July 3, 2018
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Report Says: Evolving SEC Decision-making Doctrines Undermine
Productive Market Activity and Investor Self Help Remedies
The Shareholder Rights Group issued a report [link] today analyzing recent developments in the Securities and Exchange Commission's 2018 no action season. The Shareholder Rights Group is an association of investors formed in 2016 to defend share owners' rights to engage with public companies on governance and long-term value creation.
The report notes that, with recent decisions excluding shareholder proposals as "micromanagement" the SEC threatens to undermine investor self-help remedies targeting companies with poor financial and environmental performance, as well as effective shareholder engagement. Said report author Sanford Lewis, director of the Shareholder Rights Group, "The recent Staff decisions excluding proposals because they request "specific methods for implementing complex policies" threatens to undermine a wide array of productive shareholder engagement activities geared toward encouraging improve corporate performance on environmental, social and governance issues. The SEC needs to place clear limits on this new doctrine, otherwise the corporate community will inevitably claim that it is applicable to excluding a wide array of long-standing shareholder proposals directed toward company policies."
"The complexity of company policies does not necessarily reflect their adequacy. In order for shareholders to critique existing, inadequate company policies, they need to be specific, yet the newly applied doctrine seems to stand in their way."
In addition, the report notes that the SEC has this year allowed companies to game the system to avoid proposals, by substituting a company proposal that merely ratifies the status quo, in lieu of a shareholder proposal that seeks change. According to Lewis, "this undermines the ongoing synergistic relationship between small investors and large. Relatively small investors can propose governance changes; quite frequently, the largest market investors will join in support of sound governance measures. But the Staff's treatment of 'conflicting proposals' this season undermines the rights of those investors to propose governance changes."
The report is available online at http://shareholderrightsgroup.com
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