Vanguard's Valuable Voting Choices

Cynthia Simon, Policy Director

Shareholder Rights Group

 

Bloomberg opinion columnist Matt Levine misses the mark in his September 24, 2024 commentary on Vanguard’s pass-through voting option for its investors. Levine’s assertion that investor votes on shareholder proposals are of little value and merely symbolic ignores the impact these proposals have actually had on corporate behavior.  It also fails to account for the sheer heft providing voting choice to Vanguard’s 50 million investors[1] could have on voting outcomes. 

 

While correct that proposals are not binding on companies, this does not mean their value is symbolic. In many cases, companies choose to respond positively. In fact, over the last 10 years, an average of roughly 40% of proposals each year were withdrawn because the company agreed in some part to the request being made.[2] When there is a vote, the outcome can give a company a clear signal of the sentiment of its larger investor base. Proposals have led to many of the best practices in protecting investor rights as owners of companies, such as independent directors and majority voting, as well as an increase in sustainability reporting. Proposals have raised the visibility of issues such as climate change, human rights and workforce health and safety in cases where companies have chosen to ignore them. Climate change in particular has been a frequent topic of proposals.

 

With 24% of respondents in Vanguard’s pilot choosing an ESG strategy, the company’s commitment to expand participation could, over time, shift a not inconsequential amount of its $9.5 trillion in assets[3] to support, say, proposals on climate change--an issue, by the way, of concern to environmental activist celebrities Ryan Reynolds, Oprah and Taylor Swift, who just might be willing to put their name on a Voting Choice option for an affordable amount. Shareholder proposals are that valuable.

 

James McRitchie  

Shareholder Advocate

Corporate Governance

You recently argued that proxy voting is too hard and, therefore, not rational for retail investors. But the iconikapp.com voting service automates it, allowing even small retail investors to follow other policies as pictured below or create their own. The system has automatically voted hundreds of proxies for me. Here's an example: Sierra Club policy. 

"Rational apathy" isn’t rational when setting up your own proxy voting policy is this easy.  I love most of what you write but you are outdated on this issue. Yes, iconik's system isn’t perfect, but it gets most people 90% there and only “wastes” the few minutes it takes to set it up initially. No further effort is needed. 

This technological development is even more important considering Laster’s decision in McRitchie v Zuckerberg that directors have a fiduciary duty to the company and its shares — shareholders are “incidental.”  We become a little less incidental to directors when we vote. 

 

 

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[1] https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/sets-us-apart/facts-and-figures.html

[2] Source: Sustainable Investments Institute. https://siinstitute.org

[3] https://www.bloomberg.com/news/articles/2024-08-05/vanguard-ceo-aims-to-bring-low-cost-investing-to-private-assets

  

A step backward for holding companies accountable

by Christopher Cox, Wisconsin Examiner

September 9, 2024

Congressman Bryan Steil is working to limit investors’ ability to police their companies. Whether the problem is opioid addiction, climate pollution or toxic drinking water, blocking investors from addressing these issues ultimately hurts Wisconsin communities. Yet legislation introduced by Congressman Steil, the 1st District Republican from Janesville, would hobble investors’ ability to drive responsible corporate behavior.

The bill, scheduled for a hearing Tuesday, would eliminate the federal requirement that shareholders’ proposals on such issues be presented for fellow investors to vote on in a company’s annual meeting announcement called the proxy statement. Shareholder resolutions offer  one of the most effective tools investors have to hold companies and their boards of directors accountable for activities that are risky to both investors’ assets and our communities.  

Take, for example, the opioid crisis. More than 10,000 individuals in our state have died from an opioid overdose since the year 2000.  The opioid epidemic has devastated Wisconsin families and communities across all races and many age groups in both rural and urban communities.

