Shareholder Proposals: An Essential Investor Right

The investor right to file shareholder proposals has recently come under attack from legislation in Congress, lawsuits filed in the federal courts in Texas and new regulatory guidance from the SEC. “Shareholder Proposals: An Essential Investor Right,” published on February 24, 2025 by the Shareholder Rights Group, in conjunction with the Interfaith Center on Corporate Responsibility and US SIF, offers a detailed and thoughtful defense of shareholder proposals. It catalogues their role in creating a powerful public platform for challenging and improving corporate policies, practices, performance and impacts and providing an important mechanism for surfacing investor perspectives on material issues.

 

The report demonstrates how shareholder proposals have enabled investors to safeguard their portfolios from risks and protect the American public by helping to catalyze positive corporate change on an array of issues such as excessive drug pricing by pharmaceutical companies, railroad safety, online child safety at tech companies, and oversight of addictive opioids by manufacturers. It also spotlights improvements in corporate governance such as annual board elections, independent directors and majority voting that have occurred from decades of shareholder proposals led largely by a dedicated group of individual investors seeking structural changes at corporations to improve board and management accountability.

 

 

Restricting investor rights is not the answer

  

To the Editor, Pensions and Investments

 

We are relieved that at least Lindsey Stewart, who wrote a Pensions and Investments commentary asserting his personal opinion that, “Yes, there are too many shareholder proposals” (Nov.14, 2024) recognizes the importance of shareholder democracy. While we can reasonably disagree about how many proposals are too many, we hope his commentary doesn't unintentionally feed the frenzy to eviscerate shareholder rights, as legislation pending in Congress would do. We can certainly expect recalibration of the proposal process in a new administration, which is a virtue of the ability of investors and the SEC to learn from prior seasons and refine their application and interpretation of the rules.  

 

The author may have unintentionally created the impression that depriving investors of rights that come with share ownership would somehow return the system to a “healthy balance”. The article should not add fuel to the fire for counterproductive policy reforms calling for the elimination of shareholder rights to file environmental and social proposals. 

 

While the article acknowledges the role of anti-ESG campaigners in flooding the zone with poorly supported anti-ESG proposals, the anti-ESG campaign is also suppressing voting support by pressuring and threatening large asset managers. 

 

Most of the increase in the number of low votes is directly attributable not just to the explosion of anti-ESG proposals filed (over 100), but also to the decisions by the largest asset managers (who own a significant part of the market due to their size)  giving in to aggressive pressure by members of Congress and state officials in opposition to their support for environmental and social proposals. By effectively removing the largest voting bloc from supporting environmental and social proposals through intimidation tactics, anti-ESG campaigners have suppressed voting support. Proposals that in past years might have garnered 20-30% support are seeing single digits. 

 

In addition, as the article correctly notes, the anti-ESG campaigners aren’t concerned with having winning proposals. Rather, at times they have even acknowledged that their goal has been to break shareholder democracy. In any event, due to the built in guardrails of the shareholder proposal process, by our count over three-fourths of anti-ESG proposals that went to vote will not pass resubmission thresholds and will be blocked from appearing on the same proxies for at least three years. That is the process functioning, not failing. 

 

The article also conflates voting support with quality in its assertion that a low vote likely indicates that a proposal does not meet a fiduciary standard worthy of investor support. The right of shareholders to file proposals on emerging risks sometimes leads to a few investors, a minority voice, to demonstrate prescience and foresight that management and fellow investors may neglect at great cost. The poorly supported proposals later proved to be highly material.

 

For instance, prior to the banking crisis of 2007-2008, shareholders had attempted to elevate attention to the risks of predatory lending through shareholder proposals.  In 2004, shareholders submitted a proposal at American International Group requesting that the Board conduct a review to study ways of linking executive compensation to successfully addressing predatory lending practices. Although the proposal only received 2.8% voting support, it is an example of the prescience of shareholders as to material risks to their companies. Aggressively filtering out proposals beyond the current standard in order to prevent “too many” low supported proposals could necessarily screen out some proposals that, with the passage of time, could be proven to raise highly material issues neglected at great cost to investors.

 

The article also implies that a number of companies are openly opposing the entire system, when in fact, only one company, Exxon, has been this aggressive (filing a high-profile lawsuit against proponents of a shareholder proposal). Even the CEO of Exxon stated at a recent Council of Institutional Investors conference that he and his company support the shareholder proposal process.  

