ICCR Comment On SEC’s Draft Proxy Proposal Rule

From ICCR’s comment letter to the SEC on the draft rule on proxy proposals (full comment in the link below):

For decades, the shareholder proposal process has served as a cost-effective way for corporate management and boards to gain a better understanding of shareholder priorities and concerns, particularly those of longer-term shareholders concerned about the long-term value of the companies that they own. Engagement by ICCR members and other shareholders has served as a crucial “early warning system” for companies to identify emerging risks. The history of ICCR demonstrates literally hundreds of examples of companies changing their policies and practices in light of productive engagement with shareowners.

The Proposed Amendments would, by the Commission’s own estimates, gut the existing shareholder proposal process, which has long served as a cost-effective way for shareholders to communicate their priorities and concerns, in exchange for minuscule and poorly supported benefits for companies. The Release appears to be based on a wholly unsupported assumption that shareholder proposals are simply a burden to companies and have no benefits for companies or non-proponent investors. In doing so, the Release completely glosses over the cost of foregone reforms, missed opportunities for engagement, and lost outside perspectives if the Proposed Amendments are adopted. The Release makes no effort to weigh those costs, which are substantial, against the alleged, meager benefits of the Proposed Amendments….

The Commission glosses over the negative consequences of the Proposed Amendments, which by the Commission’s own estimates would reduce the number of shareholder proposals by approximately 37%. The Release glancingly mentions, “To the extent that [newly excludable] shareholder proposals would be value- enhancing, the potential exclusion of value-enhancing proposals could be detrimental to companies and their shareholders.”14 The Commission notes in passing that benefits of such proposals could include limitation of management entrenchment and communication of shareholder views15 but does not discuss studies showing the financial impact of such entrenchment.

More broadly, the Commission does not discuss the extensive academic literature on the link between ESG and corporate performance, nor does it analyze whether the meager benefits discussed in the previous section outweigh the potential costs of excluding value-enhancing proposals, which are substantial. The Release also ignores important functions served by Rule 14a-8, which would be impaired by the Proposed Amendments—shareholder communication and the “early warning” of emerging issues and risks provided by outside perspectives. Finally, without evidence, the Commission minimizes the role of the shareholder proposal process in spurring dialogue, which is wholly inconsistent with the long experience of ICCR members.

ICCR comment letter on 14a-8 rulemaking – FINAL

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