https://sponsor.fidclity.com/binpublic/06PSWwebsite/documents/BuildingFinancialFutures.pdf). Some commenters cited a median value
of retail investors' stock portfolios equal to $27,699. See, e.g.,
letter from Better Markets dated February 3, 2020. A final commenter
cited a Federal Reserve bulletin according to which the median
retirement portfolio in the United States was $60,000 in 2016. See,
e.g., letter from Ceres et al. dated February 3, 2020 (citing
Bricker et al. (2017), supra note 301). See also letter from James
McRitchie dated July 21, 2020 (providing statistics on share
ownership similar to the statistics provided by other commenters).
Relatedly, some commenters noted that in practice, shareholder-
proponents must hold a share value significantly higher than the
required ownership threshold because stock prices are volatile and
share ownership thresholds must be maintained for a certain period
of time. See, e.g., letter from First Affirmative Financial Network,
LLC dated January 24, 2020. The above-mentioned statistics provide
information that is additional to the ownership data from proxy
statements and no-action letters because they provide ownership
information of potential rather than current proponents.
Nevertheless, these statistics do not allow us to distinguish
between the holdings of all shareholders and the holdings of the
shareholders that are likely to submit a proposal, so we have not
used them in our analysis.
    Other commenters provided us with statistics on shareholders'
ownership duration (see also Proposing Release at 66490 for
additional statistics on shareholders' ownership duration). In
particular, one commenter cited a white paper that estimated the
average duration of holdings across all shareholders of nine months
as of December 2018 using data of share turnover for NYSE listed
securities. See letter in response to the Proxy Process Roundtable
from Shareholder Rights Group dated December 4, 2018. Another
commenter cited an academic study, which estimated that the average
holding period for individual accounts at a U.S. discount brokerage
was 16 months between 1991 and 1996. See letter from AFL-CIO dated
February 3, 2020 (citing Brad Barber & Terrance Odean, Trading Is
Hazardous to Your Wealth: The Common Stock Investment Performance of
Individual Investors, 55 J. FIN. 773, 775 (2000) (``Barber & Odean
(2000)'')). Using the same data as in Barber & Odean 2000, another
paper found that the median holding period of individual investors
is 207 trading days. See Deniz Anginer, Snow Xue Han & Celim
Yildizhan, Do Individual Investors Ignore Transaction Costs?
(Working Paper, 2018), available at https://ssrn.com/abstract=2972845. A third commenter cited a study, which estimated
that the average holding period of mutual funds between 2005 and
2015 was 15 to 17 months. See letter from AFL-CIO dated February 3,
2020 (citing Anne M. Tucker, The Long and The Short: Portfolio
Turnover Ratios & Mutual Fund Investment Time Horizons, 43 J. Corp.
L. 581 (2018)). Finally, another commenter cited an academic study
that showed that the median duration of holdings for institutional
investors in 2015 was two years. See letter from Institute for
Policy Integrity dated February 3, 2020 (citing K.J. Martijn Cremers
& Simone M. Sepe, Institutional Investors, Corporate Governance, and
Firm Value, 41 Seattle U. L. Rev. 387, 403 (2018)). Nevertheless, it
is difficult to infer duration of holdings of shareholder-proponents
from these studies because they do not separately consider holdings
of shareholders that already submitted or are likely to submit
shareholder proposals. Drawing conclusions about duration of
holdings based on the data provided by commenters would be
inherently speculative because shareholder-proponents constitute a
very small (i.e., three shareholder-proponents per million
investors) and non-random set of shareholders.
    \321\ See Proposing Release 66499.
    \322\ See Proposing Release at 66497. Table 1 uses data from
proxy statements to estimate the number of excludable proposals as a
result of the final amendments to Rule 14a-8(b) and Rule 14a-8(c).
Our analysis using data from no-action letters yields qualitatively
similar results. The low end of the range (i.e., 0%) assumes that
all of the 170 proponents held the stock for three years. The high
end of the range (i.e., 56%) assumes that none of the 170
proponents, all of whom held the stock for one year, held the stock
for three years, and assumes that proponents do not hold any more
company stock outside of the single account that they cite for their
public proof of ownership. We believe these assumptions are
overinclusive.
    Table 1 estimates the joint impact of the amendments to the
ownership thresholds and the prohibition on aggregation of
shareholdings on the number of shareholder proposals included in
companies' proxy materials. On the one hand, we estimate that
changing the ownership thresholds while maintaining shareholders'
ability to aggregate holdings across shareholder-proponents would
have resulted in a reduction in the number of shareholder proposals
included in companies' proxy statements in 2018 between zero and 54
percent. On the other hand, we estimate that prohibiting aggregation
of holdings across shareholder-proponents without raising ownership
thresholds would not have resulted in a change in the number of
shareholder proposals included in companies' proxy statements in
2018.
    \323\ See Proposing Release at 66497.
    \324\ In the Proposing Release, we estimated that the amendments
to Rule 14a-8(i)(12) could have resulted in 30 additional excludable
proposals in 2018. See Proposing Release at 66500 n.259. Because we
are not adopting the proposed Momentum Requirement, our estimated
reduction in the number of shareholder proposals is lower than the
estimate in the Proposing Release. In particular, we estimate that
the amendments to the resubmission thresholds could result in 23
additional excludable proposals in 2018, which is approximately 5%
of the 423 shareholder proposals that appear as first-time
submissions or resubmissions during 2018 in a report prepared by the
Council of Institutional Investors (see Proposing Release at 66469
n.92). See Proposing Release at 66490 n.197.
    One commenter estimated the number of excludable proposals as a
result of the amendments to the resubmission thresholds to be around
21%. See letter from Sustainable Investments Institute dated
February 3, 2020. The commenter's analysis only examines the effects
of the rule amendments on environmental and social proposals; it
does not include governance and other proposals in the analysis. In
addition, based on our understanding of the methodology used, we
believe that the commenter's estimate of the effect of the rule
amendments is overstated because the commenter counts as excludable
all proposals that do not meet the resubmission thresholds
regardless of whether those proposals were ultimately resubmitted or
not. We are unable to confirm whether the commenter's classification
of proposals as resubmissions is accurate. The same limitations
apply to the updated analysis using data from the 2020 proxy season
conducted by Sustainable Investments Institute and included as an
attachment to the letter from Council of Institutional Investors et
al. dated July 29, 2020.

 Table 1--Upper Bound Estimate of the Percentage of Excludable Proposals
by Rule Amendment Assuming No Change in Shareholder-Proponents' Behavior
------------------------------------------------------------------------
                       Amendment:                             Percent
------------------------------------------------------------------------
Rule 14a-8(b)--ownership thresholds and prohibition on              0-56
 aggregation \322\......................................
Rule 14a-8(c)--one proposal per person \323\............               2
Rule 14a-8(i)(12)--resubmission thresholds \324\........               5
------------------------------------------------------------------------

    These estimates are subject to several significant limitations and
should be interpreted with caution. First, as noted earlier, when
estimating the number of potentially excludable shareholder proposals
in the analysis above, we assume that proponent behavior with respect
to shareholder proposal submissions will remain unchanged. In reality,
we believe this is highly unlikely. As noted, of the 65 million U.S.
investors, only 170 submitted shareholder proposals that appeared in
proxy statements in 2018 and were subsequently voted, and of those,
only 38 were individuals (the rest were institutional investors). To
meet the new initial submission thresholds, these investors--who
typically already have owned at least $2,000 of company stock for at
least one year or perhaps longer--would already be eligible to submit a
proposal due to their holding period or the size of their holding, or
would need to hold the same amount of stock for at most two more
years.\325\
---------------------------------------------------------------------------

    \325\ If they held more than $2,000 but less than $15,000 or
$25,000 in stock and had not yet met the three-year holding period.
---------------------------------------------------------------------------

    Accordingly, we believe it is likely that, in response to the
amendments, proponents that desire to submit a proposal but could be
precluded from submitting shareholder proposals due to the new
requirements would decide to hold shares for a longer period or
increase their holdings of certain stocks to meet the amended
eligibility requirements.\326\ If shareholders respond by changing
their investment behavior, or if many currently eligible holders are
already long-term holders, the actual number of newly excludable
shareholder proposals as a result of changes to Rule 14a-8(b) and Rule
14a-8(c) will likely be significantly lower than the upper bound of
excludable proposals estimated above.
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    \326\ We note that portfolio reallocation is not costless or
frictionless. We discuss costs associated with this type of
reallocation in detail below in Section V.D.
---------------------------------------------------------------------------

    Second, another significant limitation in our data, and accordingly
in the estimates presented in Table 1, is that it relies on proof of
ownership letters provided by shareholder-proponents in connection with
their shareholder proposals. Those letters typically are written by a
broker-dealer or custodian of the shares and are written solely for the
purpose of proving that the proponent meets the minimum size and length
of ownership threshold requirements. For a number of reasons, which may
include privacy concerns because in many cases these letters are made
public, proponents may choose to keep some of their holdings in
accounts that are separate from the account they use to prove
compliance with the ownership thresholds. Thus, this analysis could
underestimate proponents' actual holdings and, accordingly,
overestimate the number of newly excludable proposals.
    Third, an issue that is sufficiently important to the broader
shareholder base can be brought to the company's attention by other
shareholders, including those that continue to be eligible to submit a
shareholder proposal. Therefore, to the extent that shareholders with
holdings that satisfy the amended ownership thresholds choose to take
up proposals of shareholder-proponents precluded from submitting
certain proposals under the final rule amendments, these proposals may
continue to be included in companies' proxy statements.\327\
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    \327\ As discussed below, institutional investors are less
likely to be affected by the amendments to the ownership thresholds
than retail investors (see infra note 392 and accompanying text).
Several commenters discussed the likelihood of shareholders with
larger stakes taking up shareholder proposals of proponents who
would no longer meet amended eligibility requirements. In
particular, one commenter argued that some asset managers have
conflicts that may make them less likely to take up proposals that
would have been submitted by the newly excludable proponents. The
commenter asserted that some asset managers are reluctant to submit
proposals against a company's management because they rely on a
company's management for the assignment of the administration of the
company's defined contribution plan and the inclusion of the asset
manager's products in the menu of investment options available to
plan participants. See letter from Lucian A. Bebchuk dated February
3, 2020 (citing Lucian A. Bebchuk & Scott Hirst, Index Funds and the
Future of Corporate Governance: Theory, Evidence, and Policy, 119
Colum. L. Rev. 2029 (2019)). In addition, commenters indicated that
some larger shareholders may become more active in submitting
shareholder proposals but this response will be muted by regulatory
disincentives, the fact that large investors are less nimble than
smaller investors that have more flexibility to submit proposals on
emerging matters, and the fact that large institutions have direct
access to management and thus are less likely to submit a
shareholder proposal. See, e.g., letters from Council of
Institutional Investors dated January 30, 2020; Interfaith Center on
Corporate Responsibility dated January 27, 2020; James McRitchie
dated February 2, 2020.

