By Shelley Alpern
In February, the Business Roundtable (BRT), a group representing the some of the most powerful CEOs in corporate America, delivered a regulatory hit list to a sympathetic White House. Within that roster was a pitch to decimate the regulatory provisions that allow small shareholders a voice in corporate governance.
Concerted attempts to weaken shareholder proposals have been made at least three times in the last couple of decades. In 1997, the Securities and Exchange Commission (SEC) went so far as to solicit public comment on a rule, but was forced to abandon the idea after considerable opposition from the investment and broader publics. The Commission broached the idea again in 2010 but, again, it was not pursued.
Critics of the process object to the $2,000 minimum ownership requirement necessary to file a shareholder proposal, and the fact that they be re-submitted for shareholders’ consideration even after receiving fairly limited support.
The BRT and the U.S. Chamber of Commerce want to raise both the resubmission thresholds and the minimum amount needed to file. The BRT would replace the $2,000 minimum with a sliding scale based on the market capitalization of the corporation, ranging from 0.15 percent to 3 percent ownership of outstanding shares.
Consider the impact at Apple if 3 percent ownership were required. Only shareholders in possession of $22 billion worth of the stock would be able to file a shareholder proposal. A number of years ago, I participated in the filing of a shareholder proposal at Apple that requested a stronger policy concerning the toxic chemicals used in its products. My firm withdrew the proposal when the company agreed to a timetable to phase out two problematic chemicals
“In too many cases,” the BRT opined, “activist investors with insignificant stakes in public companies make shareholder proposals that pursue social or political agendas unrelated to the interests of the shareholders as a whole.”
That reading of affairs is seriously out of touch with investors’ views.
Outside of the most insulated circles, the notion that sustainable environmental, social and governance (ESG) policies and practices are “unrelated to the interests of the shareholders as a whole” is steadily fading into irrelevance. Virtually every corporate website features a sustainability section that identifies daunting ESG issues the company faces, from climate change and water scarcity to ensuring respect for labor and human rights in its supply chain.
Investors expect corporations to be thinking both broadly and holistically about the risks and opportunities associated with sustainability issues, whether those investors are Goldman Sachs, the California state pension fund, or ordinary workers with 401(k) funds. According to U.S. SIF, $8.72 trillion in professionally managed assets in the U.S. use ESG screens, up by 33 percent since only 2014. As this number has grown, so has the average vote for proposals addressing environmental and social issues; those are up 33 percent in the last decade.
The critics are trying to fix a system that simply ain’t broke. From reading their complaints, one gets the false impression that corporate America is overrun with shareholder proposals because filing them is as easy as waving a magic wand. In fact, the process is not particularly easy or inexpensive. There is no point in going to the trouble if you don’t believe your proposal is in the best economic as well as social interests of the corporation.
As regulators and lawmakers consider these ill-conceived attacks on shareholder rights, they need to understand that corporations, investors and other stakeholders benefit from the process. It’s not very well known that not every shareholder proposal ends up going to a vote. In any given year, a substantial number are withdrawn following discussions with corporate executives. Sometimes these discussions amount to no more than an exchange of views; many other times, however, proponents agree to withdraw their proposals in exchange for concrete corporate commitments to constructively address the issue at hand, as the Apple example illustrates.
That is just one story among hundreds that could be told. But the bigger picture is greater than a hodgepodge of anecdotes. For example, corporate preparedness for climate change would likely be years behind its current state but for shareholder dialogue and proposals. Proposals are also responsible for vast gains in the transparency of corporate political spending, and for more inclusive nondiscrimination policies.
The BRT and Chamber’s campaign to cripple shareholder proposals is best understood in its larger context. It is part of a much larger, ambitious attempt to roll back all manner of environmental and worker protections that is based on ideology rather than evidence. Especially in these times, companies and investors benefit from the debate and forward progress generated by evidence-based shareholder proposals. It’s not the time to weaken shareholder rights.
This post originally appeared on The Clean Yield
Image credit: Flickr/Sam valadi
Shelley Alpern is the Director of Social Research & Shareholder Advocacy for Clean Yield Asset Management.