79–006 

115TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 115–904 

TO REQUIRE THE SECURITIES AND EXCHANGE COMMISSION TO ADJUST CERTAIN RESUBMISSION THRESHOLDS FOR SHAREHOLDER PROPOSALS 

AUGUST 24, 2018.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

together with 

MINORITY VIEWS 

[To accompany H.R. 5756] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 5756) to require the Securities and Exchange Commission 

to adjust certain resubmission thresholds for shareholder proposals, having considered the same, report favorably thereon without amendment and recommend that the bill do pass. 

PURPOSE AND SUMMARY

On May 10, 2018, Representative Sean Duffy introduced H.R. 

5756 to direct the U.S. Securities and Exchange Commission (SEC) 

to revise Rule 14a–8(c)(12) to protect the interests of long-term 

shareholders and allow a company to exclude a shareholder proposal that focuses on substantially the same subject matter as a 

prior proposal that failed to receive at least six 6 percent of the 

vote on its first submission, 15 percent on the second submission, 

and 30 percent on the third submission. 

BACKGROUND AND NEED FOR LEGISLATION

The goal of H.R. 5756 is to eliminate burdensome costs on companies by modernizing the shareholder resubmission thresholds. 


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Modern corporations are subject to numerous pressures and continuous scrutiny from the respective corporation’s many stakeholders—which include its shareholders, management, employees, 

customers, suppliers, special interest groups, communities, politicians, and regulators. These stakeholders have a broad array of interests in the corporation’s operation and success. Although boards 

are expected to consider these diverse and sometimes conflicting interests of the corporation’s stakeholders, the board’s primary obligation is to ensure that the corporation creates long-term value for 

the corporation’s shareholders. 

Over time, a board’s ability to focus on shareholder value has 

been inhibited by the proliferation of shareholder proposals for public companies’ annual meetings. Section 14 of the Securities Exchange Act of 1934, and Rule 14a–8 thereunder, govern the submission of shareholder proposals. The Rule allows any shareholder 

who holds $2,000 or 1 percent worth of a company’s stock for a period of one year to submit a non-binding shareholder proposal on 

any subject matter. (To put this into perspective, the largest publicly traded company in the United States by market capitalization 

is Apple, with a current market cap of more than $1 trillion. Rule 

14a–8 currently would allow a shareholder who owns .000000002 

worth of the stock (or roughly 10 shares of Apple) to offer a proposal, and force Apple (and all other shareholders) to pay for the 

proposal’s dissemination. 

Due in part to the extremely low bar for qualification to submit 

a proposal, as well as the SEC’s increasing tendency over the past 

decade to err on the side of proponents in allowing these proposals 

access to the corporate proxy, the shareholder proposal process has 

become one of the favorite vehicles for special interest activists to 

advance their social, environmental, or political agendas. Proponents largely include activist public pension funds, social, or environmentally-focused funds, as well as so-called ‘‘gadfly’’ investors 

who own miniscule amounts of a company’s stock, often times just 

so they are able to submit proposals year after year. In other 

words, the current shareholder proposal rules allow persons to hijack U.S. public companies’ proxy processes to advance non-value 

related goals at the expense of long-term shareholders. The cost of 

a proposal can run $150,000 per measure, and some companies face 

15 or more a year—equating in such instances to $2 million of time 

and resources being diverted from the core fiduciary responsibility 

to maximize shareholder value. 

Despite the increasing number of proposals at public companies, 

shareholder support for environmental, social, or political issues remains stubbornly low. According to Proxy Monitor, in the decade 

they have been tracking proposals at Fortune 250 companies, only 

two environmental-related shareholder proposals received the majority support of shareholders over board opposition. 

In addition to low thresholds for the initial submission of a proposal, shareholders are allowed to resubmit their proposal in subsequent years, even if they receive extremely low levels of support. 

Current regulations allow a company to exclude a resubmitted proposal from its proxy only if it failed to receive the support of 3 percent of shareholders the last time it was voted on; 6 percent if it 

has been voted on twice in the last five years; and 10 percent if 

it was voted on three or more times in the last five years. Thus, 


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in many cases shareholder proposals that have been opposed by 

over 90 percent of shareholders on multiple occasions are allowed 

to be resubmitted, forcing companies to spend time and money in 

deciding how to deal with them. 