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

    Fourth, the aggregate reduction in shareholder proposals may be
lower than the one estimated above if shareholder-proponents decide to
rotate proposals on similar topics among different companies or to
submit proposals to the same company but on a different topic in
response to changes to the resubmission thresholds. Lastly,
shareholder-proponents may use alternative avenues of communication
with management, which will not impact the number of excludable
proposals but may impact the aggregate economic effects of the rule
amendments. While we expect changes in behavior described above to
moderate the reduction in submitted shareholder proposals and impact
the economic effects of the rule amendments, we cannot quantify the
magnitude of this impact because we cannot reliably predict the extent
to which shareholder-proponents would change their behavior in response
to final amendments.
    In addition, our estimation of newly excludable proposals does not
reflect the final amendments' transition provision, which will
temporarily decrease the number of excludable proposals as a result of
the amendments to the ownership thresholds.\328\ Finally, we note that
while the final amendments may result in a reduction in the number of
shareholder proposals, companies may always elect to include in their
proxy materials, or implement proposals, that will otherwise be
excludable if they believe that those proposals will benefit
shareholders.\329\
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    \328\ The transition provision will temporarily exempt from the
new ownership thresholds certain shareholder-proponents that met the
former eligibility requirements and maintain continuous ownership of
their shares, allowing these shareholders to continue to submit
shareholder proposals for inclusion in companies' proxies for a
period of time using the $2,000 threshold.
    \329\ Among shareholder proposals resubmitted to Russell 3000
companies during 2011 to 2018, ten proposals appeared in company
proxies and were voted on despite receiving low voting support in
prior submissions and being eligible for exclusion under the current
resubmission thresholds.
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D. Analysis of Costs and Benefits and Effects on Efficiency,
Competition, and Capital Formation of the Final Rule Amendments

1. Companies
    As a result of the final amendments, companies will likely
experience cost savings because they will be able to exclude more
proposals. Here, we note again that shareholders may take steps to
significantly offset the effects resulting from the change to the
initial submission thresholds at relatively low cost (e.g., a
shareholder who currently meets the current threshold of holding at
least $2,000 of company stock for one year can, to the extent that it
has not already held the stock for three years, meet the revised
threshold by holding the stock for at most two more years or can rely
on the transition provision for a temporary period of time).\330\ Thus,
we are more confident that the changes in the resubmission thresholds
will reduce the number of shareholder proposals. Companies incur direct
costs associated with the consideration and processing of submitted
proposals. Moreover, companies may experience cost savings if
shareholders are discouraged from submitting proposals that would be
excludable based on the final amendments. This is because companies
incur certain direct costs even in connection with excludable proposals
(e.g., companies will need to file a notice with the Commission that
they intend to exclude the proposal).\331\
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    \330\ Commenters have also argued that certain proponents use
the threat of submitting a shareholder proposal as a means to force
the company to implement unrelated changes. See, e.g., letter from
Center for Capital Markets Competitiveness dated January 31, 2020.
We are unable to confirm whether and how frequently these events
occur but we believe that the rule amendments may reduce the
occurrence of any such events because proponents would need to
either invest more money in the company or hold the company's shares
for a longer period of time to make the threat credible.
    \331\ It is also possible that, as a result of the revised
resubmission thresholds, proponents of proposals that are unlikely
to meet the resubmission thresholds may be less likely to submit
those proposals initially because they expect that their proposals
will be excluded on a subsequent resubmission.
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i. Cost Savings Due to Fewer Shareholder Proposals
    To quantify the cost savings companies will likely experience as a
result of the final amendments, we use the estimated upper bound
reduction in the number of shareholder proposals from Section V.C above
and estimates provided by commenters on the average costs that
companies incur to process shareholder proposals.\332\
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    \332\ A number of commenters responded to our request for data
on the cost of shareholder proposals. One commenter indicated that,
based on the experience of one of its staffers who had represented
registrants, no-action correspondence represents the most
substantial cost related to shareholder proposals, with a marginal
cost to the company of less than $20,000. See, e.g., letter from
CalPERS dated February 3, 2020. Two commenters cited the $18,982
cost estimate to print and mail a single shareholder proposal
included in the Paperwork Reduction Act (``PRA'') section of the
Proposing Release and derived from a July 2009 survey by Business
Roundtable. See letters from John Coates and Barbara Roper dated
January 30, 2020; Council of Institutional Investors dated January
30, 2020 (citing the cost estimates from the letter in response to
Facilitating Shareholder Director Nominations, Release No. 34-60089
(June 10, 2009) [74 FR 29024 (June 18, 2009)] from Business
Roundtable dated August 17, 2009, available at https://www.sec.gov/comments/s7-10-09/s71009-267.pdf) (``2009 BRT Letter''). Yet another
commenter indicated that the cost of shareholder proposals ranges
from $50,000 to $100,000 or more per proposal. See letter from
Business Roundtable dated February 3, 2020 (noting that ``[a]lthough
many member companies reported that it was difficult to quantify the
costs of shareholder proposals, several reported costs ranging from
$50,000 to $100,000 or more per proposal. In addition, a number of
companies noted that their costs for first-time proposals are
generally higher than those incurred for resubmitted proposals'').
Finally, according to a commenter, the $87,000 to $150,000 per
proposal is a fair range of cost estimates for typical proposals,
even though the cost of certain proposals may exceed the high end of
the range. See letter from Center for Capital Markets dated January
31, 2020.
    One commenter conducted a survey of its members regarding the
costs associated with shareholder proposals. See letter from Society
for Corporate Governance dated February 3, 2020. According to the
survey, 24% of the respondents stated that they spend no money or a
negligible dollar amount on average annually to manage/respond to
shareholder proposals, 12% stated that they spend more than a
negligible amount but less than $5,000, eight percent mentioned that
they spend between $5,000 and $10,000, and 29% stated that they
spend between $10,000 and $20,000. In addition, a number of survey
respondents indicated that they spend more than $20,000. For
example, one respondent reported costs ``[i]n excess of $50,000'';
one respondent reported costs of ``well over'' $125,000; and a third
respondent reported incurred expenses of $109,792 in 2018, which
included the cost of seeking no-action relief, for one proposal and
$133,587 in 2019 for a proposal that was ultimately included in the
proxy statement. Two other respondents reported costs of up to
$100,000; and another respondent reported costs of ``more than
$200,000'' in ``outside counsel expenses alone'' to process the
shareholder proposals it receives. Although informative, we are
unable to use these survey responses to precisely estimate cost
savings associated with the rule amendments because they refer to
the annual cost of shareholder proposals for each respondent rather
than the cost of a single proposal. While we have information of the
number of proposals submitted at each company in the Russell 3000
index, we lack information on the identity of respondents in the
survey. Thus, we are unable to estimate the average cost of a single
proposal from this data. For example, although 24% of respondents
stated that they spend no money or a negligible dollar amount on
average annually to manage/respond to shareholder proposals, we are
unable to determine whether this is because they do not spend money
to respond or because they have not received proposals. Several of
the respondents noted in their comments that they had not received a
shareholder proposal in recent years. Further, the Council of
Institutional Investors estimates that S&P 500 companies received
77% of the proposals received by Russell 3000 companies as of the
end of the third quarter 2017 (see Jonas Kron & Brandon Rees,
Frequently Asked Questions about Shareholder Proposals, Council of
Institutional Advisors, at 1 (last visited Aug. 21, 2020), available
at https://www.cii.org/files/10_10_Shareholder_Proposal_FAQ(2).pdf
(``CII FAQ'')), but 47% of the Society for Corporate Governance
survey respondents were not in the S&P 500. Further, the types of
costs included in the survey responses differ across respondents and
so we cannot use the survey responses to estimate the total cost of
a typical shareholder proposal.

