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 a year. 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. Are the number of shareholder proposals increasing over time?
No. According to the ISS Voting Analytics database of Russell 3000 companies, shareholders submitted an average of 825 proposals per year during the 10-year period between 2009 and 2018. The number of submitted proposals fluctuated between 800–900 proposals per year, except for a dip to 603 proposals in 2011 and 673 proposals in 2012 after the SEC’s adoption of say-on-pay vote requirements.
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 many proposals receive less than 10% support? What about 30% support?
In the first half of 2019, 42 proposals received less than 10% of the For/Against vote out of 331 proposals that went to a vote (13% of the voted proposals) and 151 proposals received less than a 30% vote (46% of the voted proposals). Increasing the resubmission requirements from a 10% vote to a 30% vote potentially could prevent the resubmission of an additional 109 proposals after their third year.
Q. How often do shareholder proposals with low votes get resubmitted year after year?
Resubmissions for a third or fourth time are very rare. Since 2010, shareholders resubmitted environmental and social issue proposals only 35 times after receiving votes under 20% for two or more years. This affected only 26 companies.
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.