The US Securities Exchange Commission is considering changes to shareholder proposal rights without evidence the process is actually broken
By Kevin Thomas, SHARE Chief Executive Officer
A range of proposals have recently been floated by officials at the US Securities Exchange Commission (SEC) that would restrict shareholder democracy and remove key accountability mechanisms for corporate boards.
It’s not happening in a vacuum. Emboldened in part by the Trump administration and its appointees to the SEC, a number of industry associations (notably the National Association of Manufacturers, the US Chamber of Commerce, and the Business Roundtable) are driving these attacks on corporate accountability with a full-court press, arguing that shareholder proposals and proxy advisory services are creating an undue burden for companies. The changes they propose would have significant implications for progress on environmental, social and governance (ESG) practices, which have become the largest focus of shareholder proposals in recent years.
The SEC has already been revisiting the way it addresses current shareholder proposals, disallowing proposals that previously would have passed muster. For example, this year ExxonMobil applied for and received a “no action” letter from the SEC, allowing it to exclude a critically important shareholder proposal on climate change from its proxy circular without threat of regulatory action, on the basis that asking the company to set greenhouse gas reduction targets constituted “micromanagement”.
New and even more restrictive suggestions from the SEC include increasing the ownership thresholds over which shareholders are allowed to file proposals, and limiting opportunities to re-file proposals in subsequent years. Most recently it has floated the idea of no longer issuing written reasons for its “no action” decisions – like the one it issued regarding ExxonMobil, above – which would result in a lack of clarity and consistency that will not serve either issuers or shareholders.
All of this is being pursued in the absence of any meaningful evidence that the shareholder proposal process is actually broken. In fact any real analysis of US shareholder proposals shows that proposals are raising relevant issues, are receiving significant votes, and are not being endlessly re-submitted.
SHARE clients are long-term shareholders that, through SHARE, regularly engage in dialogue with issuers to improve oversight, drive long-term performance and promote effective risk management. We use the shareholder resolution process judiciously to raise issues that have not yet been effectively addressed by the company but which we believe are linked to better performance and risk management.
SHARE is working with a range of institutional investors to preserve and expand accountability in US and Canadian securities regulations. Some US investors, as part of the Shareholder Rights Group (SRG), wrote an excellent letter to the SEC raising concerns about the above changes. As part of our work, SHARE recently submitted this letter to the SEC echoing the points raised by the SRG and urging the SEC’s directors to reconsider this damaging trajectory. We understand that some executives might bristle at the accountability measures that come with accessing public capital markets, and certain trade associations and think tanks may take up that cause for their own ideological reasons.
Like it or not, corporate accountability is better both for long-term corporate performance and for building a sustainable, inclusive and productive economy, and we shouldn’t let them take that away from us.