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

    Some commenters criticized the estimates of costs that companies
incur to process shareholder proposals used in the estimation of the
cost savings to companies in the Proposing Release. A number of
commenters argued that the cost estimates discussed in the economic
analysis of the Proposing Release were unreliable.\333\ In particular,
commenters argued that the $150,000 cost estimate provided by a
commenter in response to the Proxy Process Roundtable \334\ and used as
an upper bound of our cost estimates in the Proposing Release is
unreliable because: (i) It is not based on any hard data; (ii) it is
based on costs incurred by financial services firms rather than
corporations; and (iii) it is likely at the high end of a range of
costs.\335\ Commenters also argued that the $50,000 per proposal cost
estimate provided by one observer \336\ and used as a lower bound of
our cost estimates in the Proposing Release likely is unreliable
because it is based on anecdotal reports.\337\ Finally, a number of
commenters, without providing cost estimates of their own, argued that
the actual costs of processing shareholder proposals are lower than
existing cost estimates because these estimates are exaggerated by
certain commenters.\338\
---------------------------------------------------------------------------

    \333\ See letters from AFL-CIO dated February 3, 2020; As You
Sow dated February 3, 2020; Better Markets 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; CtW Investment Group dated February 3, 2020; Impax Asset
Management dated January 20, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; International Brotherhood of
Teamsters dated February 3, 2020; Richard A. Liroff dated January
28, 2020; Paul M. Neuhauser dated February 3, 2020; Segal Marco
Advisors dated February 3, 2020; Tom Shaffner dated December 17,
2019; UAW Retiree Medical Benefits Trust dated January 30, 2020.
Some of the points raised by commenters were also discussed in the
Proposing Release. See Proposing Release at 66496.
    \334\ See letter in response to the Proxy Process Roundtable
from American Securities Association dated June 7, 2019.
    \335\ See, e.g., letters from Better Markets dated February 3,
2020; John Coates and Barbara Roper dated January 30, 2020; Council
of Institutional Investors dated January 30, 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.
    \336\ See Statement of Darla C. Stuckey, President and CEO,
Society for Corporate Governance, before the H. Comm. on Financial
Services, Subcomm. on Capital Markets and Government Sponsored
Enterprises, Sept. 21, 2016 (noting ``a lower legal cost estimate
based on anecdotal discussions with [the Society for Corporate
Governance] members of $50,000 per proposal'').
    A number of commenters criticized cost estimates that other
commenters provided and were cited in the Proposing Release but
which we did not use in the estimation of cost savings because they
fell within the lower and upper bounds of the cost estimates we
used. See, e.g., letters from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020;
Interfaith Center on Corporate Responsibility dated January 27,
2020; RK Invest Law dated February 3, 2020; Segal Marco Advisors
dated February 3, 2020; UAW Retiree Medical Benefits Trust dated
January 30, 2020.
    \337\ See, e.g., letters from John Coates and Barbara Roper
dated January 30, 2020; Council of Institutional Investors dated
January 30, 2020.
    \338\ See, e.g., letters from AFL-CIO dated November 1, 2017
(enclosed in November 27, 2019 letter); Athena Impact dated January
17, 2020; Dominican Sisters of Springfield Illinois dated January
23, 2020; Impax Asset Management dated January 20, 2020; Stephen
Lewis dated January 29, 2020; Neuberger Berman dated January 27,
2020; US SIF dated January 31, 2020. As discussed in more detail
below, the cost estimates used in the economic analysis are informed
by 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. See infra note 346.
---------------------------------------------------------------------------

    Some other commenters stated that the economic analysis should
distinguish between the costs that are discretionary (e.g., cost of
submitting a no-action request to Commission staff, the decision to use
an outside law firm instead of in-house personnel, or the expenses
related to soliciting investors) and mandatory (e.g., the cost of
printing and mailing the shareholder proposal materials).\339\
Relatedly, for those costs that are discretionary, some commenters
argued that companies' decisions to incur those costs may be suboptimal
and to the detriment of investors.\340\ In particular, several
commenters argued that the volume of unsuccessful no-action requests is
suggestive of an unproductive use of company resources, and thus the
actual, non-discretionary costs of processing shareholder proposals
(and consequently the actual cost savings of the rule amendments) are
low.\341\ As a response to commenters that were concerned with
distinguishing between discretionary and non-discretionary costs, we
use an estimate of non-discretionary costs (i.e., the cost of printing
and mailing shareholder proposals) as the lower bound for our direct
cost savings estimates in the economic analysis.\342\
---------------------------------------------------------------------------

    \339\ 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; First Affirmative Financial
Network, LLC dated January 24, 2020; Impax Asset Management dated
January 20, 2020; International Brotherhood of Teamsters dated
February 3, 2020; Richard A. Liroff dated January 28, 2020; James
McRitchie dated February 2, 2020; US SIF dated January 31, 2020.
    A commenter also argued that the largest cost associated with
shareholder proposals is the cost of submitting a no-action request
to Commission staff, and ``the only proposals excludable under the
new rules would be those that otherwise could meet the requirements
of Rule 14a-8, and would not fall within the subset of proposals
likely to generate the highest costs.'' See letter from John Coates
and Barbara Roper dated January 30, 2020. We understand this comment
to mean that the proposals excludable under the rule amendments
would be those that otherwise meet the requirements of Rule 14a-8
and thus companies would not be required to incur costs associated
with a no-action request to exclude those proposals. We disagree
with the commenter's assessment, including as a factual matter. For
example, a proposal that may be excludable under the new rules
because the proponent did not have a sufficiently long-term interest
in the company also may have been excludable by the company for one
of the other reasons enumerated in paragraph (i) of Rule 14a-8. To
the extent that the rule amendments will deter proponents from
submitting some shareholder proposals that are excludable under the
rule amendments and other Rule 14a-8 requirements, companies and
their shareholders could realize cost savings by avoiding having to
seek no-action relief for those shareholder proposals.
    Some commenters implied that because many proposals are
withdrawn, the cost of shareholder proposals is small. See, e.g.,
letter from Impax Asset Management dated January 20, 2020. We
disagree with this assertion because companies may incur significant
direct and opportunity costs to engage with shareholders and achieve
the withdrawal of a proposal.
    Some commenters also suggested that if companies wish to avoid
the expenses associated with shareholder proposals, they could
simply include those proposals in their proxy materials. See, e.g.,
letter from Impax Asset Management dated January 20, 2020. Companies
and their shareholders incur costs associated with the inclusion of
proposals in the proxy materials. In addition, we believe that
companies likely will expend time and effort to analyze and assess a
shareholder proposal, either because it is not obvious whether the
proposal will be beneficial for shareholders or because further
communication with the proponent may be beneficial.
    \340\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; First Affirmative Financial Network, LLC
dated January 24, 2020; Richard A. Liroff dated January 28, 2020;
James McRitchie dated February 2, 2020; US SIF dated January 31,
2020. See also Brown (2017), supra note 320, at 21; Adam M. Kanzer,
The Dangerous ``Promise of Market Reform'': No Shareholder
Proposals, Harvard Law School Forum on Corporate Governance and
Financial Regulation (Jun. 15, 2017), available at https://corpgov.law.harvard.edu/2017/06/15/the-dangerouspromise-of-market-reform-no-shareholder-proposals/, at 2; James McRitchie, SRI Funds &
Advisors Send Open Letters on Lawsuits Against Shareholders,
CorpGov.net (Mar. 24, 2014), available at https://www.corpgov.net/2014/03/sri-funds-advisors-send-open-letters-on-lawsuits-against-shareholders/; letter in response to the Proxy Process Roundtable
from Investor Voice, SPC dated November 14, 2018.
    \341\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; First Affirmative Financial Network, LLC
dated January 24, 2020.
    \342\ See infra note 344.

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    Several commenters also argued that the economic analysis should
consider the marginal rather than the average cost of shareholder
proposals, and suggested the marginal costs would be significantly
lower than the average costs because all fixed costs of handling
proposals will remain.\343\ While we agree with the commenters that the
economic analysis should consider the marginal cost of shareholder
proposals, we do not believe that the marginal costs would be
significantly lower than the average costs because many of the costs
associated with processing shareholder proposals are variable costs,
such as reviewing the proposal and addressing issues raised in the
proposal, engaging in discussions with the proponent, and printing and
mailing materials associated with the particular proposal.
---------------------------------------------------------------------------

    \343\ See, e.g., letters from John Coates and Barbara Roper
dated January 30, 2020; Council of Institutional Investors dated
January 30, 2020.
---------------------------------------------------------------------------

    We recognize that there is variation in the costs to companies of
responding to shareholder proposals, and we have considered all of the
comments received in estimating cost savings to companies. In response
to these comments, we have adjusted our estimate of the lower end of
the costs. We use the estimate of $18,982 to print and mail a single
shareholder proposal, rounded up to $20,000, as the lower bound for our
direct cost estimates in the economic analysis.\344\ We continue to use
$150,000 as the upper bound for our direct cost estimates in the
economic analysis, which we believe represents a reasonable upper end
of potential costs of processing a shareholder proposal, including
legal and management time to consider a shareholder proposal and the
cost of submitting a no-action request to Commission staff.\345\
Nevertheless, we acknowledge that the cost of processing certain
proposals may be outside of this $20,000 to $150,000 range due to the
large variation in the types of proposals.\346\
---------------------------------------------------------------------------