Data shows that out of 2,341 shareholder proposals submitted to 

companies that comprise the Russell 200 index from 2001 to 2018 

relating to special meeting, environmental and social, political and 

social and human rights, only 4 percent passed and 29 percent, 

were zombie proposals (those that failed to gain the majority support after three times). Additionally, the U.S. Department of Treasury’s Report on Capital Markets issued pursuant to President 

Trump’s Executive Order 13772 on Core Principles for Regulating 

the United States Financial System, found between 2007 and 2016, 

31 percent of shareholder proposals were a resubmission of a prior 

proposal, demonstrating that companies have to waste resources on 

proposals that have continuously been rejected. 

Under the leadership of Chairman Jay Clayton, the SEC has 

begun to focus on the overly burdensome nature of the shareholder 

proposal process and has offered some new shareholder proposal 

guidance. The SEC’s Division of Corporation Finance published a 

Staff Legal Bulletin on November 1, 2017, to provide guidance to 

shareholders and companies for the upcoming proxy season. The 

guidance addresses the following: (1) the ordinary business exclusion; (2) the relevance exclusion; (3) proposals by proxy; and (4) the 

use of images in proposals. The updated ordinary business exclusion suggests that the SEC will give greater deference to companies 

whose board of directors provide detailed analysis on how a proposal may implicate an ordinary business matter, and thus can be 

excluded. The relevance exclusion provides the same deference to 

companies if their board can determine that a proposal does not account for more than 5 percent of a company’s total assets or net 

earnings and gross sales. The proposals by proxy guidance would 

have proposals by proxy to provide documentation describing the 

shareholder’s delegation of authority to proxy. Lastly, the use of 

images in proposals would prohibit the use of graphs and/or images 

that are misleading or irrelevant to the subject matter of a proposal. 

While the SEC’s staff guidance is a step in the right direction, 

it does not significantly reduce the burdens placed on companies 

from the current shareholder proposal process. The bill offered by 

Mr. Duffy is a modest change to the current regulatory structure 

that would help to reduce unnecessary shareholder proposals and 

allow companies to focus their resources on getting the greatest returns for investors. The bill would update the resubmissions 

thresholds for companies to exclude a resubmitted proposal from its 

proxy if it failed to receive the support of 6 percent of shareholders 

the last time it was voted on; 15 percent if it had been voted on 

twice in the last five years and 30 percent if it was voted on three 

or more times in the last five years. The updated thresholds are 

based on a 1997 SEC proposed rule. 

The U.S. Department of the Treasury’s October 2017 Report on 

Capital Markets included several recommendations to the shareholder submission regime. The Treasury report recommended that 

the resubmission thresholds be updated from their current form to 

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1 U.S. Department of the Treasury, A Financial System That Creates Economic Opportunities: 

Capital Markets, available at: https://www.treasury.gov/press-center/press-releases/Documents/ 

A-Financial-System-Capital-Markets-FINAL-FINAL.pdf. 2https://www.businessroundtable.org/resources/responsible-shareholder-engagement-long-termvalue-creation. 

sary burdens.1 Treasury also recommended ‘‘substantial revisions’’ 

to the $2,000 holding requirement, which was instituted in 1983 

and last updated in 1998 to adjust for inflation. Treasury also recommended that the SEC ‘‘might also want to explore options that 

better align shareholder interests (such as considering the shareholder’s dollar holding in company stock as a percentage of his or 

her net liquid assets) when evaluating eligibility, rather than basing eligibility solely on a fixed dollar holding in stock or percentage 

of the company’s outstanding stock.’’ 

Further, the campaign to allow persons to hijack public companies to advance political projects that are immaterial to shareholder value has distorted the impact of this modest modernization. 

First, nothing in this bill eliminates a shareholder’s ability to submit a proposal for the first time under the current rules; the bill 

simply raises the thresholds to levels proposed in 1997 to govern 

when a shareholder can resubmit the same proposal. The new 

thresholds provided in this legislation are sensible, and the idea 

that shareholders’ ability to effect change at companies will be 

mooted disregards basic facts. After all, if these thresholds had 

been in place since 2001, proposals relating to special meeting, environmental and social, political and social and human rights matters that failed to gain majority support after at least three tries 

still would have been eligible for a third year on company ballots 

two-thirds of the time—and a quarter of them would have been eligible for a fourth year. These are sensible ratios because of all the 

proposals relating to these issues, which often are immaterial to 

shareholder value, only 4 percent of them pass anyways. This outdated system imposes costs on the investors that have no interest 

in such proposals, and also serves as a distraction for boards of directors and management, which are trying to focus on long-term 

performance. 

This bill is important for all companies that are incurring unnecessary costs from shareholder proposals that are submitted year 

after year to push a social or political agenda and are not supported by the majority of shareholders. However, this bill is especially important for small and emerging companies that cannot afford to waste necessary capital on the same proposals every year. 

