Advocacy & Public Policy: Shareholder Resolutions
Shareholders in a publicly traded company may introduce shareholder resolutions, or proposals, to the company management to be voted on in the next annual proxy vote. These resolutions may pertain to company policies and procedures, issues of corporate governance, or other issues of social responsibility or environmental concern. Shareholder resolutions are a powerful way for shareowners to encourage corporate responsibility and discourage company practices that are unsustainable or unethical.
Who May File a Shareholder Resolution?
The U.S. Securities and Exchange Commission (SEC) recognizes that generally any shareowner holding at least $2,000 in stock, for a minimum of one year prior to the company’s annual submission deadline, may introduce a shareholder resolution. However, for maximum efficacy it is recommended that individuals come together to form a shareholder coalition in order to increase the impact of their proposal. Often, a shareholder resolution will fail to win a majority of votes, but still succeed in persuading management decisions because the resolution was favored by a significant number of shareholders.
SEC Rules on Subject Matter of Resolutions
When a shareholder or shareholder coalition introduces a resolution, company management will often bring the resolution to the SEC in an attempt to exclude the resolution from the proxy vote. This is because the SEC has rules against proposals on matters of personal grievance, operations constituting less than five percent of revenue, and matters pertaining to “ordinary business.” Many times, the company management will argue that a proposal fits into one of these categories for exclusion. However, proponents of a shareholder resolution are also able to make their case before the SEC, and may counter the arguments of company management. If the SEC agrees with the shareholders’ logic, the proposal is allowed to be included in the proxy vote.
Persistence of a Shareholder Resolution
Company management may have a slow or ineffective response to a shareholder resolution once it has been voted on. Often, shareholders will introduce the same resolution for the next year’s annual meeting and proxy vote, if after a year, there is insufficient progress towards fulfilling the resolution. SEC guidelines state that the resolution needs to receive a certain proportion of votes in order to be included in the following year’s proxy vote; its first year, it needs 3%; in its second year, it needs 6%; and it needs 10% every year thereafter for inclusion in the vote. These rules illustrate the SEC’s acknowledgment that even a small proportion of shareholder votes can affect change in company practices.
Resources for Shareholder Advocates
There are many services available to social investors who desire to affect change through shareholder advocacy. Social Investment Forum is dedicated to providing social investors with the valuable resources to assist with every step of the shareholder resolution process. To find news and reference information related to shareholder advocacy, please see our Tools and Resources page.
Our Shareholder Success Fact Sheet contains recent environmental, social and corporate governance (ESG) issue resolutions that have addressed corporate political contributions, equal employment, climate change, global labor standards, environmental management reporting and more. Historically, these resolutions have been crucial tools for encouraging companies to address important ESG issues.
Many online resources make it easy to keep abreast of developments in shareholder resolutions. Interfaith Center on Corporate Responsibility is a good source of currently active social and environmental shareholder resolutions, including the company name, resolution issue, annual meeting date, and the status of the proposal.
Corporate governance resolution databases typically require a subscription or fee, but public access, free-of-charge listings exist in incomplete forms throughout the web. RiskMetrics provides public access to information on current corporate governance resolutions.
If you have questions about a corporate governance resolution, Social Investment Forum can provide assistance. Please contact Kristin Lang at 202-872-5347.