SEC Resets the Shareholder Proposal Process

Sanford Lewis of the Shareholder Rights Group, has an excellent article on the SEC’s new guidance broadening the scope of (advisory) shareholder proposals, with a detailed history to provide context. His conclusion:

Ultimately, the ability of a shareholder proposal to produce beneficial change at a corporation is grounded in a fundamental test—whether shareholders vote in favor of the proposal. This inevitably turns on shareholders’ assessment of whether the proposal will advance value on a short- or long-term basis, whether at the individual company or across the economy.

For this reason, the corporate bar’s alleged concern that the shareholder proposal process could turn into a plebiscite on general issues of political or social debate is entirely unfounded. Indeed, exclusion of a too-general political or social proposal is the most likely outcome when a proposal is not relevant to a company’s core business.

SLB 14L strengthens Rule 14a-8 within the larger matrix of evolving rights and responsibilities of investors. It has become clear that the process of investors exercising their legal right to file proposals is accomplished within a broad framework of accountability—including public and legal scrutiny of institutional investor voting, and whether fiduciaries are engaged in sufficient due diligence in accordance with a transparent set of principles. To the extent that a fiduciary has adopted ESG principles, their votes on shareholder proposals will be scrutinized as one of the most visible means of determining whether their commitment to ESG is bona fide. [16] A shareholder proposal provides an essential opportunity for a company to hear from its shareholders as to whether a given issue should be given elevated attention by board and management. For this reason, Staff Legal Bulletin 14L is the right reform undertaken at the right time in a way that will benefit all investors, not just those looking to implement important ESG missions and principles.

SEC Resets the Shareholder Proposal Process

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