Pharmaceutical companies, drug middlemen and retail chains profit from opioid medications. However, with the harm that opioids pose to our communities, the corporate suppliers of opioids face significant risks of lawsuits and ethical scandals. From 2017-2023, a group of 67 investors, including  my organization, filed more than 100 shareholder proposals directed at 32 of these companies. The proposals filed by members of Investors for Opioid and Pharmaceutical Accountability sought to increase the oversight by boards of directors to independently investigate and manage opioid-related risks.

Climate risk shareholder proposals focus on a company’s pollution reduction goals and other company plans to adapt their business to a clean energy economy. 

Since 1950, our state’s average temperatures have already risen by at least two degrees Fahrenheit. Ice cover on the Great Lakes is forming later and melting sooner. More frequent heavy rainstorms are causing flooding and waterlogged agricultural soils. The extreme weather anticipated in future decades poses grave danger to public health in cities and to harvests in farmland communities. 

During the 2024 annual meeting season over 200 climate-related proposals went to vote at companies across the U.S., signaling just how important investors consider the issue to be in terms of risks to both the companies in which they have invested and our collective future.

Finally, investors have sought to discourage companies from contributing to toxic chemical contamination of drinking water. Poly- and perfluoroalkyl substances (PFAS) — so-called “forever chemicals” — have been linked to increased risk of some cancers, lower birth weights, harm to immune and reproductive systems and altered hormone regulation. More than 50 cities in Wisconsin have discovered PFAS in their drinking water, including Superior, La Crosse, Eau Claire, Wausau, Madison and Milwaukee. Some areas in our state are currently forced to use bottled water due to PFAS contamination. 

The origins of the PFAS problem lie in boardrooms where corporate managers made irresponsible decisions to continue producing these chemicals while ignoring or downplaying the related risks. Shareholder proposals have attempted to make companies act more responsibly in how they manage these chemicals. For instance, in 2006, DuPont investors brought a shareholder proposal asking DuPont to report on the feasibility of phasing out the use of a PFAS chemical in the production of Teflon and other products. As a result of shareholder proposals at McDonald’s in 2020 and Proctor & Gamble in 2024, these companies agreed to manage and reduce the use of PFAS in their products. 

Yet Congressman Steil’s legislation would eliminate the right of shareholders to have such proposals appear on corporate proxy statements — preventing shareholders from policing their own companies for risks to both their investments and our communities. 

Far from protecting investments, Congressman Steil’s proposed legislation would remove a cost-effective tool for maintaining investment value and improving the lives of Wisconsinites. 

SEC No Action Statistics to May 1, 2024

by: Sanford Lewis, General Counsel, Shareholder Rights Group

* Thanks to Brittany Blanchard Goad (Ceres), Heidi Welsh (Sustainable Investments Institute) and Legal Fellow Anna van Niekerk for supporting information for this article.  

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Evaluation of SEC staff no action decisions on shareholder proposals from November 1, 2023 to May 1, 2024 demonstrates that the SEC has supported company requests for exclusion of proposals roughly 68% of the time. Companies sharply increased the number of requests filed with the SEC during the same period, with these two developments combining to produce a surge of exclusions.

The no action process is an informal review process through which the SEC Staff advises companies and their investors on whether the SEC Staff would likely recommend enforcement action if a company fails to include a submitted shareholder proposal on its annual proxy statement. The Staff "grants" the company's request if it finds some basis to agree with the company's arguments that the proposal is excludable under one of the elements of SEC Rule 14a-8, the shareholder proposal rule. It "denies" the request if it is unable to concur with the company's arguments. All told, this year the SEC Staff has nearly doubled the number of exclusions supported compared with 2023. The Staff marginally increased the proportion of the requests granted, but the large increase in exclusions is largely a result of an increase in the number of no action requests filed by companies. 259 no action decisions (granted, denied or withdrawn) were issued as of May 1, 2024. This compared with only 167 decisions at this point last year.

