Bill would undo the SEC’s disastrous determination that has allowed radical progressive ideology to infiltrate corporate America through shareholder proposals
WASHINGTON—United States Senator Bill Hagerty (R-TN), a member of the Senate Banking Committee, today introduced the Rejecting Extremist Shareholder Proposals that Inhibit and Thwart Enterprise (RESPITE) for Businesses Act, legislation to clarify that public companies may exclude shareholder proposals that interfere with their ordinary business operations, regardless of whether the proposal concerns a significant social policy issue. Representative John Rose (R-TN-06) has introduced companion legislation in the U.S. House of Representatives.
“For too long, the SEC has enabled progressive activists to commandeer American companies to advance extreme political causes,” said Senator Hagerty. “My legislation frees companies from being forced to consider harmful and irrelevant shareholder proposals, helping them steer clear of progressive politics and focus on creating jobs for Americans.”
Background:
- SEC Rule 14a-8(i)(7) allows a company to exclude a shareholder proposal if it “deals with a matter relating to the company’s ordinary business operations.” This rule, known as the ordinary business exception, enables a company’s management and board of directors to handle matters that would be impractical for shareholders to manage directly. Prior to a Securities and Exchange Commission (SEC) announcement made on November 3, 2021, this rule enabled companies to exclude shareholder proposals involving significant social issues on the grounds that the proposals dealt with matters relating to the companies’ ordinary business operations.
- On November 3, 2021, the SEC issued Staff Legal Bulletin No. 14L (CF), which unilaterally decided that proposals dealing with significant social policy issues cannot be excluded under the ordinary business exception.
- According to Morningstar’s proxy-voting data, this SEC decision contributed to a sharp increase in the number of ESG shareholder resolutions voted on at U.S. companies. In the most recent proxy year ended June 30, 2023, 616 ESG resolutions were voted on—a 37% increase from 2021.
Full text of the RESPITE for Businesses Act can be found here.
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