In the United States over the last few years, shareholder resolutions that call for better corporate disclosure and other measures concerning environmental and social issues have become an increasingly effective corporate accountability tool. The resolutions are now receiving higher levels of support than they did in the past and have become better at achieving their goals.
The filers of these resolutions tend to be pension funds and socially responsible investment advisors. They also include “retail investors” — in other words small shareholders, such as civil society organizations and individuals.
The growing success of shareholder resolutions makes business nervous. The Business Roundtable, the U.S. Chamber of Commerce, and the National Association of Manufacturers have all tried to influence the Securities and Exchange Commission (SEC) to thwart the power of small shareholders. And it’s working.
Last November, the SEC proposed new rules that would make it more difficult, if not impossible, for the typical individual to file a shareholder resolution. If the rules pass, very few individuals will have the resources or the patience to endure the process of filing. Retail investors who already face hurdles in filing resolutions will be further disenfranchised. This would be a big win for the corporate establishment, thus enabling business to be even less responsive and less democratic.
There are four key reasons why these rules are a bad idea:
First, the rules increase the dollar amounts and total time that an individual must own a stock to qualify for filing. Raising the filing threshold means that more retail investors will be disqualified from participating.
Second, the rules place restrictions on representatives. Filing a shareholder proposal is an onerous process. Retail investors rely on representatives who have expertise in filing such resolutions to get through the process. By placing restrictions on representatives, retail investors will be shackled further.
Third, the SEC wants to force filers to negotiate with companies after they file. This means that naïve retail investors will have to go toe-to-toe with the corporate legal machine — an assistant general counsel, or the head of investor relations. This will further disenfranchise Main Street investors.
Fourth, the rules increase the threshold of votes necessary for a proponent to file the same resolution the following year if the company won’t implement it.
While the SEC claims that it wants to look out for the little guy, they’re really squashing the little guy and protecting the big guy. But the little guy is speaking out. Of the nearly 700 comments submitted to the SEC on the proposed rule change since November, most from individuals, almost all are opposed to these rule changes.
These points were emphasized in a comment letter that Paul Rissman submitted to the SEC on behalf of Rights CoLab. The letter can be viewed here.
Anyone can submit a comment on the SEC website — and the comment can be just a few lines. The public comment period formally ends February 3, 2020; the SEC will read late comments, as well.
Photo by Jackson Jost on Unsplash
