New groups have recently been formed to take aim at the shareholder proposal process—its use by proponents and its implementation by Corp Fin—from both the right and the left ends of the political spectrum. In one case, the coalition formed is seeking to head off the recent surge of support by various institutional holders of shareholder proposals for environmental, social or governance disclosure or actions. For example, last year, proposals to enhance disclosures regarding climate change won majority votes at three major companies, in large part as a result of support from mammoth asset managers such as BlackRock and Vanguard, and two climate change proposals won majority support this year. It’s also been reported that nine ESG proposals were successful in winning majority votes this year. (See, e.g., this PubCo post.) On the other side is a group that is seeking to reform the shareholder proposal process to reverse a turn, as perceived by the group, by Corp Fin toward exclusion of more shareholder proposals related to ESG issues.
In remarks this week before the Chamber of Commerce, new SEC Chair Jay Clayton indicated that the SEC will be taking a hard look at the shareholder proposal rules. As reported in thedeal.com, Clayton advised that it is “very important to ask ourselves how much of a cost there is….how much costs should the quiet shareholder, the ordinary shareholder, bear for idiosyncratic interests of other [investors].” Clayton was certainly speaking to a receptive audience—the Chamber has also recently voiced criticism of the shareholder proposal process (see this PubCo post) and, on the same day as Clayton’s remarks, issued its own report proposing changes to staunch the flow of proposals (discussed below). As you may recall, in the Financial CHOICE Act of 2017, the House also proposed to raise the eligibility and resubmission thresholds for shareholder proposals to levels that would have effectively curtailed the process altogether for all but the very largest holders. Although that Act is currently foundering in the Senate, at the same Chamber presentation, Commissioner Michael Piwowar commented to reporters that the SEC could certainly act on its own without any impetus from Congress, observing that the “chairman sets the agenda, but I’m going to be meeting with folks at public companies to talk about their experiences with proxy season.” With both the House and the Chamber having weighed in, if the SEC now takes up the cause on its own, the question is: just how far will it push?
What’s next for the House after taking on Dodd-Frank in the Financial CHOICE Act? Apparently, it’s time to revisit SOX. The Subcommittee on Capital Markets, Securities, and Investment of the House Financial Services Committee held a hearing earlier this week entitled “The Cost of Being a Public Company in Light of Sarbanes-Oxley and the Federalization of Corporate Governance.” During the hearing, all subcommittee members continued bemoaning the decline in IPOs and in public companies, with the majority of the subcommittee attributing the decline largely to regulatory overload. A number of the witnesses trained their sights on, among other things, the internal control auditor attestation requirement of SOX 404(b). Is auditor attestation, for all but the very largest companies, about to hit the dust?
by Cydney Posner According to this report in Bloomberg BNA, the plans for changing the shareholder proposal process in the Financial CHOICE Act 2.0 are quite dramatic and could effectively curtail the process, if that is, the current version of the provision ever makes it into law.
by Cydney Posner This recent paper from the Rock Center for Corporate Governance at Stanford University, “Gadflies at the Gate: Why Do Individual Investors Sponsor Shareholder Resolutions?” attempts to answer a question I’ve been wondering about for quite a while: why do individual investors invest their time and energy pursuing […]
Corp Fin issues new SLB providing guidance on Rule 14a-8 exclusions for “conflicting proposals” and “ordinary business”
by Cydney Posner Corp Fin today posted Staff Legal Bulletin 14H providing guidance on two key issues regarding shareholder proposals under Rule 14a-8: the scope and application of Rule 14a-8(i)(9) (the exclusion for conflicting proposals); and the scope and application of Rule 14a-8(i)(7) (the exclusion for ordinary business) in light of Trinity […]
White shares observations on shareholder activism, the shareholder proposal process and fee-shifting bylaws
by Cydney Posner Today, SEC Chair Mary Jo White spoke at Tulane’s Corporate Law Institute, sharing her observations on the current state of shareholder activism, the shareholder proposal process and fee-shifting bylaws. The common theme: her aversion to gamesmanship and close-minded, reflexive behavior on all sides, which, she believes, can […]