    \344\ The $18,982 estimate was derived in 2009 and is equal to
$22,600, when adjusted for inflation (see supra note 58 for the
source of inflation adjustment data). To be conservative in our cost
savings estimates and for ease of discussion and calculations, we
use $20,000 as the rounded up estimate of $18,982. See letters from
John Coates and Barbara Roper dated January 30, 2020; Council of
Institutional Investors dated January 30, 2020.
    See Proposing Release at 66510 (citing 2009 BRT Letter, supra
note 332). We use this cost estimate as the lowest range because the
cost of printing and mailing a shareholder proposal is the only non-
discretionary cost that all companies must incur when they are
required to include a shareholder proposal in their proxy statement.
The cost of printing and mailing shareholder proposals, however,
only captures a subset of the direct costs that the company may
incur. It is unclear whether this cost estimate captures the cost of
tallying votes for an additional shareholder proposal. In addition,
this cost estimate is the average cost of printing and mailing a
shareholder proposal rather than the marginal cost of printing and
mailing an additional shareholder proposal.
    \345\ See Proposing Release at 66461. See letter from Center for
Capital Markets, dated January 31, 2020.
    \346\ Some commenters suggested that the Commission should have
conducted independent research on the cost of shareholder proposals.
See, e.g., letters from Council of Institutional Investors dated
January 30, 2020; Interfaith Center on Corporate Responsibility
dated January 27, 2020. We note that the Commission has conducted
various forms of outreach over the years on the proxy process,
including hosting the Proxy Process Roundtable and soliciting public
input on the Rule 14a-8 ownership thresholds and the costs of
submitting shareholder proposals. That input informed our cost
estimates in the Proposing Release, and we specifically requested
comment on the estimates and data to help us refine our analysis. We
considered all of this information thoroughly, leveraging our
decades of experience with Rule 14a-8, when evaluating whether the
available information is reliable and sufficient. We have no reason
to believe that additional study of the costs of shareholder
proposals would yield materially different information, nor are we
aware of additional sources of information that would further inform
these cost estimates.
    One commenter also argued that the cost estimate of shareholder
proposals used in the economic analysis of the Proposing Release is
inconsistent with the cost estimate of shareholder proposals used in
the PRA of the release. See letter from John Coates and Barbara
Roper dated January 30, 2020. Our revised economic analysis takes
into account the lowest cost estimate discussed in the PRA of the
Proposing Release. The cost estimates in the PRA section of this
release may be different than the cost estimates in the economic
analysis because the economic analysis applies a range of cost
estimates to all proposals (i.e., those that are included in the
proxy statement without seeking no-action relief, those that are
included in the proxy statement after seeking no-action relief,
those that are omitted from the proxy statement after seeking no-
action relief, and those that are withdrawn) while the PRA uses an
average cost estimate per proposal category. In addition, the PRA
makes certain assumptions regarding hourly costs to arrive at a cost
estimate per proposal category while the economic analysis uses per-
proposal cost estimates provided by commenters or surveys.
---------------------------------------------------------------------------

    Hence, we estimate that, as a result of the final amendments to
Rule 14a-8(b) and Rule 14a-8(c), all Russell 3000 companies together
may experience an upper bound annual cost savings associated with a
decrease in the number of submitted proposals ranging from $332,400 to
$72.30 million per year.\347\ In addition, we estimate that as a result
of the final amendments to the resubmission thresholds, all Russell
3000 companies together may experience an upper bound annual cost
savings associated with a decrease in the number of submitted proposals
ranging from $831,000 to $6.23 million per year.\348\ In total, we
estimate that all Russell 3000 companies may experience an upper bound
of annual cost savings ranging from $1.16 million to $78.53 million per
year, assuming no change in proponents' behavior as a result of the
final amendments.
---------------------------------------------------------------------------

    \347\ $332,400 = $20,000 (see supra note 344) x 2% (i.e.,
minimum upper bound percentage of excludable proposals as a result
of the amendments to Rules 14a-8(b) and 14a-8(c) from Table 1 above)
x 831 (i.e., all proposals submitted to be considered at 2018
shareholders' meetings).
    $72.30 million = $150,000 (see supra note 344) x 58% (i.e.,
maximum upper bound percentage of excludable proposals as a result
of the amendments to Rules 14a-8(b) and 14a-8(c) from Table 1 above)
x 831 (i.e., all proposals submitted to be considered at 2018
shareholders' meetings).
    Our analysis assumes that the distribution of ownership for
proponents with exact ownership information in the proxy statements
is the same as the distribution of ownership for proponents with
minimum or no ownership information in the proxy statements and the
distribution of ownership for proponents that submitted proposals
that were ultimately withdrawn or omitted. Our analysis also applies
the same per-proposal cost estimate to voted, omitted, and withdrawn
proposals, and it applies the same per-proposal cost estimate to
operating companies and management companies. Further, our analysis
does not account for overlap in the excludable proposals under the
various aspects of the rule amendments. Lastly, our analysis assumes
that companies will not reallocate the time and resources that will
be freed up as a result of the reduction in proposals to process the
remaining proposals, if any.
    \348\ $831,000 = $20,000 (see supra note 344) x 5% (i.e., upper
bound percentage of excludable proposals as a result of the
amendments to Rule 14a-8(i)(12) from Table 1 above) x 831 (i.e., all
proposals submitted to be considered at 2018 shareholders'
meetings).
    $6.23 million = $150,000 (see supra note 344) x 5% (i.e., upper
bound percentage of excludable proposals as a result of the
amendments to Rule 14a-8(i)(12) from Table 1 above) x 831 (i.e., all
proposals submitted to be considered at 2018 shareholders'
meetings).
    Our analysis applies the same per-proposal cost estimate to
voted, omitted, and withdrawn proposals and to operating companies
and management companies. In addition, our analysis assumes that the
amendments to Rule 14a-8(i)(12) will have the same effect on
proposal eligibility of voted, withdrawn, and omitted proposals.
Lastly, our analysis assumes that companies will not reallocate the
time and resources that will be freed up as a result of the
reduction in proposals to process the remaining proposals, if any.
---------------------------------------------------------------------------

    Commenters argued that the cost savings estimated in the Proposing
Release and arising from the rule amendments are not substantial
because: (i) Shareholder proposals are a small fraction of management
proposals and so the cost savings of the rule amendments will be small;
\349\ and (ii) the cost savings arising from the rule amendments are
small relative to companies' market capitalization and relative to the
costs arising from the rule amendments.\350\ Commenters also

suggested that the cost of shareholder proposals is small for smaller
companies because smaller companies do not receive proposals
frequently, and so any benefits to those companies due to the rule
amendments is limited.\351\ We acknowledge that the costs of
shareholder proposals may be a small percentage of companies' market
capitalization but we continue to believe that these costs are
nonetheless significant in terms of the time and attention from company
management. Further, we continue to believe that the rule amendments
better ensure that the attendant burdens for other shareholders and
companies associated with the processing of shareholder proposals and
the inclusion of such proposals in the company's proxy statement are
incurred in connection with those proposals that are (1) submitted by
shareholders with a sufficient demonstrated interest in the company and
(2) with respect to resubmissions, more likely to receive support from
fellow shareholders.\352\ Lastly, the cost savings estimates cited by
commenters only reflect a subset of the benefits of the rule amendments
(i.e., the benefits that we were able to quantify in our economic
analysis) and does not include a quantification of other qualitative
benefits of the rule amendments, which are discussed below.
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    \349\ See, e.g., letter from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020.
    \350\ See, e.g., letters from Council of Institutional Investors
dated January 30, 2020; CtW Investment Group dated February 3, 2020;
Impax Asset Management dated January 20, 2020; Interfaith Center on
Corporate Responsibility dated January 27, 2020; International
Brotherhood of Teamsters dated February 3, 2020; Segal Marco
Advisors dated February 3, 2020; UAW Retiree Medical Benefits Trust
dated January 30, 2020.
    \351\ See letter from Paul M. Neuhauser dated February 3, 2020.
Another commenter argued that the proposed amendments will
disproportionately benefit a small subset of large companies. See
letter from Sustainable Investments Institute dated February 3,
2020.
    \352\ Analysis in the Proposing Release showed that of
resubmitted proposals that ultimately obtain majority support, the
overwhelming majority have garnered more than 15% on their second
submission and more than 25% on their third submission. Based on our
review of shareholder proposals that received a majority of the
votes cast on a second or subsequent submission between 2011 and
2018, 95% received support greater than 15% on the second
submission, and 100% received support greater than 25% on the third
or subsequent submission. In addition, of the 22 proposals that
obtained majority support on their third or subsequent submissions,
approximately 95% received support of over 15% on their second
submission, and 100% received support of over 25% on their third or
subsequent submission. See Proposing Release at Section IV.B.3.iv.
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ii. Other Economic Benefits to Companies
    In addition to the direct cost savings to companies discussed
above, by requiring a statement from the proponent that he or she is
willing to meet with the company after submission of the shareholder
proposal, the final amendments may encourage more direct communication
between the proponent and the company. This may foster potential
beneficial shareholder engagement more generally; it may promote more
frequent resolution of proposals outside the voting process. Although
companies would incur costs (e.g., management and legal time) to engage
with shareholder-proponents, companies may choose to do so if they
expect a benefit, including if they expect the cost of the resolution
outside of the proxy process to be lower than the cost that they and
their shareholders would incur to process a shareholder proposal.\353\
We believe that this requirement may increase engagement between
management and shareholder-proponents because it will require
proponents to set aside time to communicate with management and provide
specific contact information to facilitate that discussion. This
amendment will enable companies to know whom to contact and when to do
so if they wish to engage with the proponent about the proposal.
Further, although the revised rule will not require companies to engage
with shareholder-proponents, companies may be more likely to engage if
they are provided with the shareholder-proponent's contact information
and availability at the time the proposal is submitted.
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    \353\ Some commenters supported the idea that requiring a
statement from the proponent that he or she is willing to meet with
the company will improve communication between proponents and
companies. See, e.g., letters from Business Roundtable dated
February 3, 2020; Center for Capital Markets Competitiveness dated
January 31, 2020; Church Investment Group dated January 29, 2020;
National Association of Manufacturers dated February 3, 2020. Other
commenters, however, argued that certain companies are unwilling to
engage with proponents and there is no evidence that this rule
amendment will actually increase engagement between management and
shareholder-proponents. See, e.g., letters from AFL-CIO dated
February 3, 2020; Boston Trust Walden et al. dated January 27, 2020;
CalPERS dated February 3, 2020; Ceres et al. dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020;
International Brotherhood of Teamsters dated February 3, 2020; Local
Authority Pension Fund Forum dated February 3, 2020; Paul M.
Neuhauser dated February 3, 2020; Segal Marco Advisors dated
February 3, 2020; Trillium Asset Management dated February 3, 2020;
UAW Retiree Medical Benefits Trust dated January 30, 2020.
---------------------------------------------------------------------------

