Shareholder Proposal Reform under the Financial CHOICE Act of 2017: A Welcome Development for Companies or a Trojan Horse?

May 09, 2017

The U.S. House of Representatives’ Financial Services Committee approved the Financial CHOICE Act of 2017 last Thursday, clearing it for a vote before the entire House. The bill contemplates sweeping changes affecting a range of matters, but tucked away among its nearly 600 pages is a brief section that would raise the bar for shareholders seeking to put proposals on public companies’ annual meeting ballots.

Highlights

  • Bill would impose more stringent requirements for shareholders seeking to put proposals on companies’ annual meeting ballots: 
     - Raises ownership threshold to 1% of a company’s outstanding shares (from the current lesser of $2,000 or 1%) and raises holding period threshold to three years (from the current 1 year)
     - Raises percentage of shareholder vote a proposal must win to be eligible for resubmission 
     - Eliminates proposals by a non-shareholder acting on behalf of a shareholder
  • Changes likely to reduce the frequency of shareholder proposals for companies, particularly those with larger market capitalizations
  • Larger, more sophisticated shareholders may fill the void

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