Company shareholders who submit proposals for a vote by their fellow investors at annual meetings are required to abide by what is called Rule 14a-8 under the Securities and Exchange Act of 1934. Guidelines as to how that rule is followed, enforced by the Securities and Exchange Commission, are issued by the SEC’s Division of Corporation Finance (DCF).
The guidelines are pretty much obeyed by both companies and shareholder proponents, with little challenge. Those parameters change from time to time, often with the entrance of new presidential administrations. This just happened with President Donald Trump‘s election — Rule 14a-8 guidelines reverted back to how they were administered during his first term, after the Biden administration had adjusted them in 2021.
Without getting too deep into the arcane details, the bottom line is that under President Biden, the rules for proponents were looser so that it was easier for them to get their shareholder proposals on proxy statements and heard at companies’ annual meetings. The guidelines under President Trump are more restrictive. A simple explanation by Deloitte can be read here, and for readers who want to take a deeper dive — well, search the Internet.
The essence of the main differences are as follows. Shareholder proposals may not intrude on a company’s “ordinary” (or everyday) business or micromanage its affairs in matters that should be under the purview of executive management. Under the Biden administration, those guidelines were loosened so that if proponents could convince the DCF that they addressed an issue of such great societal impact that it exceeded “ordinary business,” then the proposal could be considered. Under the Trump administration, that standard is dialed back, and requires a more specific nexus tied to the company’s specific business and activities, and must affect at least 5 percent of the company’s net earnings and gross sales.
The outcome regarding each proposal is this: If a company wants to omit a proposal and convinces DCF that it runs afoul of whatever the guidelines are, then the proponent is out for that year. There is usually much debate between companies and proponents on dockets created by the SEC on its website, before the DCF renders its decisions.
That’s a lot of explanation to get to the point of this post, which is to call attention to the new Trump-SEC paradigm, and the example of our current entanglement with Bank of America (Chairman/CEO Brian Moynihan pictured above).
In fall 2024 NLPC submitted a shareholder proposal that called upon the company to answer for its willful release of credit card data of its customers who conducted transactions in the Washington, DC area on the dates surrounding the incident at the U.S. Capitol on January 6, 2021 — without requiring a warrant, subpoena, or the FBI even asking for the records. The proposal was based on the findings in three separate reports released last year by the Weaponization Subcommittee of the U.S. House Judiciary Committee. Specifically NLPC’s proposal requested for “the Company Board of Directors [to] issue a public report…concerning the legality and judgment of management’s decision-making, and insufficient disclosure specificity, regarding the dissemination to government agencies of customers’ personal information.”
Unfortunately the DCF endorsed Bank of America’s contention that NLPC’s proposal improperly “relates to the Company’s ordinary business operations,” and therefore could be excluded from its proxy statement. We disagree with the decision and would live with it, except…
…this proposal submitted by leftist proponents — the Comptroller of the City of New York on behalf of the New York City Teachers’ Retirement System and New York City Police Pension Fund — was puzzlingly not considered by DCF to be an infringement on Bank of America’s “ordinary business:”
Resolved: Shareholders request Bank of America (“Company”) disclose annually its Energy Supply Ratio (“ESR”), defined as its total financing through equity and debt underwriting, and project finance, in low-carbon energy supply relative to that in fossil-fuel energy supply. The disclosure, prepared at reasonable expense and excluding confidential information, shall describe Company’s methodology, including what it classifies as “low carbon” or “fossil fuel.” Company should include lending in its ESR if methodologically sound.
So, according to the SEC’s DCF, anti-fossil fuel activists trying to meddle in corporate executives’ everyday decision-making about financing energy projects is not improper involvement in the company’s “ordinary business.”
But asking for Bank of America to explain itself after it handed over customers’ data without cause, or without law enforcement even requesting it, does meddle in its “ordinary business.” DCF also allowed the exclusion of a proposal submitted by another conservative-leaning proponent, Leonard Crumpler, that addressed the company’s viewpoint discrimination.
This is glaringly inconsistent decision-making by the DCF which has gone on for years, regardless of presidential administration. A big part of the problem is DCF never explains itself when it issues its rulings.
During President Trump’s first term, shareholder activism was dominated by left-wing proponents that bombarded a lot of Fortune 500 companies with ESG- and DEI-minded proposals with “woke” agendas. Conservatives barely made a showing, with proposals sponsored by National Center for Public Policy Research and a few by NLPC being vastly outnumbered by progressive activists. So it was understandable at the time that the SEC under his administration would attempt to force proponents to focus their proposals on issues and management that were more relevant to companies’ specific operations and financial performance.
But at least with DCF’s seemingly contradictory decisions on these Bank of America proposal submissions, President Trump’s SEC has let pro-climate alarmism proponents have their issue heard, while those who are trying to hold accountable weaponization of the government — and of large financial institutions — against religious and political conservatives, are silenced.
We hope the trend doesn’t continue for the rest of this annual meeting season that extends through the spring. Perhaps DOGE needs to dig in at the SEC and DCF.