    Also, to the extent that the practices of certain proponents are
not already consistent with the final amendments related to proposals
submitted through a representative, the final amendments will likely
benefit companies by clearly communicating to companies that proponents
authorize representatives to act on their behalf. The requirements
under the final amendments would provide a meaningful degree of
assurance as to the shareholder-proponent's identity, role, and
interest in a proposal that is submitted for inclusion in a company's
proxy statement.\354\ Further, the final amendments will likely result
in cost savings to companies that currently expend resources to obtain
information that is not provided by proponents but will be required
under the final amendments.\355\ We expect that any cost savings
associated with the final amendments related to proposals submitted
through a representative will likely be small because most proponents
and representatives already provide much of the documentation and
information required by the rule amendments.
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    \354\ See, e.g., letters from Business Roundtable dated February
3, 2020; Center for Capital Markets Competitiveness dated January
31, 2020; National Association of Manufacturers dated February 3,
2020.
    \355\ See, e.g., Business Roundtable dated February 3, 2020;
Center for Capital Markets Competitiveness dated January 31, 2020;
Nasdaq, Inc. dated February 3, 2020.
---------------------------------------------------------------------------

    To the extent that the final amendments will reduce the costs to
companies of processing shareholder proposals, the final amendments may
result in efficiency improvements. In addition, to the extent that the
final amendments will reduce costs to companies associated with the
shareholder-proposal process, the final amendments may be a positive
factor in the decision of businesses to become public reporting
companies, which could positively affect capital formation on the
margin.\356\ Nevertheless, we believe that any such effects likely will
be minimal because most firms receive few proposals each year and the
costs of responding to proposals likely are a small percentage of the
costs associated with being a public company.\357\ In addition,
companies that have recently had an initial public offering
infrequently receive shareholder proposals.\358\
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    \356\ See, e.g., letters from American Securities Association
dated February 3, 2020; Center for Capital Markets Competitiveness
dated January 31, 2020; see also letter in response to the Proxy
Process Roundtable from Center for Capital Markets Competitiveness
dated December 20, 2018.
    \357\ Between 1997 and 2018 for Russell 3000 companies that
received a proposal, the median number of proposals was one per
year. See Roundtable Transcript, supra note 141, comments of Brandon
Rees, Deputy Director of Corporations and Capital Markets, AFL-CIO;
see also letters in response to the Proxy Process Roundtable from
Ceres dated November 13, 2019; Mercy Investment Services, Inc. dated
December 3, 2018; Presbyterian Church U.S.A. dated November 13,
2018.
    \358\ See infra note 395.
---------------------------------------------------------------------------

    Several commenters argued that the rule amendments will increase
companies' cost of capital by reducing the effectiveness of shareholder
oversight, the efficiency of corporate

governance arrangements, the extent to which governance arrangements
conform with best governance practice, and companies' overall
environmental, social, and governance (``ESG'') performance.\359\
Relatedly, one of these commenters argued that the rule amendments will
harm capital formation because investors might shy away from capital
markets if they believe that their ability to make changes to companies
that would benefit the companies and their shareholders is
compromised.\360\ We agree with commenters that the proxy system is
important to the cost of capital and capital formation, and some
changes prompted by shareholder proposals may be considered beneficial
by other shareholders. Nevertheless, there are a number of avenues
through which shareholders can encourage change at public companies.
Under the final amendments, shareholders can and, we expect, will
continue to pursue these other avenues of engagement, which may help
mitigate any potential increase in the number of excludable proposals.
In addition, we note again that many proposals that would be newly
excludable under these rule amendments would be (1) those in which the
proponent has not demonstrated a meaningful interest in the company
(e.g., by holding $2,000 of stock for three years, or higher amounts
for shorter periods of time) or (2) resubmissions of proposals which
shareholders have already expressed substantial disapproval (e.g., at
least 75 percent, 85 percent or 95 percent disapproval) in prior years.
We believe these changes will improve capital formation because
companies and fellow shareholders will no longer expect to bear the
costs of responding to, reviewing, and voting on these types of
proposals, which we believe do not warrant use of the company's proxy
statement.
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    \359\ See, e.g., letters from Lucian A. Bebchuk dated February
3, 2020; Ceres et al. dated February 3, 2020; Illinois Treasurer
dated January 16, 2020; Interfaith Center on Corporate
Responsibility dated January 27, 2020; International Brotherhood of
Teamsters dated February 3, 2020; James McRitchie dated February 2,
2020; Oxfam dated February 3, 2020; Segal Marco Advisors dated
February 3, 2020; UAW Retiree Medical Benefits Trust dated January
30, 2020.
    \360\ See letter from Lucian A. Bebchuk dated February 3, 2020.
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iii. Costs of Updating Policies and Procedures
    We acknowledge here, as we did in the Proposing Release, that
companies may incur one-time costs to amend their policies and
procedures in light of the final amendments. The one-time costs that
companies may incur include (i) reviewing the requirements of the final
amendments; (ii) modifying the existing policies and procedures to
align with the requirements of the final amendments; and (iii)
preparing new training materials and administering training sessions
for staff in affected areas. According to commenters, the change to a
three-tiered approach to submission thresholds will also increase
compliance complexity because companies will be required to consider
multiple thresholds for the purpose of evaluating whether a proposal is
eligible for exclusion.\361\ Nevertheless, we expect the one-time costs
and the costs associated with increased complexity to be minimal
because companies already have in place policies and procedures to
implement Rule 14a-8's requirements and will only need to modify those
policies and procedures to comply with the final amendments rather than
create new policies and procedures.\362\
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    \361\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; Local
Authority Pension Fund Forum dated February 3, 2020.
    \362\ No company or company representatives argued that the
final rule amendments will increase administrative costs.
---------------------------------------------------------------------------

iv. Effects on Competition
    To the extent that the final amendments will result in cost savings
for U.S. firms, the final amendments may improve U.S. firms'
competitive position relative to foreign firms, because foreign firms
are not subject to the federal proxy rules.\363\ Further, to the extent
that the final amendments to the ownership (resubmission) thresholds
will have disproportionate effects on smaller (larger) companies, the
final amendments may alter competition between firms of different
sizes.\364\ The amendments to the ownership thresholds could have a
disproportionate effect on companies with smaller market capitalization
because shareholder-proponents' holdings are more likely to be below
the amended ownership thresholds in smaller companies, to the extent
that investors hold stocks proportionately to the companies' market
capitalization (e.g., investors hold the market portfolio).\365\ In
addition, the final amendments to the resubmission thresholds will
likely have a greater effect on larger companies because larger
companies are more likely to receive shareholder proposals.\366\
Nevertheless, we expect that any such effects likely will be minimal
because the cost of processing shareholder proposals likely is a small
percentage of companies' total cost of operations.
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    \363\ See Proposing Release at 66459 n.3.
    \364\ See infra Section V.E.1 for detailed discussion of the
potentially disproportionate effects of the rule amendments.
    \365\ See, e.g., John Y. Campbell, Household Finance, 61 J. Fin.
1553 (2006) (discussing households' stock holdings).
    See also, e.g., letters from CalPERS dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; Paul
Rissman dated January 15, 2020; Trillium Asset Management dated
February 3, 2020 (arguing that the amended thresholds will have a
larger effect on smaller companies).
    \366\ Our analysis shows that 20% of resubmitted shareholder
proposals at S&P 500 companies would be excludable under the
proposed resubmission thresholds, as compared to 12% of proposals
resubmitted to non-S&P 500 firms. See Proposing Release at 66502.
---------------------------------------------------------------------------

2. Non-Proponent Shareholders
    Non-proponent shareholders may benefit from the decrease in the
number of proposals because they may commit fewer resources to
reviewing and voting on shareholder proposals.\367\ We are unable to
quantify the costs to non-proponent shareholders of reviewing and
voting on shareholder proposals, but we believe the cost savings from a
decrease in the number of proposals will be significant. The reason is
that the number of non-proponent shareholders at each registrant is
very large in absolute terms and relative to the number of shareholder-
proponents. Consequently, we expect the aggregate cost savings
associated with the elimination of a shareholder proposal (e.g., the
aggregate cost to shareholders to review and vote on the proposal) will
be significant in absolute terms and much larger when compared to the
potential costs to shareholder-proponents, such as the costs to craft
and submit the proposal or, in the case of a potential proponent, the
costs to acquire and hold shares for a sufficient period of time to
meet the eligibility requirements.
---------------------------------------------------------------------------

    \367\ One commenter argued that the costs shareholders incur to
review and consider shareholder proposals are discretionary because
``[a]ny shareholder that thinks analyzing the proposal is a waste of
time and resources can simply decide not to review them. Instead,
the shareholder could either follow the advice of a hired proxy
advisor, or vote by default with management, thereby supporting the
status-quo world without the proposal.'' See letter from Institute
for Policy Integrity dated February 3, 2020. Nevertheless, we note
that institutional shareholders commit significant resources to
reviewing and voting on shareholder proposals. See infra note 372.
See also Commission Guidance Regarding Proxy Voting Responsibilities
of Investment Advisers, Guidance, Release Nos. IA-5325 IC-33605
(Jul. 22, 2020) [84 FR 47420 (Sept. 10, 2019)].
---------------------------------------------------------------------------

