A group of nearly 200 pension funds, asset managers, foundations, labor unions, religious organizations and consumer groups have launched a campaign seeking to overturn U.S. Securities and Exchange Commission (SEC) rules put in place last year that place significant restrictions on shareholder’s ability to engage with companies through the proxy and shareholder proposal process.
In a letter sent to all members of Congress, the group states that the shareholder proposal process is a key avenue for embedding best practices at companies for policies including board independence, board diversity, majority voting, limits on golden parachutes, respect for human rights, and sustainability reporting. According to the group, the new rule amendments will severely limit the ability of shareholders to file resolutions on key environmental, social, and governance issues.
In July 2020, the SEC voted 3-1 to approve amendments to its rules governing proxy solicitations that affected the role of proxy advisor services. While the SEC presented the rules as providing investors with greater transparency and complete information, many shareholder advocates opposed the rule as negatively impact shareholders, making the ability to provide proxy advice more costly and less efficient, while impacting the independence of the advice.
In September 2020, this was followed by a 3-2 SEC decision to adopt new rules effectively setting limits on shareholder proposals to be voted on at annual meetings. The new rule significantly raised the holdings amount and length of ownership thresholds for submitting proposals, and also raised the criteria for shareholder support required for resubmitting proposals at future meetings.
In her dissenting statement, then-Acting SEC Chair Allison Herren Lee wrote:
“The final rules represent the capstone in a series of policies that will dial back shareholder oversight of management at the companies they own.”
Pointing to the rules’ negative impact on sustainability issues, Lee continued:
“These changes will be most keenly felt in connection with ESG issues, which comprise the main subject matter of shareholder proposals, at a time when such proposals are garnering increasing levels of support.”
The letter urges members of Congress to support recently introduced Congressional Review Act (CRA) resolutions that would overturn the Trump-era rules. The letter states:
“Shareholder proposals often are the best mechanism for shareholders to elevate neglected issues facing a company that could prove costly, even an existential risk, if the board and management continue to neglect them. Shareholder proposals encourage companies to adopt changes that protect and increase economic value. They provide a cost-effective way for management to better understand the views of its entire shareholder base. They also serve as an early warning of issues that could pose a significant reputational risk to the company.”