The Business Roundtable correctly noted ‘‘As the rule currently 

stands, a proposal that is opposed by 90 percent of a company’s 

shareholders can be resubmitted indefinitely, leading to a ‘‘tyranny 

of the minority’’ situation.’’ 2 When a company cannot use their capital to grow and create long-term value, shareholders are ultimately the ones who suffer because they cannot get the greatest return on their investment. 

HEARINGS

The Committee on Financial Services held a hearing examining 

matters relating to H.R. 5756 on May 23, 2018. 


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COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

June 7, 2018, and ordered H.R. 5756 to be reported favorably to the 

House by a vote of 34 yeas to 22 nays (recorded vote no. FC–183), 

a quorum being present. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole recorded 

vote was on a motion by Chairman Hensarling to report the bill favorably to the House without amendment. The motion was agreed 

to by a recorded vote of 34 yeas to 22 nays (recorded vote no. FC– 

183), a quorum being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 5756 will reduce regulatory burden and allow companies to focus their resources on getting the greatest return for investors by raising the 

shareholder resubmission thresholds. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, July 11, 2018. 

Hon. JEB HENSARLING, 

Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 5756, a bill to require the 

Securities and Exchange Commission to adjust certain resubmission thresholds for shareholder proposals. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Stephen Rabent. 

Sincerely, 

MARK P. HADLEY

(For Keith Hall, Director). 

Enclosure. 

H.R. 5756—A bill to require the Securities and Exchange Commission to adjust certain resubmission thresholds for shareholder 

proposals 

Under current law, shareholders’ proposals may be excluded from 

the proxy statements of publicly traded companies if the proposals 

are substantially the same as others presented for a vote within 

the previous five years. If a proposal fails to receive 3 percent supVerDate Sep 11 2014 05:02 Aug 25, 2018 Jkt 079006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR904.XXX HR904

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port in a first vote, 6 percent on the second, or 10 percent after the 

third vote in a five-year period, the company may exclude it. H.R. 

5756 would raise those thresholds to 6 percent, 15 percent, and 30 

percent, respectively. 

Using information from the Securities and Exchange Commission 

(SEC) on the costs of similar activities, CBO estimates that implementing H.R. 5756 would cost less than $500,000 for the agency to 

amend its rules. However, the SEC is authorized to collect fees sufficient to offset its annual appropriation; therefore, CBO estimates 

that the net effect on discretionary spending would be negligible, 

assuming appropriation actions consistent with that authority. 

Enacting H.R. 5756 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. 

CBO estimates that enacting H.R. 5756 would not increase net 

direct spending or on-budget deficits in any of the four consecutive 

10-year periods beginning in 2029. 

H.R. 5756 contains no intergovernmental mandates as defined in 

the Unfunded Mandate Reform Act (UMRA) and would not affect 

the budgets of state, local, or tribal governments. If the SEC increased fees to offset the costs of amending its rules, H.R. 5756 

would increase the cost of an existing mandate on private entities 

required to pay those fees. Using information from the SEC, CBO 

estimates that such an increase would amount to no more than 

$500,000, falling well below the annual threshold for private-sector 

mandates established in UMRA ($160 million in 2018, adjusted annually for inflation). 

The CBO staff contacts for this estimate are Stephen Rabent (for 

federal costs) and Rachel Austin (for mandates). The estimate was 

reviewed by H. Samuel Papenfuss, Deputy Assistant Director for 

Budget Analysis. 

FEDERAL MANDATES STATEMENT

This information is provided in accordance with section 423 of 

the Unfunded Mandates Reform Act of 1995. 

The Committee has determined that the bill does not contain 

Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental 

mandate on State, local, or tribal governments. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of the section 102(b)(3) of the 

Congressional Accountability Act. 

EARMARK IDENTIFICATION

With respect to clause 9 of rule XXI of the Rules of the House 

of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not 


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contain any congressional earmarks, limited tax benefits, or limited 

tariff benefits within the meaning of the rule. 

