The Securities & Exchange Commission (SEC), charged with protecting investors, has proposed a new rule that would drastically weaken the shareholder resolution process and the corporate oversight that protects the long-term interests of investors, our economy, and society. As part of the SEC’s public comment period, concluding February 3, 2020, Green America delivered a petition signed by over 10,500 of our members to the SEC with the following message:
We are deeply concerned about the need to build an economy that will be successful over the long term. This means we need to ensure that social, environmental, and corporate governance issues facing corporations are effectively addressed. As we know, significant improvement across these issues is needed if our economy and society are to thrive for generations to come.
Investors, including small investors, have an important role to play in identifying for corporations a number of risks and corporate impacts of which they may not be aware. These risks and impacts may damage specific companies and the larger economy.
Proposed Changes to Corporate Oversight
Since 1934, the shareholder proposal process (Rule 14a-8) has been a positive tool that enables investors to share important information with fellow investors and with corporate management. It is working well and should certainly not be weakened. We are very concerned about the following proposed changes and oppose the following:
Increasing the stock ownership level from $2,000 to a whopping $25,000 for shares held for a year. This flies in the face of the SEC’s claimed support for the “main street individual investor.” The ownership level for filing a resolution should remain at $2,000 regardless of the number of years of ownership. In addition, shareholders should retain their long-standing ability to combine their shares if needed in order to meet the $2,000 threshold required to file a resolution.
Increasing the percentage of support a shareholder resolution needs in order to be resubmitted for consideration. The current levels of support are working well and allow new, cutting-edge issues to garner support over time. At present, a first year-resolution needs three percent support, a second-year resolution needs six percent support, and subsequent submissions need ten percent support. Increasing those thresholds to five percent, 15 percent, and 25 percent will prevent important resolutions from being re-filed, and will not help companies improve.
Limiting investors or their representatives to one shareholder resolution per shareholder meeting. There is no evidence that this is needed and only serves to limit shareholder engagement.
Requiring investors to be available for dialogue with corporate management even when they have hired financial professionals for their shareholder advocacy. This disrupts the client-manager relationship and represents a major change to the well-established process.
While some companies claim that the current shareholder resolution process is onerous to them, the average company in the Russell 3000 receives only one shareholder proposal every seven years. The benefits of hearing from investors on key issues should be a priority of corporate management.
Investors are not asking for these changes to the shareholder process–such changes only serve to limit much-needed corporate oversight of publicly traded companies by investors and the public.