Heidi Welsh, Sustainable Investments Institute, 2019 Data on ESG Shareholder Proposals.

The number of shareholder resolutions filed by at U.S. companies on the environmental, social and sustainability impacts of corporate activity has grown by 11 percent in the last ten years, increasing from 407 in 2010 to 454 in 2019. At the same time, average support has increased 40 percent, rising from about 18 percent to nearly 26 percent.

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Investors to SEC: "Rescind New No-Action Policy"

We recommend that the Division rescind the policy and retain the process that has worked reasonably well for decades. The number of no action requests processed by the Staff has not increased, and thus this change does not seem merited. In the event that the SEC does not rescind the new policy, we offer the following suggestions to reduce the level of uncertainty and conflict resulting from the new approaches….

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Investor Letter to SEC: Rulemaking on Rule 14a-8 Not Needed

The 129 undersigned investors and investor organizations, representing $525 billion in assets under management, are writing to share their concerns about potential changes to Rule 14a-8. The Securities and Exchange Commission has placed investors on alert with its May 2019 announcement that it is considering conducting a rulemaking to alter the thresholds for filing and/or resubmission of shareholder proposals.

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New Securities and Exchange Commission Policy Signaling Selective Enforcement Threatens Rights of Retail Investors 

Washington, DC. On September 6, the Securities and Exchange Commission issued a new policy that could significantly reduce transparency and accountability in the process of enforcement of the rules on shareholder proposals. According to a group of leading investors who utilize this process, the new policy undermines the rights of shareholders and increase uncertainty.

Under the decades-long process deployed by the SEC to review shareholder proposals, companies that wish to exclude a proposal from the proxy statement are required to file a request for a “no-action decision” from the Securities and Exchange Commission describing their reasons for excluding the proposal. The staff issues an informal ruling, in each instance clarifying whether or not the staff agrees with the company’s reasons for exclusion, or would recommend enforcement if the company follows through on its intention to exclude the proposal. 

Under the new policy, the staff will not necessarily respond in writing to every no-action request that is submitted. In some instances, the staff may issue a written decision that they are choosing not to decide for or against the proposal. In other instances, the staff may only respond orally to the parties.

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Josh Zinner: Business Roundtable Must Defend Shareholder Access to Proxy

We write today for two reasons. The first is to commend the Business Roundtable (BRT) and the 181 CEOs who endorsed the new Statement on the Purpose of the Corporation(the “Statement”), embracing the importance of companies’ commitment to key stakeholders. The statement acknowledges a central tenet of ICCR’s core philosophy: that companies focused on the well-being of all their key stakeholders and not just on boosting short-term shareholder returns will be more successful over the long term. A growing community of ESG investors have been supportive of companies demonstrating leadership in corporate responsibility for years, with the firm belief that these companies are building long-term value for shareholders.We expect the BRT CEO statement will stimulate an important dialogue within companies,investors and the broader public.

However,the principles clearly articulated in the Statement makes the BRT’s continuing lobbying and public statements against shareholder resolutions dealing with environmental, social and governance issues even more perplexing. We urge the BRT to reassess its campaign against shareholder resolutions in light of the new statement.

We read with interest the June 3,2019 BRT letter to the Securities & Exchange Commission (SEC Letter)and take issue with several of the assumptions used to support the BRT’s argument. The BRT’s characterization of the issues raised in the proxy process, as well as the motivations of shareholder proponents, is a simplistic description that is false and misleading.

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Lisa Woll & Jonas Kron: Responding to BRT "Statement": Stronger partnership needed between shareholders, managers

Lost in many responses to the Business Roundtable statement Aug. 19 that companies have a "fundamental commitment" to all their stakeholders is a simple fact: Structurally speaking, there are two primary regions of power in a company: shareholders and managers. And both of them need to focus more attention on the social and environmental impact of corporate policies, practices and performance. Both shareholders and managers should focus more on the social and environmental impact of corporate policies, practices and performance.

Now that corporate CEOs are lending their voices to these shared concerns, it is not the time to vilify investors for utilizing their shareholder rights and put all our faith in managers to take up the mantle. Instead, we must consolidate this opportunity by harnessing the insights of sustainable and responsible investors with CEOs' ability to implement and execute on those ideas.

An excellent first step would be for the Business Roundtable to withdraw its request to the Securities and Exchange Commission to change the shareholder resolution process and instead welcome shareholders to continue to put shareholder proposals on issues like climate change and economic inequality in corporate proxy materials.

Lisa Woll is CEO of US SIF: The Forum for Sustainable and Responsible Investment. Jonas Kron is senior vice president of Trillium Asset Management.

