Sigh. Another whine about those pesky shareholders from those who insist they are the ultimate capitalists. James R. Copland of the Manhattan Institute, which is funded by right-wing foundations (whose names should be disclosed in published material like this column), writes in the Wall Street Journal that poor McDonald’s should not have to bear the terrible burden of shareholder proposals. He argues that the oxymoronically named CHOICE Act would not go far enough in merely requiring investors to hold one percent of the stock to submit a shareholder proposal; he wants to eliminate all “social” shareholder proposals entirely. Since “ordinary business” proposals are already prohibited, that reminds me of the baseball manager who said that his team couldn’t win home games and couldn’t win away games “so all we have to do is find another place to play.”
According to an SEC survey, it costs more than $100,000 merely to respond to a shareholder proposal and include it on the ballot. The far greater cost comes from the distractions such proposals create for directors and senior executives, as well as the risk that companies will change their policies under pressure.
We are find this self-reported, self-serving number highly suspect. If, as Copland says, the proposals are re-submitted, how expensive can it be to cut and paste the previous year’s rebuttal? How much time can it take for executives and board members to vote to oppose it again?
He also complains that some companies have made changes to respond to shareholder proposals, even if they did not get a majority vote. That’s called a market-based response. Since even a 100 percent vote is advisory only, we have no concerns that the executives and board members who have all of the decision-making power will be unduly persuaded unless the case is effectively made. This is literally why we pay them the big bucks.
I do share some of Copland’s frustration with the shareholder proposal process, however. I wonder if he would be willing to support my suggestion for improvement: no more shareholder proposals, but a strict majority vote standard so that instead of raising issues like the transparency of political contributions and the sustainability of the supply chain through non-binding proposals, a majority of shareholders can simply remove directors who are not satisfactory.