 

Shareholders’ rights to place proposals on the proxy, and to express a collective voice by voting on such proposals, are part of the bundle of rights investors value as owners of a company. They are part of the social compact between investors and companies that builds the trust needed for capitalism to thrive.  Companies benefit from the information provided by voting outcomes, even in the event of low votes, because it helps a company, board and counsel calibrate what the “reasonable investor” of the company would view as material information for disclosure and action. 

 

Though most proposals are advisory, the shareholders’ rights to file proposals and to vote ensure that directors and officers are advised on a timely basis about the collective concerns of investors. In addition to proposals that get significant voting support, about one-third of filed proposals are withdrawn, most of these yielding productive corporate action following engagement. 

Mr. Stewart asserts that some proposals are more worthy than others. That is baked into the dynamic “marketplace of ideas” where some proposals rise to the top and others with low votes are rejected and filtered out from reappearing in future meetings. That is, after all, the essence of shareholder democracy.

 

 

Sanford Lewis

Director and General Counsel

 

Cynthia Simon

Policy Director

 

Shareholder Rights Group 

 

  

 

Letter from Investors to SEC Investor Advisory Committee

 October 24, 2024 

Brian L Schorr, Chair 

Colleen Honigsberg, Secretary 

Investor Advisory Committee 

Securities and Exchange Commission 

100 F Street, N.E. 

Washington, D.C. 20549 

Dear Chair Schorr and Secretary Honigsberg, 

 We are writing to the Investor Advisory Committee (Committee) concerning the discussion 

about shareholder proposals and the Securities and Exchange Commission’s (SEC) Rule 14a-8 

that took place at the Committee’s September 19, 2024, meeting. 

 Based on the Committee’s agenda for the meeting, it seems the original intent of the 

session was to discuss the implications of securities litigation, including the lawsuit of Exxon v. 

Arjuna. The impact of the suit certainly merits the attention of the Committee, particularly for its 

chilling effect on investors’ ability to raise material concerns with our companies through the 

shareholder proposal process. 

 The focus on shareholder proposals merits continued engagement by the Committee.  

Shareholder proposals are a vital right of shareholders, and we urge the Committee to defend 

these rights against current and what we believe to be misguided and misleading assaults.   

 Investors file shareholder proposals that they believe address important concerns. Voting 

outcomes provide a practical assessment of whether a significant number of the company’s other 

investors also view the issues as important. In this way, the company is able to gauge the 

collective voice of all of its investors, not just the largest investors that they may otherwise be 

engaging with, and take that collective view into account in determining what issues are material 

to its “reasonable investors”. 

 In the last year, the number of environmental and social shareholder proposals actually 

dropped, if anti-ESG proposals are excluded. In our view, the modest growth in environmental 

and social shareholder proposals over the last several years reflects the fact that major enterprise 

and systemic risks posed by our companies threaten the economy and our portfolios, as well as 

the quality of life of communities around the globe. Informed investors are often the first movers 

on addressing a range of risks relevant to their investments, long before such risks are addressed 

by government regulations. The market prices these risks, often based on incomplete information 

and disclosure, and voting on shareholder proposals is an essential investor tool to improve the 

baseline of available information from issuers on issues such as climate risk management and 

human rights due diligence as well as emerging topics such as the ethical use of artificial 

intelligence and the impact of corporate policy on biodiversity. 

 The SEC’s Rule 14a-8 and the SEC Staff’s administration is a dynamic process. By and 

large it is working effectively to allow shareholders to express our collective voice on important 

issues and to screen out inappropriate proposals.  It can always be fine-tuned.  

 We hope that when the Committee further explores this topic, it will invite proponents and 

their counsel to provide a more complete picture of the “what and why” of shareholder 

proposals. In the meantime, we enclose some notes to provide some additional perspective on 

some of the points raised in the meeting.    

Sincerely, 

Frederick Alexander, The Shareholder Commons 

John Chevedden 

Lauren Compere, Boston Common Asset Management, LLC  

Danielle Fugere, As You Sow 

Julie Goodridge, NorthStar Asset Management, Inc. 

Julie Gorte, Impax Asset Management 

John Harrington, Harrington Investments, Inc. 

Michael Kramer, Natural Investments PBLLC 

Sanford Lewis, Shareholder Rights Group  

Katie McCloskey, Mercy Investment Services 

Jim McRitchie, CorpGov.net 

Brandon Rees, AFL-CIO 

Tim Smith, Interfaith Center on Corporate Responsibility 

Full letter and Appendices