    While these cost savings are difficult to estimate across the wide
array of shareholder types, we believe that the cost savings are
significant. For example, we note that many investment

advisers (among others) retain proxy voting advice businesses to
perform a variety of services to reduce the burdens associated with
proxy voting determinations, including determinations on shareholder
proposals.\368\ One major proxy voting advice business, Institutional
Shareholder Services (``ISS''), reports a fee ranging from $5,000 to
above $1,000,000 for these services \369\ and 2,000 institutional
clients,\370\ which suggests an aggregate lower bound cost of $10
million and an upper bound cost of $2 billion for these clients of
outsourcing certain voting related matters, not including the internal
costs associated with voting, including the monitoring of the proxy
voting advice businesses. We recognize that these fees cover a broad
range of services provided by ISS (e.g., voting services, governance
research, ratings provision, etc.) in addition to reviewing and
providing voting advice and services with respect to shareholder
proposals.\371\ They also reflect an aggregate cost and not the
incremental cost of considering an additional shareholder proposal.
However, these figures are nonetheless an indication that institutional
shareholders commit significant resources to reviewing and voting on
shareholder proposals.\372\ Similarly, with respect to retail
shareholders, we note that, if we assume a company has 100,000
shareholders and 50% of them (in number) are individual investors who
spend 0-60 minutes reading a proposal at a cost of $25 per hour, then
the consideration of one proposal could impose a cost of $0-$1,250,000
for the individual shareholders of such a hypothetical company.
---------------------------------------------------------------------------

    \368\ We have limited data on fees charged by proxy voting
advisory services. ISS reports a fee ranging from $5,000 to above
$1,000,000 on Form ADV, and this covers a broad range of services
provided by ISS (e.g., voting services, governance research, ratings
provision, etc.).
    \369\ See ISS Form ADV dated Mar. 27, 2020 available at https://www.issgovernance.com/file/duediligence/iss-adv-part-2a-march-2020.pdf, at 5.
    \370\ See ISS Form ADV dated Apr. 23, 2020 available at https://reports.adviserinfo.sec.gov/reports/ADV/111940/PDF/111940.pdf, at
14.
    \371\ See id.
    \372\ Indeed, a number of commenters to the Commission's
proposed amendments to the exemptions from the proxy rules for proxy
voting advice, particularly institutional investors who typically
vote a large number of proposals each proxy season, expressed that
they face significant resource challenges in determining how to vote
on shareholder proposals. See, e.g., letters in response to
Amendments to Exemptions from the Proxy Rules for Proxy Voting
Advice, Release No. 34-87457 (Nov. 5, 2019) [84 FR 66518 (Dec. 4,
2019)] from Ohio Public Employees Retirement System dated February
3, 2020; Council of Institutional Investors dated February 13, 2020;
Investment Company Institute dated February 3, 2020; MFS Investment
Management dated February 3, 2020; Institutional Adviser Association
dated February 3, 2020.
---------------------------------------------------------------------------

    While these figures do not provide a reliable basis for quantifying
the cost savings of the amendments to non-proponent shareholders of a
reduction in the number of shareholder proposals, they provide general
support for our belief that the costs to non-proponent shareholders of
analyzing and voting on shareholder proposals are significant,
particularly in comparison to the costs to proponents to (i) meet the
eligibility criteria and (ii) craft and submit a proposal. At a
minimum, this supports the Commission's longstanding view that there
should be a demonstrated alignment of ownership and investment interest
between shareholder-proponents and shareholders generally. In addition,
if the final amendments are effective in excluding proposals that are
not submitted by proponents with a long-term or significant interest in
the company or that are unlikely to receive support from other
shareholders or to be implemented by management, then the decrease in
the number of proposals may allow shareholders to focus their limited
resources on the assessment and processing of proposals that are more
likely to be aligned with their interests or have the potential to
garner majority support and be implemented. Shareholders also will
benefit indirectly from any decrease in the costs borne by
companies.\373\
---------------------------------------------------------------------------

    \373\ See, e.g., letter from Business Roundtable dated February
3, 2020. See also letter in response to the Proxy Process Roundtable
from Business Roundtable dated June 3, 2019 (noting ``shareholders
can lose sight of matters of true economic significance to the
company if they are spending time considering one, or even numerous,
immaterial proposals. The resources and attention expended in
addressing shareholder proposals cost the company and its
shareholders in absolute dollars and management time and, perhaps
worse, divert capital resources to removal of an immediate
distraction and away from investment in value-adding allocations,
such as research and development and corporate strategy'').
---------------------------------------------------------------------------

    We discuss potential costs to companies and non-proponent
shareholders from the potential decrease in the number of proposals as
a result of the rule amendments in Section V.E.2 below.
3. Proponents of Shareholder Proposals
    The final amendments may impose costs on proponents of shareholder
proposals. These costs may arise as a result of a currently eligible
proponent either having to invest additional funds to immediately
submit a proposal or having to wait to submit a shareholder proposal
and thus forgo the potential benefits associated with the immediate
inclusion of the proposal in a company's proxy statement at the expense
of other shareholders and the company. In each instance, we expect the
shareholder-proponent who has not met the eligibility thresholds to
choose the option that yields the greatest net benefit for himself or
herself. For example, in instances where the benefit to the proponent
associated with a more immediate proposal submission is large enough,
we expect that the proponent will elect to incur the costs of investing
additional funds to satisfy the amended ownership thresholds. The
amended ownership thresholds, however, may deter proponents from
submitting proposals for which the aggregate benefit to all
shareholders exceeds the cost to the proponent of submitting a
proposal. This may occur because the cost of meeting the new ownership
thresholds is incurred by the proponent while any benefits associated
with the proposal are widely dispersed among all shareholders.
Nevertheless, since we believe these behavioral responses of proponents
involve relatively modest costs, we expect that in many instances, the
final amendments will not represent a significant hurdle for
shareholder-proponents.
    Commenters stated their belief that because of the final amendments
to the ownership thresholds, shareholder-proponents may incur higher
administrative costs to track their holdings for more than one year and
prove their eligibility to submit a proposal.\374\ Further, the change
to a three-tiered approach could increase compliance complexity because
shareholder-proponents will be required to consider multiple thresholds
for the purpose of evaluating whether a proposal is eligible for
exclusion, although we would expect those costs to be minimal for
current proponents because those proponents already have in place
processes to comply with Rule 14a-8's requirements and will only need
to modify these processes to comply with the final rule rather than
creating new ones.\375\
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    \374\ The commenter stated that costs that proponents would bear
as a result of longer holding periods include administrative costs
to track their holdings for more than one year and prove their
eligibility to submit a proposal. This commenter also stated that
this administrative cost will also be higher whenever the proponent
changes brokers or banks. See, e.g., letter from AFL-CIO dated
February 3, 2020.
    \375\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; Local
Authority Pension Fund Forum dated February 3, 2020.
---------------------------------------------------------------------------

    In addition, following the transition period, the final amendments
to the ownership thresholds and the limitation on the ability to
aggregate holdings across proponents may impose costs on

proponents that currently satisfy the ownership thresholds but do not
currently satisfy the new thresholds, who may take actions to preserve
their ability to submit shareholder proposals under the new
thresholds.\376\ These costs may arise from some combination of: (i)
Shareholder-proponents' efforts to reallocate shareholdings in their
portfolio to satisfy the dollar ownership thresholds; (ii) decreased
diversification of shareholder-proponents' portfolio because a larger
portion of their wealth may be invested in a particular company; \377\
and (iii) shareholder-proponents holding the shares for longer periods
of time to satisfy the duration thresholds.
---------------------------------------------------------------------------

    \376\ Any such effects will be mitigated temporarily by the
transition period of the final amendments. See Section III.
    \377\ The costs of diversification arise from lower risk-
adjusted expected return of an undiversified portfolio compared to a
diversified one. See, e.g., letters from First Affirmative Financial
Network, LLC dated January 24, 2020; Jantz Management LLC dated
January 21, 2020; Shareholder Commons dated January 31, 2020;
Wright-Ingraham Institute dated February 3, 2020.
---------------------------------------------------------------------------

    A shareholder-proponent that chooses to reallocate assets to meet
the new ownership thresholds may incur transaction costs to buy shares
and, depending on the shareholder-proponent's liquidity, may incur
transaction costs to sell other assets to raise cash to buy shares or
incur borrowing costs to raise cash to buy shares. However, we expect a
negligible number of shareholders to incur these costs because, as
discussed elsewhere in this release, most investors do not submit
proposals. Furthermore, in theory, reallocation of portfolio assets
might mean that a shareholder-proponent deviates from what would be an
efficient portfolio in the absence of the final amendments. For
example, a shareholder who held the minimum amount of shares for the
purpose of submitting a shareholder proposal for the minimum amount of
time could, instead of holding $2,000 of shares for an additional two
years, choose to increase her holdings in a company from $2,000 to
$25,000 to retain the ability to submit a shareholder proposal in one
year. In theory, such a deviation could result in a portfolio that no
longer supplies the shareholder-proponent with the desired levels of
risk and return. However, if the shareholder made the minimum
investment for purposes of submitting the proposal, such a portfolio-
oriented investment strategy would be of secondary consideration. More
generally, we do not believe that the additional investment in the
company needed to hold the same $2,000 of stock for three years instead
of one, or to meet the revised threshold for a one-year holding period
(i.e., $25,000-$2,000 = $23,000), on its own constitutes a cost to
shareholder-proponents, as this amount represents the holding or
purchase of assets that will earn an expected rate of return in the
form of capital gains and/or dividends. The impact of reduced
diversification on portfolio risk and return that may result from
increasing holdings in a particular company would depend on the size of
a shareholder-proponent's asset holdings, and would be larger for
shareholder-proponents with smaller portfolios. However, shareholder-
proponents may be able to mitigate the costs of reduced diversification
by reducing exposures to assets with similar risk characteristics.\378\
Also, in theory, a shareholder-proponent might incur costs by choosing
to hold shares for longer than would otherwise be efficient resulting,
for example, in the borrowing of funds to meet liquidity needs or a
delay in purchases of alternative assets.\379\ We lack sufficient data
to quantify their effects because we lack data on proponents' portfolio
holdings, investment preferences and resources.
---------------------------------------------------------------------------

