The shareholder proposal process is grounded in that most American of values: the marketplace of ideas.
— Tim Smith, Boston Trust & Investment Management Co.
 

Proxy Voting Outcomes 2019

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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:

  • 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%.

Sanford Lewis, Director, Shareholder Rights Group and Kimberly Gladman, CFA, Ph.D.


Statistics on Resubmitted Proposals

As many know, the SEC is looking at a possible change to the rules about shareholder proposals, including if the requirements for filing proposals should change and whether a proposal should require more support to be resubmitted. One proposal floating around Washington suggests thresholds much higher than the current requirements of 3% the first year, 6% the second time and 10% for third-year proposals.

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 it 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.

Let's apply what I'm going to call the Zombie Index to what's happened in the last five years. This is what it looks like:

  • Number of environmental and social issue proposals filed at U.S. companies, 2015–19: 2,301

  • Number of these proposals that went to votes: 1,054

  • Number of these proposals that were resubmitted 3 or more times: 74 (7% of those upon which investors voted)

  • Number of resubmitted proposals under current rules that failed to meet resubmission requirements in the third year (getting at least 10%): 4 (5% of the persistent 74)

  • Number that would be blocked for further reconsideration if the 3rd year threshold were 20%: 11 (15% of the persistent 74)

  • Number that would be blocked if the 3rd year threshold were 30%: 22 (30% of the persistent 74)

My conclusion: if the resubmission threshold were increased to 30%, another 18 resolutions would be excluded. Zombies just are not lurking. I leave it to somebody else to figure out how much it would cost to block each of those 18 proposals. Certainly a lot more than zero.

Heidi Welsh, Sustainable Investments Institute