Securities Regulation

SEC Revisits Shareholder Proposal Rule

By Alan J. Wilson, WilmerHale

The Securities and Exchange Commission recently revisited two proxy-related matters by (a) adopting amendments to the proxy rules governing proxy voting advice and (b) proposing amendments to the shareholder proposal rule in Rule 14a-8. Both of these areas were the subject of recent rulemaking during former Chair Jay Clayton’s tenure.

Focusing on the proposed modifications to the shareholder proposal rule, the SEC proposed amendments to three substantive bases for exclusion:

  1. Rule 14a-8(i)(10) (Substantial Implementation) – The SEC has proposed specifying a standard for exclusion that looks to whether “the company has already implemented the essential elements of the proposal.” To conduct this substantive analysis, the proposing release notes that the ability to define the “essential elements” will, in part, rely on the specificity of the proposal and of its stated primary objectives as presented by the proponent. The proposing release offers two illustrations to contextualize the contemplated analysis – a proxy access shareholder proposal and a proposal requesting a report about a particular topic.
  2. Rule 14a-8(i)(11) (Duplication) – The SEC has proposed defining “substantially duplicates” for purposes of this rule to mean that the other shareholder proposal “addresses the same subject matter and seeks the same objective by the same means.” In describing this proposed change, the SEC expressed concern that the current rule “may unduly constrain shareholder suffrage by limiting shareholder-proponents’ ability to engage with the companies whose securities they own and with other shareholders by presenting for consideration competing approaches to addressing important issues.”
  3. Rule 14a-8(i)(12) (Resubmissions) – In 2020, the relevant resubmission thresholds in this rule were amended (see our prior post). Here, the SEC has proposed replacing “substantially the same subject matter” with “substantially duplicates,” which would align the test in this rule with the proposed standard to be used in the duplication rule discussed above. Notably, the proposing release does not change the resubmission thresholds but points out that the SEC “continue[s] to assess the impact of these amendments,” leaving open the possibility that the SEC might revisit this again.

In addition, while the proposing release does not contemplate modifications to the ordinary business exclusion under Rule 14a-8(i)(7), the SEC noted in the proposing release that it “reaffirms” the standards noted in the SEC’s 1998 release regarding when a shareholder proposal may be excluded under Rule 14a-8(i)(7).

Comments on these proposed rules are due thirty days after publication in the Federal Register or September 12, 2022, whichever is later.

FASB Approves Supply Chain Financing Disclosure Standard

By Thomas W. White, Retired Partner, WilmerHale

“Supply chain financing” arrangements have increased and gained more attention in recent years, especially after the collapse in 2021 of Greensill Capital, a major provider of such financing. Many companies have entered into these arrangements with banks or other third parties, which allow their suppliers the option to be paid by the third party in advance of an invoice due date, based on invoices that the buyer has confirmed as valid. The supplier’s receivable is paid by the third party at a discount, and the third party profits when the buyer subsequently pays it the full amount due on the payable.

Generally Accepted Accounting Principles contain no requirements that companies provide disclosure about supply chain financing arrangements. Investors and the Securities and Exchange Commission have expressed concerns about the lack of transparency about such arrangements and their potential impact on a company’s working capital, liquidity, and cash flow. For example, companies typically record the transactions on the balance sheet as accounts payable, even though the supply chain financing may have characteristics of a loan.

The Financial Accounting Standards Board responded to the investor and regulator concerns about supply chain financing by proposing a new accounting standard in December 2021. FASB approved the new standard at a meeting on July 20, 2022. In general, the standard will require disclosure of information about the key terms of a supply chain financing program, including a general description of the payment terms (including payment timing and basis for its determination) and the assets pledged as security or other forms of guarantees provided for the committed payment to the finance provider or intermediary. The new disclosure requirements will apply for fiscal years beginning after December 15, 2022, except for certain “rollforward” information about invoiced amounts that have not yet been paid under the program, which will take effect for fiscal years beginning after December 15, 2023.


Rani Doyle

Rani Doyle

Managing Editor, Securities Law


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