The Value of the Shareholder Proposal Process

One of the most appalling provisions of the proposed “CHOICE” legislation is the one that would severely limit shareholder proposals, which, in case anyone needs a reminder, are non-binding, so that even a 100 percent vote would not force a board or executives to make a change. Also, in case anyone needs a reminder, the subject matter of shareholder proposals is already strictly limited (excluding “ordinary business,” for example), and this provision has suddenly become important just as shareholder proposals have been getting majority support. Once again, the same people who love to rhapsodize about the purity of the free market do not want to let “the invisible hand” provide any market-based feedback.

Julie Gorte and Tim Smith write in defense of shareholder proposals at Harvard Law School’s Corporate Governance and Financial Regulation blog:

The voice of shareholders is valuable both to companies and to investors alike. Shareholders file proposals with companies to help them perform better, not to annoy them. The fact that many resolutions now get votes in the 30-50 percent range, and many pass with majority votes, demonstrate that shareholders often see these resolutions as being in their financial interests.

This point is easy to illustrate with examples. In 2016, there were about 1,000 shareholder proposals filed in the United States, of which about 400 were on social and environmental issues. The remainder concerned corporate governance. None of these categories are trivial or peripheral to protecting a company’s reputation or its value, as reams of research demonstrate.

Source: The Value of the Shareholder Proposal Process

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