The Shareholder Rights Group (SRG) has written a letter to the SEC Commissioners refuting a recent speech by Commissioner Hester Peirce (HP) in which she argues against environmental and social proposals and disclosure and proposes to increase ownership thresholds for filing proposals.
HP: Public companies are being dragged into the social and political controversies.
SRG: Simply because issues are debated and contested in the social and political realm does not make them any less relevant to companies or unrelated to corporate value.
HP: Suggests changing the shareholder proposal rules to increase ownership thresholds.
SRG: Raising the thresholds is entirely inconsistent with the Commission's oft-touted focus on protecting smaller investors. (Chairman Clayton: the “common theme” of the Commission's work is “serving the interests of our long-term Main Street investors.”) Raising thresholds also ignores the outsized role of small investors in deploying the shareholder proposal process to drive governance reforms. Instead, it would disenfranchise small investors.
HP: Environmental and social shareholder proposals are diverting corporate policy to benefit non-investor interests.
SRG: Environmental and social shareholder proposals allow shareholders to make informed decisions on material interests relevant to them as investors, including potential operational, financial, legal and regulatory risks to corporate value.
The ostensibly non-investor interests that Peirce is referring to connect to these material interests. For instance, proposals seek action on climate change, but companies are also financially impacted by climate change (reduction in GDP, extreme weather.) Similarly, proposals focused on working conditions relate to investor issues framed as human capital management (resilience, competitive edge). Two meta studies and another analysis found ESG as additive to corporate value; research also shows that engagement on ESG issues increases company returns.
It is quite true that shareholder proposals have benefitted the American public across a range of topics and industries by increasing corporate accountability on excessive drug pricing by pharmaceutical companies, improvements in online child safety by tech companies, greater board oversight of opioid manufacturers, distributors and pharmacies, enhanced attention to worker health and safety and greater accountability for the potentially toxic effects of corporate products on consumers and drinking water. Having shareholders as agents of change on these issues is a benefit, not a drawback, of the shareholder proposal process.
The letter also included a link to the recently published report of SRG, ICCR and US SIF expounding on these issues at greater length.