Shareholder activism is to corporate America as lobbying is to the United States Congress. Special interests use power (money) and influence to enact change that is favorable to their cause.
It is no secret that shareholder activism has gained traction over the last decade; and, ironically, lobbyists are seeking to diminish Shareholder Activism and its ability to effect change to corporate behavior.
The ESG industry has taken advantage of the role Shareholder Activism can play in nudging public companies to release vital data related to Environmental, Social, and Governance factors in their organizations.
What is a Shareholder Resolution?
- A shareholder resolution is a non-binding recommendation to the board of directors of a public corporation regulated by the U.S. Securities and Exchange Commission.
- Proposed by shareholders, resolutions are presented and voted upon at the corporation's annual meeting and through the annual proxy vote.
- A shareholder must own at least $2,000 or 1 percent of the company’s shares and have held the shares continuously for the year prior to the company’s annual submission deadline.
- The resolution has to be about something that is relevant to the company and upon which the company can take action.
- After the company receives the shareholder's proposal, if the resolution does not meet all of the SEC's criteria, the corporation can choose to omit, that is not to include, the resolution in the proxy statement.
It’s a process that often takes time. Boston-based Walden Asset Management had been urging filtration company Clarcor to issue sustainability reports for over 3 years until Clarcor conformed. At the time, 70% of the companies in the S&P 500 report emissions data to CDP, a global non-profit working with companies to reduce their environmental impact, and Clarcor was clearly lagging behind industry peers. This statistic, along with Walden's explanation of the material risks associated with poor environmental practices, led 54.5% of shareholders to support sustainability reporting.
Further, nearly a decade and a half after oil giant ExxonMobil was asked to adopt a non-discrimination policy towards LGBT employees, management finally acquiesced. The company had received a shareholder resolution every year since 2001 asking for sexual orientation and gender identity to be added to its list of protected classes. These resolutions helped raise awareness for the issue and compelled others to get involved; President Obama signed an executive order in July of 2014 mandating federal contractors such as ExxonMobil to include LGBT workers in their non- discrimination policies. That same month, ExxonMobil announced they would comply with the order.
After Wells Fargo became embroiled in a scandal which involved the unauthorized opening of over 2 million customer accounts, investors such as the California and Illinois State Treasurers pointed to the combined CEO/Chairman role as a factor that enabled the scandal. Activist investors filed a shareholder resolution demanding an independent chairman to lead the board. Wells Fargo bowed to the pressure and agreed to amend its bylaws, separating the role of CEO and Chairman and ensuring the placement of an independent Chairman. Such a move presents greater oversight and transparency for the company’s operations and the ability to minimize risk.
Since 2010, 130 shareholder resolutions have been filed asking companies to set science-based climate change goals and, until recently, only those with technical errors (ex. Filing late) were excluded from appearing on the proxy ballot.
This spring, however, in a shareholder resolution mirroring greenhouse gas reduction targets of the Paris Climate Agreement, the Oil and Gas company EOG Resources successfully threw out a shareholder resolution filed by Trillium Asset Management.
The SEC supported EOG Resources wish to block the shareholder resolution.
Trillium Asset Management had successfully filed for nearly identical science-based, GHG emission targets to be included and voted on Proxy Ballots at Chevron, Exxon Mobil, Valero, ConocoPhillips, WPX Energy, and Marathon Oil Corporation.
The dismissal of Trillium's Shareholder Resolution by the SEC is a dangerous precedent for investors seeking to change laggard behavior in their portfolios. And frankly, the dismissal makes little sense.
There is a growing group of Shareholder Activist adversaries. Both the Center for Capital Markets Competitiveness and Main Street Investors coalition are lobbying to make appearing on a Proxy Ballot more difficult for Shareholder Activists.
This past winter the House passed H.R.4015 - Corporate Governance Reform and Transparency Act of 2017, which aims to heavily regulate Proxy Advisory firms, and includes a provision limiting the ability to provide investors with