Withdrawals have continued at a similar rate of 22% of requests. So far this year, 56 challenged proposals have been withdrawn - compared with 32 withdrawn last year at this time. Of the remaining shareholder proposals after withdrawals, the staff has granted no action requests for 139 proposals, compared with 76 proposals at this time last year. As a percentage of non-withdrawn proposals, 68% of exclusion requests were granted contrasted with  56% of exclusion requests last year. 

We note that this year's exclusion rates are on par with the average exclusion rate in the prior administration, from 2017-2020 which was 69%.  

Decision	2023	2024
Denied/Proposal Included	59 (43.7%)	64 (31.5%)
Sustained/Proposal Excluded	76 (56.3%)	139 (68.4%)
Withdrawn	32 (22.1%)	56 (21.6%)
TOTAL	167	259

*up to May 1, 2023/2024 

Numerous climate proposals excluded as micromanagement

Climate-focused proposals on which the no action request was granted included those seeking a breakdown of greenhouse gas emissions by product category sold by companies like Walmart and Tractor Supply. In addition,  proposals at Wells Fargo, Bank of America and Goldman Sachs, among other banks, sought disclosure of the proportion of sector emissions attributable to clients not aligned with a credible Net Zero pathway. 

The proponents asserted that the disclosures sought by these climate related proposals would shed light on material shortcomings of the companies’ climate transition plans, of concern and interest to a significant portion of mainstream investors. Yet in each instance the SEC found that the proposal was too granular in its request, attempting to micromanage company activities. 

Social proposals also excluded

A proposal at  Delta Airlines Inc. sought disclosure of  expenditures by companies to dissuade employees from joining or supporting unions (“union suppression”). The proposal included a request for disclosure of both internal and external expenditures made for union suppression, and details including  “disclosure of the for-hire entities' identities, fees, hours, remits and work performed in relation to employee unionization and collective bargaining efforts, as well as other services they are hired to perform for the Company.”  The Staff found some basis to agree with the company that the proposal attempted to micromanage.

The focus on micromanagement as a source of proposal exclusion also extended to proposals on paying employees a living wage. The Staff allowed exclusion of a proposal based on micromanagement of a proposal addressing living wage at Amazon. That proposal asked for an assessment of the extent to which the Company is complying with international human rights standards and assessing systemic risks stemming from growing income inequality and asked for the number of Amazon workers paid less than a living wage, broken down by full-time employees, part-time employees, and contingent workers with additional analytics on how much the aggregate compensation falls short of living wage.  In contrast, proposals that asked the board to exercise its fiduciary duty to provide employees with a living wage were not found excludable under the ordinary business rule. In those proposals filed at Walmart and Target, the proponent addressed an important issue of societal impact and importance to diversified investors -- the impact on the whole economy due to failure to pay employees a living wage, placing additional burden on taxpayer funded social support programs.

A Telling Omission in No Action Requests: NO Challenges on Relevance 

The no action process this year is also notable for the requests that are not being filed by companies. There has been a repetitive and misleading narrative by company and trade association representatives that shareholder proposals are no longer required to be relevant to the companies receiving them. This is false – Rule 14a-8(i)(5)  provides that a proposal can be excluded if it is irrelevant -  when it neither addresses an issue affecting 5% of the company’s assets or profits, or is not "otherwise significantly related to the company's business operations."  Despite the politicized claims regarding irrelevance, issuers are not filing challenges to proposals on this basis.

What conclusions can be drawn from the exclusions in 2024?
To the issuers and other market participants that have been critical of shareholder proposals,  it should demonstrate that the SEC staff takes feedback from the market in its exclusion decision-making, and that the process remains a functional system for screening proposals.

However, many of the proponents whose proposals were excluded had provided evidence that the proposal targeted a material issue for the receiving companies; exclusion of proposals often represents a serious setback for investors seeking to voice or vote upon critical matters of risk management or governance. Companies wishing to remain dynamic and responsive to their investors should consider the critical feedback and monitoring of potentially costly strategic shortcomings that is lost when a shareholder proposal is excluded.