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Rights at Risk

The Securities and Exchange Commission  has placed investors on alert with its May 2019 announcement that the Commission is considering conducting a rulemaking to alter the thresholds for filing or resubmission of shareholder proposals.

For over half a century,  the shareholder proposal process has aided investors of all sizes to convey key concerns to company directors and managers as well as fellow shareholders.  The shareholder proposal process often sheds light on issues neglected by boards, leading to better-considered strategic decisions and more transparency.

A few companies and their lobby groups are seeking to curtail these shareholder rights, and are calling on the SEC to make substantial changes to the rule. 


Proposal Filing Thresholds

Current rules require an investor, as a precondition to filing a proposal, to hold at least $2,000 in shares of a company for at least a year.  This holding timeframe and amount was established to ensure that retail investors would have access to the important right to place issues significant to the company before fellow shareholders.

Some potential rule changes floated in recent years would limit this right to the few largest investors, and to small shareholders that have held onto their shares for an extended number of years.

Some of the proposed changes would block proposals by many current proponents, even though their proposals are winning broad support. The votes in favor of their proposals, often 30-60% or higher, demonstrate that shareholders of all sizes value the opportunity to weigh in on these proposals.

Other rulemaking proposals for “reform” of the Shareholder Proposal Rule seek to extend the length of time one must hold shares beyond the current one year holding period.   When the rule was originally enacted in the 1960s, the average time an investor held a share of  stock was eight years; today the average is between four and eight months.[1]  Therefore, extending the holding time is out of step with today’s  high-frequency trading and index funds in which fewer shareholders are exercising “buy-and-hold” investment strategies.

Resubmission Thresholds

Once a proposal is voted upon at a company, SEC rules limit the circumstances in which the proposal can be resubmitted. In order to resubmit a particular proposal at a company in a subsequent year, the proposal must have obtained at least 3% shareholder support in the first year,  6% in the second and 10% in the third year at the company’s annual shareholder meeting.  These thresholds allow time for the introduction of a proposal on an emerging concern to prompt ongoing consideration, education, research and dialogue among the shareholders and companies.  Support levels for proposals also increase over time in the face of emerging information on risks, technical innovation, and shifts in investing strategies. The potential for resubmission sometimes is sufficient to stimulate a company to address the underlying concern.  Vote levels for novel proposal topics grow over time. Many of the largest shareholders only support a proposal after establishing a voting policy relevant to the newly emerging issue.

Despite these functional realities, corporate trade associations have been asserting since the late 1990’s that these thresholds should be increased, arguing that growing levels of support for proposals by investors render the resubmission levels too low to exclude proposals of little interest to a firm’s investors.

The data do not support the trade associations' claims.  An examination of  proposal resubmissions and voting records during 2018 and 2019 demonstrates that the 3% threshold for a first-time proposal remains relevant -- a number of proposals were rejected by shareholders,   receiving votes less than 3% and preventing them from being resubmitted in a subsequent year. The existing resubmission thresholds thus effectively screen out proposals considered irrelevant or ill-advised by most shareholders.     

In addition,  the record shows that proposals are seldom resubmitted by proponents if they achieve votes that only narrowly exceed the existing thresholds. Thus, the concern about too many resubmitted proposals is misplaced.

Changing the resubmission threshold in a way that would make it harder for such proposals to persist would ultimately disadvantage all investors, large and small, by depriving them of the opportunity for ongoing deliberation on issues believed by many to be consequential for portfolio companies.


In addition to the impending rulemaking, other current developments at the SEC are also threatening shareholder rights. 

Advisory Proposals Do Not Micromanage

 A further controversy relates to whether proposals may be excluded as “micromanaging” company decision-making. In 2018 and 2019,  the SEC Staff found[2] that proposals requesting companies to disclose greenhouse gas targets would “require” the company to substitute “specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.”[3]  As such, the staff allowed exclusion.

In fact, there was no such requirement  in any of the excluded proposals, because they are advisory in nature.   Because most proposals “request” rather than “require” action, by their nature they respect and ultimately defer to the discretion of the board and management to operate the company. Most shareholder proposals provide suggestions and offer input from company shareholders, while also  providing an opportunity for management to  determine how widely a view is shared among the investors.  The Staff’s broadened definition of micromanagement is depriving shareholders the opportunity to vote on clear, effective proposals on urgent risks such as climate change.

Read More: Council of Institutional Investors letter on micromanagement 

Selective Issuance of No Action Letters Could Hurt Both Companies and Shareholders

The SEC is has indicated that it may halt the practice of issuing written replies to all company no action requests, and in some instances to give their reply orally instead of in writing. it seems clear that any instances of informally granting a no action request without written justification would lack the safeguards of transparency and accountability provided by a written no action process, and deny all parties the benefits of the staff's deliberative process and thinking. Denial of a no action request without a written justification will certainly be problematic to issuers, and similarly deny proponents the benefits of the Staff’s thinking.

