Q. Who can file a shareholder proposal?

A shareholder in a US publicly traded company can file a proposal of up to 500 words to be voted on at the company’s next annual meeting. The shareholder must have owned a minimum of $2,000 in stock for at least three years. The company is required by the SEC to distribute a proxy statement to all shareholders prior to the meeting, allowing them to vote in absentia.

Q. What kinds of issues are addressed by shareholder proposals?

SEC rules limit the subject matter of proposals — generally either to corporate governance matters (e.g. the ability of shareholders to nominate board members) or to a significant policy issue facing a company (e.g., asking the company to report on how rising ocean levels from climate change are likely to affect the company’s coastal operations).    

Q. What is the rationale for critics’ efforts to roll back these important investor rights?

The companies claim either that shareholder proposals are costly, or that they divert attention from other issues considered more important by the company’s insiders, such as the board or management.

Q. Are these valid arguments?

There are minimal costs associated with printing a 500 word statement on the Company’s proxy statement, which typically includes hundreds of thousands of words. 

The legal costs of fighting to keep a proposal off the proxy are entirely at the company’s discretion.

Any concerns about distraction or attention must be weighed against the value in  shedding light on issues of risk or opportunities of concern to investors but  neglected by board or management.  

There is abundant evidence on this Investor Rights Forum website that shareholders, including retirees whose pensions depend on long-term value of company share prices, benefit from proposals.

Q. How frequently do public companies receive shareholder proposals?

Most public companies do not receive any shareholder proposals. According to Institutional Shareholder Services’ Voting Analytics database, 759 shareholder proposals were submitted in the first half of 2019 (the “proxy season”) at 412 companies in the Russell 3000. Fewer than 14 percent of companies received a proposal, and the median number of proposals received was one per company. In other words, the average Russell 3000 company can expect to receive a proposal once every seven years.

Q. What type of companies are more likely to receive shareholder proposals?

Large companies are far more likely to receive shareholder proposals because these companies represent a greater portion of investors’ equity portfolios. According to Institutional Shareholder Services, S&P 500 companies received 570 proposals in the first half of 2019. This equals 75% of the proposals received by Russell 3000 companies, and corresponds to the S&P 500’s coverage of the Russell 3000’s market capitalization. In contrast, smaller companies rarely receive proposals.

Q. What percentage of proposals actually go to a vote at annual meetings?

Less than half of all submitted proposals actually go to a vote. Out of the 8,247 proposals at Russell 3000 companies that Institutional Shareholder Services tracked during the 10-year period between 2009 and 2018, only 4,303 proposals (52%) went to a shareholder vote. The SEC permitted companies to omit 1264 proposals (15%). The remaining proposals were withdrawn or otherwise did not go to a vote.

Q. How frequently do individual investors use the shareholder proposal rule?

According to the ISS database, the Chevedden, Steiner and McRitchie families submitted approximately 1,700 shareholder proposals between 2004 and 2017. Proposals by this group of individual investors represent 14.5% of the 11,706 shareholder proposals contained in the ISS database.  Notably, their proposals receive higher than average voting support. Typically 40% of shareholders voted in support of these shareholders’ proposals when they went to a vote.  Often these governance proposals are passed by a majority of shareowners.

Q. Who is trying to roll back these rights?

Representatives of a few of the largest US companies, especially the largest oil and gas companies, are working aggressively to roll back the right to file shareholder proposals. These organizations include  think tanks and advocacy groups funded by the the US Chamber of Commerce and National Association of Manufacturers  with  misleading names, such as the Main Street Investors Coalition (funded by the National Association of Manufacturers)  and the  “Institute for Pension Fund Integrity” funded by “dark money” sources of funding that are undisclosed and nontransparent.