SEC wins dismissal of lawsuit challenging tighter rules on shareholder proposals

Reuters

2 days ago

June 5 (Reuters) - A federal judge on Thursday dismissed a lawsuit challenging U.S. Securities and Exchange Commission rule changes that made it harder for shareholders to file proposals at companies' annual meetings, including for reforms on environmental, social and governance (ESG) issues.
U.S. District Judge Reggie Walton in Washington, D.C. rejected arguments that the SEC arbitrarily and capriciously adopted the changes, including on the alleged pretext it supported corporate opposition to reforms on contentious issues such as climate change and workplace diversity.
The SEC was required to determine whether the changes would "promote efficiency, competition, and capital formation, and it did so," Walton wrote in a 64-page decision.
Adopted in November 2020, late in Republican President Donald Trump's first White House term, the SEC rule changes increased how much stock shareholders had to own, and how long they had to own it, before submitting proposals.
The changes also added requirements for resubmitting proposals that shareholders had rejected in the last three years.
Plaintiffs in the June 2021 lawsuit included the Interfaith Center on Corporate Responsibility, which represents more than 300 faith-based institutional investors, shareholder advocacy group As You Sow and shareholder advocate James McRitchie.
They said the SEC, before adopting the rule changes, failed to quantify the benefits of ESG and other shareholder proposals, or address the expected loss of "billions of dollars in long-term shareholder value" by adding restrictions.
In a joint statement following Walton's decision, the plaintiffs said the changes "only serve to hurt shareholders and companies alike. Despite this decision, shareholders will continue to engage with corporations on their environmental and social impacts."
The SEC declined to comment.
In seeking the lawsuit's dismissal, the SEC said the rule changes would help ensure that proposals reflect the interests of all shareholders, and that resubmitted proposals could receive levels of support "likely to lead to company action."
SEC commissioners voted 3-2 along party lines for the changes, with Republican appointees in the majority.
The regulator defended the changes during Democratic President Joe Biden's administration. The U.S. Chamber of Commerce supported the SEC's position.
The case is Interfaith Center on Corporate Responsibility et al v SEC, U.S. District Court, District of Columbia, No. 21-01620.