Read more - Shareholder Rights Group letter to Director of Corporation Finance William Hinman


[1]https://www.politifact.com/virginia/statements/2016/jul/06/mark-warner/mark-warner-says-average-holding-time-stocks-has-f/ see also Jake Zamansky, The Death of the "Buy and Hold" Investor, Forbes, Jul 5, 2012, http://forbes.com/sites/jakezamansky/2012/07/05/the-death-of-the-buy-and-hold-investor/#45702d5a30b9

[2] Examples:  Exxon Mobil, JB Hunt Transportation  and  Devon Energy.

 [3] The decision stated: “In our view, the Proposal would require the Company to adopt targets aligned with the goals established by the Paris Climate Agreement. By imposing this requirement, the Proposal would micromanage the Company by seeking to impose specific methods for implementing complex policies in place of the ongoing judgments of management as overseen by its board of directors.” [emphasis added]

Statistics on Resubmitted Proposals Demonstrate No Material Benefit of A Rulemaking

Heidi Welsh, Sustainable Investments Institute

Being a big fan of fact-based policy making, and having the actual data at my fingertips here at the Sustainable Investments Institute (Si2), I decided to run a couple of scenarios. Here's what I found, which roundly belies the need for change—or at the very least, suggests that a rulemaking on resubmissions would be a lot of bother for a very tiny problem.

One assertion by critics of ESG shareholder resolutions is that the same thing keeps getting submitted to loads of companies ad infinitum, with little support. These are "zombie" proposals, according to these folks. But I've found little evidence these creatures exist in the harsh light of actual reality.

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Sanford Lewis, Shareholder Rights Group: Proxy Voting Outcomes, July 2019

According to data compiled by the Sustainable Investments Institute, 176 resolutions on social and environmental topics came to a vote at US companies in the spring of 2019. Many of these were filed by investors with relatively small stakes consistent with the existing filing thresholds. The proposals received on average of 25.5 % support (about the same as the average of 25.4% for resolutions of this kind in 2018, and 21% in 2017). These numbers demonstrate that proposals of interest to a large portion of a company’s shareholder base can and do originate with smaller individual and institutional investors.

Examples of such resolutions that received majority support include:

  • A human rights reporting proposal filed at private prison operator Geo Group, by the USA West Province of the Society of Jesus, which received 87% support after the company’s board of directors withdrew its opposition.

  • A proposal for disclosure of governance measures implemented related to opioids filed by Domini Impact Equity Fund and others receiving 60% support.

  • Proposals requesting diversity reports filed by Trillium at Newell Brands and Travelers Companies received 56% and 50.9% support, respectively.

The season outcomes also illustrate the continued applicability and viability of the existing resubmission thresholds. Voting outcomes show that there were very few proposals resubmitted when the prior votes were close to the resubmission thresholds and that sometimes the vote outcomes improved markedly. For instance, a resubmitted and refined request to report on the company’s prison labor policy received 28.7% this year at Costco, after a proposal on the same topic garnered only 4.8% of the vote in 2018; a similar proposal at TJX Companies received 38% support, up from 7.75% in 2018. Concerns about prison labor in the supply chain is an emerging issue which was first brought to the investment community’s attention by a few forward-looking investors, but is now of concern to many. Substantially higher resubmission thresholds for first-year or second-year resolutions might have interrupted consideration and flagging of these issue at those companies’ annual meetings.

The average of favorable votes for ESG proposals continues to increase as investors recognize the materiality of ESG issues at their companies. However, where the business case is not effectively demonstrated by the proposal and proponents, shareholders are quite able to reject resubmission via the existing resubmission thresholds. For example, shareholders consistently gave less than 3% support to proposals seeking an ideological litmus test for board members at Discovery, Starbucks, Apple, Twitter and Amazon. Shareholders at Exelon similarly rejected a proposal to “burn more coal” with only 1.6 percent support. Investors also rejected a request to report on how Gilead Sciences spent its share of the federal tax cut, a proposal that earned only 2.2%.

Read full text here.

Don't Dilute or Abridge the Bundle of Rights of Share Ownership

Sanford Lewis, Director, Shareholder Rights Group

Filing shareholder proposals is a fundamental right of investors who own shares in publicly traded companies. The “bundle of rights” acquired with the purchase of stock includes the right to file and vote on proposals.

The annual ritual of floor debate at corporate annual meetings, as well as the publishing of shareholder proposals in company proxy statements that precedes the meeting, is an integral part of the fundamental bargain struck between investors and shareowners—in exchange for capital, shareholders gain unique rights to bring issues in front of corporate management.

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