    \378\ For example, a shareholder-proponent might reduce the
impact of acquiring additional shares of Company A on portfolio
diversification by liquidating shares of other companies in the same
industry.
    \379\ In such a case, we can express the opportunity cost of
holding shares in one company while delaying the purchase of shares
in another company as the difference in risk-adjusted expected
returns between the shares held and the shares to be purchased.
---------------------------------------------------------------------------

    The final amendments to the 14a-8(b) shareholder engagement
component may impose the following costs on shareholder-proponents: (i)
Direct costs associated with disclosing the times the proponents will
be available to communicate with management as well as preparing to and
communicating with management and (ii) the opportunity costs associated
with setting aside and spending time to communicate with management
instead of engaging in other activities.\380\ Certain commenters also
argued that this aspect of the rule amendments could discourage
shareholders from submitting proposals because some shareholder-
proponents may be reluctant to engage directly with the company.\381\
We expect the direct costs associated with this aspect of the rule
amendments to be minimal because the information required to be
disclosed is readily available, the rule does not prescribe any
particular form or degree of engagement with the company, and
proponents can use inexpensive means of communication with the company,
such as teleconference calls. We also note that the rule does not
prohibit representatives from participating in any meetings that take
place or advising the shareholder-proponent with respect to all aspects
of the engagement process.
---------------------------------------------------------------------------

    \380\ See, e.g., letters from Boston Trust Walden et al. dated
January 27, 2020; Ceres et al. dated February 3, 2020; Interfaith
Center on Corporate Responsibility dated January 27, 2020; Paul
Rissman dated January 15, 2020; Segal Marco Advisors dated February
3, 2020; UAW Retiree Medical Benefits Trust dated January 30, 2020.
    Some commenters argued that the requirement that a proponent
should state its availability to meet with management will impose
costs on companies because ``companies will be hard-pressed to
assemble personnel with appropriate expertise to engage
substantively on the proposal, given the short notice, and schedules
of both investors and companies are crowded not only with proposal-
related business but also with holiday obligation.'' See, e.g.,
letters from Ceres et al. dated February 3, 2020; UAW Retiree
Medical Benefits Trust dated January 30, 2020. While we acknowledge
that this rule amendment may also impose costs on companies, we
believe that companies will choose to engage with proponents only if
they believe the benefits of the engagement outweigh the costs.
    \381\ See, e.g., letters from Interfaith Center on Corporate
Responsibility dated January 27, 2020; Paul Rissman dated January
15, 2020.
    One commenter argued that the Commission should not get involved
in issues of shareholder-management engagement, and if the
Commission does, it should conduct a survey of both investors' and
companies' current practices. See letter from Investor Environmental
Health Network dated January 31, 2020. See supra note 346 for our
response to related commenter suggestions that the Commission should
conduct additional analysis.
    Some commenters also argued that the Commission has not
identified a market failure that this aspect of the rule amendments
seeks to address, especially given the increase in the number of
withdrawn proposals over time, which suggests increased engagement
between proponents and companies. See, e.g., letter from AFL-CIO
dated February 3, 2020. We understand that proactive company
engagement with shareholders has increased in recent years, and
shareholders frequently withdraw their proposals as a result of
company-shareholder engagement. Nevertheless, we believe that
further facilitating engagement would be beneficial both to
companies and to shareholders.
---------------------------------------------------------------------------

    The final rule amendment requiring certain documentation when a
proponent submits a proposal through a representative may result in
shareholders that submit a proposal through a representative incurring
minimal costs to ensure that their practices are consistent with the
final amendments.\382\ To the extent that the practices of certain
proponents are not

consistent with the final amendments, the final amendments will also
impose minimal costs on proponents to provide this additional
documentation. Some commenters argued that this aspect of the rule
amendments would be more burdensome for institutional investors, who
always act through agents, and that it would interfere with contractual
relations, such as attorney-client relations.\383\ As discussed in
Section II.B.3, where a shareholder-proponent is an entity and thus can
act only through an agent, compliance with the amended rule will not be
necessary if the agent's authority to act is apparent and self-evident
such that a reasonable person would understand that the agent has
authority to act. In addition, although shareholder-proponents who
elect to submit a proposal through a representative will be required to
provide additional information about their submissions, the rule will
not prevent them from using representatives in accordance with state
law. We requested, but did not receive, data on or estimates of the
specific costs that representatives and proponents will incur to comply
with this aspect of the rule amendments. Nevertheless, we believe that
any costs associated with this aspect of the rule amendments will be
small because the vast majority of the proponents and representatives
that will be required to provide documentation under the final
amendments already provide much of this documentation.
---------------------------------------------------------------------------

    \382\ Some commenters argued that the rule amendment requiring
certain documentation when a proponent submits a proposal through a
representative will create ambiguity that can be exploited by
management to exclude beneficial proposals. See, e.g., letter from
As You Sow dated February 3, 2020. We disagree with the commenter
that management will be able to exploit any ambiguity to exclude
beneficial proposals because management must provide its reasons for
excluding a proposal to the Commission and the shareholder-proponent
prior to excluding a shareholder proposal and proponents can contest
exclusions of proposals that they deem to be inappropriate.
    \383\ See, e.g., letters from AFL-CIO dated February 3, 2020;
Paul M. Neuhauser dated February 3, 2020.
---------------------------------------------------------------------------

    The amendments to the resubmission thresholds will impose costs on
proponents to the extent they may spend more resources in preparing a
proposal to seek to garner sufficient levels of support to satisfy the
final amendments.\384\ Any effect of the amendments to resubmission
thresholds may be mitigated by the fact that companies' ability to
exclude certain resubmissions will be limited to a three-year cooling-
off period regardless of the level of support the proposal last
received.
---------------------------------------------------------------------------

    \384\ 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.
    A commenter also suggested that an increase in the resubmission
thresholds will provide stronger incentives to some proponents to
submit proposals on certain topics with the intent of obtaining low
levels of support for certain subject matters, thus rendering
proposals on the same subject matter excludable for three years. See
letter from Council of Institutional Investors dated January 30,
2020; see also letter in response to the Proxy Process Roundtable
from the City of New York Office of the Comptroller dated January 2,
2019; Sustainable Investments Institute dated November 12, 2018. We
do not agree with the commenter's concern. As the Commission has
previously stated, considerations regarding the rule's application
are based upon the ``substantive concerns raised by a proposal
rather than the specific language or actions proposed to deal with
those concerns,'' such that ``an improperly broad interpretation of
the . . . rule will be avoided.'' See 1983 Adopting Release, supra
note 2.
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E. Other Potential Effects of the Amendments

    Rule 14a-8 sets 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. For example, the
thresholds for initial proposals are designed to help ensure that the
interests of those who submit them are appropriately aligned with
fellow shareholders, by indicating a sufficient economic stake or
investment interest in the company. The thresholds for resubmissions
are designed to provide a modest cooling-off period for those proposals
that previously were disapproved by fellow shareholders by a large
margin (i.e., 75 percent, 85 percent, or 95 percent disapproval). In
neither case are the thresholds designed to or meant to judge the
merits of any particular proposal. Nevertheless, commenters asserted
that the amendments may have certain unintended effects. In the
Proposing Release, we provided descriptive statistics on shareholder
proposals by type of proposals, proponents, and companies.\385\ In this
section, we address the comments we received on potential effects of
the rule amendments on excludable proposals by type of proposal,
proponent, and company.\386\ We also consider comments about economic
effects of the final rule amendments on the quality of submitted
proposals,\387\ as well as issues raised by commenters with our use of
voting support in the economic analysis included in the Proposing
Release.\388\
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    \385\ See Proposing Release at 66478-66487.
    \386\ See infra Section V.E.1.
    \387\ See infra Section V.E.2.
    \388\ See infra Section V.E.3.
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    We believe that many of the potential negative effects suggested by
commenters that would result from our adoption of the proposal and
discussed in this section would be mitigated if shareholder-proponents
adjust their behavior in light of the amendments. For example, any
negative effects related to the changes in initial submission
thresholds could be mitigated to the extent that shareholder-proponents
(who, again, are an extremely small percentage of total shareholders)
adjust their behavior to hold at least $2,000 of shares for at most two
additional years or hold higher amounts. Of course, to the extent that
shareholders adjust their behavior in this way, the cost savings
associated with the amendments would also be reduced. Negative effects
to shareholder-proponents related to the exclusion of proposals that
may provide benefits to companies and their shareholders may be
substantially mitigated to the extent that the final amendments are
more likely to exclude shareholder proposals with an observable measure
of low shareholder interest (i.e., low voting support among
shareholders).\389\ As explained above, the number of non-proponent
shareholders--who must review, consider, and vote on shareholder
proposals--is very large relative to shareholder-proponents;
accordingly, we believe that any costs set forth below are appropriate
in light of the benefits to other shareholders. In addition, the
negative effects of the final rule amendments could be mitigated to the
extent that companies elect to include in their proxy materials or
implement otherwise excludable proposals that they believe will benefit
shareholders; that eligible shareholders take up proposals that may
benefit other shareholders from the proponents precluded from
submitting certain proposals under the final rule amendments; or that
shareholder-proponents are able to influence management and other
shareholders through means other than the submission of shareholder
proposals.
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    \389\ Using data from proxy statements, we estimate that the
average voting support for proposals that may have been excludable
as a result of changes to the ownership threshold is approximately
31%, which is not statistically different from the voting support
for the remaining proposals in the sample used for this analysis.
See Proposing Release at 66497 for a detailed description of this
analysis. Further, we estimate that approximately 5.3% of
shareholder proposals used for this analysis received majority
support and may have been excludable under final amendments to the
ownership thresholds.
    Using data on shareholder proposal resubmissions, we estimate
that in 2018, none of the proposals that would have been excludable
as a result of final rule amendments to the resubmission thresholds
would have generated majority support. See Proposing Release at
66499 for a detailed description of this analysis.
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1. Effects of the Rule Amendments on Excludable Proposals by Type of
Proposal, Proponent, and Company
    As discussed above, the amendments set thresholds at which it is
appropriate for a shareholder proposal to be