DUPLICATION OF FEDERAL PROGRAMS

In compliance with clause 3(c)(5) of rule XIII of the Rules of the 

House of Representatives, the Committee states that no provision 

of the bill establishes or reauthorizes: (1) a program of the Federal 

Government known to be duplicative of another Federal program; 

(2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public 

Law 111–139; or (3) a program related to a program identified in 

the most recent Catalog of Federal Domestic Assistance, published 

pursuant to the Federal Program Information Act (Pub. L. No. 95– 

220, as amended by Pub. L. No. 98–169). 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, (115th Congress), the following statement is made concerning directed rule makings: The 

Committee estimates that the bill requires one directed rule making within the meaning of such section. The directed rulemaking 

requires the SEC to revise section 240.14a–8(i)(12) of title 17, Code 

of Federal Regulations to raise the resubmissions thresholds for 

companies to exclude a resubmitted proposal from its proxy if it 

failed to receive the support of 6% of shareholders the last time it 

was voted on; 15% if it had been voted on twice in the last five 

years and 30% if it was voted on three or more times in the last 

five years. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Resubmission thresholds for shareholder proposals 

This section directs the SEC to raise the resubmission thresholds 

to at least six 6 percent of the vote on its first submission, 15 percent on the second submission, and 30% on the third submission. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

H.R. 5756 does not repeal or amend any section of a statute. 

Therefore, the Office of Legislative Counsel did not prepare the report contemplated by Clause 3(e)(1)(B) of rule XIII of the House of 

Representatives. 


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MINORITY VIEWS 

H.R. 5756 harms shareholders by making it easier for companies 

to exclude shareholder proposals from their proxy materials. The 

shareholder proposal process, governed by SEC Rule 14a–8, gives 

shareholders an opportunity to engage corporate management on 

issues that boards might otherwise be reluctant to address To be 

eligible to submit a proposal, an investor must have continuously 

held the lower of $2,000 or 1% of the company’s securities for at 

least one year. To resubmit the same proposal in successive years, 

an investor must garner an increasing percentage of affirmative 

votes. Currently, a board can exclude a resubmitted shareholder 

proposal that received less than 3% of the vote on its first submission, 6% on the second, and 10% on the third. H.R. 5756 would increase the resubmission thresholds to 6% of the vote on the first 

submission; 15% for the second submission; and 30% for the third. 

Proposals related to emerging issues have often taken years to 

develop enough traction among investors to receive more than 10% 

of the vote. However, many proposals that received low support in 

the beginning have facilitated industry-wide changes in the long 

term. For example, a 1997 shareholder proposal calling upon 

ExxonMobil to evaluate and report on the business implications of 

climate change received less than 6% of the vote. In 2017, after 

decades of resubmissions, similar climate change proposals at 

ExxonMobil and other energy companies passed with majority 

shareholder support. H.R. 5756 would have the effect of restricting 

many important shareholder proposals on the environment, diversity, corporate governance, and other critical issues. 

H.R. 5756 is premised on the misconception that shareholders 

are abusing the shareholder proposal process to promote activist interests to the detriment of public companies. To the contrary, 

shareholder proposals have benefited public companies in terms of 

increased shareholder engagement and improved performance. For 

example, in a letter to the Committee opposing H.R. 5756, New 

York State Comptroller Thomas DiNapoli noted shareholder success in improving gender diversity on corporate boards, which has 

enhanced company financial performance and board decision-making. According to Mr. DiNapoli, this progress would not have been 

possible if H.R. 5756 had been enacted during the early stages of 

board diversity proposals. 

Another misconception is that shareholder proposals routinely 

force companies to expend significant resources to analyze and answer them. This is false because most public companies never receive shareholder proposals and thus incur no burden whatsoever 

from the existing process. According to a voting analytics database 

maintained by Institutional Shareholder Services, Inc. (ISS), only 

13% of Russell 3000 companies received a shareholder proposal in 

any given year between 2004 and 2017. The data also shows that 


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any company that receives a shareholder proposal is likely among 

the largest corporations, as less than 4% of shareholder proposals 

in the ISS database were filed at companies with under $1 billion 

in market capitalization. 

When a similar provision was included in H.R. 10, the ‘‘Financial 

CHOICE Act,’’—which was unanimously opposed by all House 

Democrats—several state treasurers and comptrollers signed a 

joint letter that underscored the importance of preserving shareholder rights as set forth in Rule 14a–8. According to these state 

officials, ‘‘[t]he robust shareholder proposal process, as currently 

structured and administered under SEC Rule 14a–8, works well for 

investors, public companies and capital markets.’’ 

In addition, several consumer and investor advocates, religious 

organizations, civil rights groups, organized labor organizations, 

public company shareholders, pension plans, institutional investors, and other proponents of sound corporate governance wrote to 

Congress opposing H.R. 5756 and the related provision in H.R. 10. 

These stakeholders view the existing shareholder proposal process 

as striking an appropriate balance between management discretion 

and accountability to shareholders. 

For these reasons, we oppose H.R. 5756. 

MAXINE WATERS. 

WM. LACY CLAY. 

STEPHEN F. LYNCH. 

CAROLYN B. MALONEY. 

DANIEL T. KILDEE. 

MICHAEL E. CAPUANO. 

Æ 


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