considered for inclusion in the company's proxy materials based on
content-neutral criteria designed to provide access to the company
proxy to shareholder-proponents that have sufficient indicia of
alignment with the interests of other shareholders who bear the costs
associated with the inclusion of such proposals in the company's proxy
statement. The amendments are not designed to include or exclude
certain types of proposals or proponents.\390\ However, as discussed in
the Proposing Release (and raised by commenters), the rule amendments
may have different effects on certain proposal types, proponents, and
companies.\391\
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    \390\ Cf. letter from Council of Institutional Investors et al.
dated July 29, 2020 (expressing concern that ``the true regulatory
goal of the amendments is to curtail shareholder proposals related
to environmental or social topics'').
    \391\ See Proposing Release at 66499-66502 for detailed
discussion of the potentially disproportionate effects of the rule
amendments.
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    As a first example, the final amendments to the ownership
thresholds could have a greater effect on retail shareholder-proponents
compared to institutional shareholder-proponents because the average
holdings of retail investors are typically lower than the average
holdings of institutional investors and so the final ownership
thresholds are more likely to affect retail investors.\392\ Again,
however, shareholders holding the current threshold of $2,000 worth of
company stock could still meet the new ownership thresholds by, for
example, holding that stock for three years. Generally, to the extent
that such a shareholder would instead have sold that stock after one
year or two years, we would not view that shareholder as having the
alignment of interest with other long-term shareholders that warrants
the use of the company's proxy statement.
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    \392\ See, e.g., letters from As You Sow dated February 3, 2020;
Better Markets dated February 3, 2020; Boston Trust Walden et al.
dated January 27, 2020; CalPERS dated February 3, 2020; Center
Political Accountability dated January 31, 2020; Council of
Institutional Investors dated January 30, 2020; Council of
Institutional Investors et al. dated July 29, 2020; First
Affirmative Financial Network, LLC dated January 24, 2020; Patricia
Hathaway dated January 31, 2020; International Brotherhood of
Teamsters dated February 3, 2020; Local Authority Pension Fund Forum
dated February 3, 2020; James McRitchie dated July 21, 2020;
Newground Social Investment dated February 3, 2020; Maria M.
Patterson, NYU Stern School of Business dated January 30, 2020;
Segal Marco Advisors dated February 3, 2020; Tom Shaffner dated
December 17, 2019; Robert K. Silverman dated February 3, 2020;
Sisters of St. Dominic dated January 31, 2020; Trustee of Donations
to the Protestant Episcopal Church dated January 31, 2020; US SIF
dated January 31, 2020. See also Recommendation of the IAC, supra
note 18.
    Some commenters argued that the amendment related to proponents'
ability to aggregate their holdings disadvantages retail investors
relative to institutional investors because institutional investors
can aggregate the investments of various individuals to submit a
proposal, but retail investors no longer will be able to aggregate
their holdings with other proponents to become eligible to submit a
proposal. See, e.g., letters from AFL-CIO dated February 3, 2020;
First Affirmative Financial Network, LLC dated January 24, 2020.
Although institutional portfolios represent the aggregate holdings
of multiple individuals, institutional investors' submission of
shareholder proposals may reflect predetermined investment policies
rather than the preferences of each individual investor or any
subset of individual investors.
    Relatedly, several commenters argued, but did not provide any
data, that the rule may have a disproportionate effect on women and
people of color to the extent that shareholder wealth varies with
gender and ethnicity, and the effect of the rule amendments will
vary with the wealth of shareholders. See, e.g., letters from Jantz
Management LLC dated January 21, 2020; Shareholder Commons dated
January 31, 2020. We note that the mitigating factors discussed
elsewhere in the release, such as the availability of other forms of
shareholder communication with management and the possibility that
other eligible investors may take up the topics of excludable
proposals, may reduce the impact of the exclusion of proposals by
all proponents, including women and people of color.
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    Second, to the extent that retail investors with smaller holdings
and shorter holding periods are more likely to submit certain types of
proposals than institutional investors, absent a change in behavior
(e.g., holding for a longer period if necessary to make a proposal) the
final rule amendments to the ownership thresholds could decrease the
number of those types of proposals more than other types of
proposals.\393\ Third, the final rule amendments to the ownership
thresholds could affect companies and their shareholders with smaller
market capitalization more than those with larger market capitalization
and those with more volatile stock prices more than those with less
volatile stock prices. For firms with smaller market capitalization,
shareholder-proponents' holdings are more likely to be below the
amended ownership thresholds, to the extent that investors that would
be expected to make proposals hold stocks proportionately to the
companies' market capitalization (e.g., investors hold the market
portfolio).\394\ However, such a broad portfolio-based approach with
low holdings in individual stocks may be inconsistent with the company-
specific analysis that would be expected from a shareholder-proponent.
The ownership holding of the proponent is more likely to fall below the
ownership thresholds under Rule 14a-8 during any given period of time
for volatile stocks than it is for less volatile stocks. Fourth, the
final amendments to the ownership thresholds could decrease the number
of proposals received by companies that have been public for fewer than
three years more than the number of proposals received by seasoned
companies because the average duration of investors' holdings will be,
by their nature, shorter for those firms. However, shareholder
proposals appear to be less likely in the case of newer public
companies.\395\ Fifth, to the extent the final amendments to Rule 14a-
8(i)(12) result in a reduction in shareholder proposals, larger
companies and their shareholders in general may be more affected than
smaller companies and their shareholders because larger companies are
more likely to receive shareholder proposals. Sixth, the final
amendments to Rule 14a-8(i)(12) will likely have a greater effect on
companies with dual-class voting shares for which insiders hold the
majority of the voting shares.\396\ Seventh, as suggested by

commenters, the effects of the final amendments to the ownership
threshold will depend on differences in share turnover across companies
and over time.
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    \393\ See Proposing Release at 66499. Untabulated analysis shows
that 86% of the proposals submitted by individual investors are
governance proposals, whereas 47% of the proposals submitted by
institutional investors are governance proposals. Data is retrieved
from ISS Analytics for Russell 3000 companies between 2004 and 2018
and classifications are based on ISS Analytics determinations.
    \394\ See supra note 365.
    See also, e.g., letters from CalPERS dated February 3, 2020;
Council of Institutional Investors dated January 30, 2020; Paul
Rissman dated January 15, 2020; Trillium Asset Management dated
February 3, 2020 (arguing that the amended thresholds will have a
larger effect on smaller companies).
    \395\ We note that newly listed companies currently receive
proposals less frequently than seasoned companies, and thus the
overall impact of the increase in the ownership thresholds might be
less pronounced for newly listed companies. See CII FAQ, supra note
332. See also Roundtable Transcript, supra note 141, comments of
Jonas Kron, Senior Vice President and Director of Shareholder
Advocacy, Trillium Asset Management (``Less than nine percent of
Russell 3000 companies that have had an IPO since 2004 have received
a shareholder proposal.''); Ning Chiu, Counsel, Capital Markets
Group, Davis Polk & Wardwell LLP (acknowledging that ``IPO companies
don't always get a lot of proposals'').
    See also, e.g., letters from Council of Institutional Investors
dated January 30, 2020; International Brotherhood of Teamsters dated
February 3, 2020; US SIF dated January 31, 2020.
    \396\ A number of commenters expressed the view that the
proposed amendment would have a more pronounced effect at companies
with dual-class voting structures. See, e.g., letters from AFL-CIO
dated February 3, 2020; Boston Trust Walden et al. dated January 31,
2020; CFA Institute dated February 3, 2020; Connecticut State
Treasurer dated January 31, 2020; Council of Institutional Investors
dated January 30, 2020; Council of Institutional Investors et al.
dated July 29, 2020; Representative Bill Foster et al. dated January
31, 2020; Friends Fiduciary Corporation dated February 2, 2020;
Illinois State Treasurer dated January 16, 2020; International
Brotherhood of Teamsters dated February 3, 2020; International
Corporate Governance Network dated December 4, 2019; Loring, Wolcott
& Coolidge dated January 31, 2020; New York State Comptroller dated
February 3, 2020; Shareholder Association for Research & Education
dated January 30, 2020; Trillium Asset Management dated February 3,
2020.
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    The final amendments could in theory have larger effects on
companies entering or exiting an index and newly-merged firms because
these companies experience a significant shift in their shareholder
base and, if longer term shareholders are replaced by newer
shareholders, upon initial entry into the index fewer shareholders will