This week Newground Social Investment joined a coalition of 45 institutional investors, fiduciaries, faith groups, and labor unions to strongly endorse a set of proposed revisions to the SEC’s rules that govern the shareholder proposal process. The coalition represents millions of retirees, workers, and small investors concerned about the environmental, social, and governance (ESG) impacts of their investments.
The proposed rulemaking, titled Substantial Implementation, Duplication, and Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8, includes sensible provisions that will make the shareholder engagement process a better way for investors to share with directors and management their concerns about the impact of corporate policies and practices.
“The shareholder proposal process is a critical tool for investors concerned with how their money impacts people and the planet. It encourages companies to behave more ethically, which then results in greater profitability,” said Bruce Herbert, chief executive of Newground.
The coalition’s statement points to three specific areas that would be improved by the proposed rule changes:
- The existing substantial implementation rule pushes shareholder proposals to be overly specific. In a type of Catch 22, this then subjects proposals to being excluded from proxies for “micro-management”. The proposed rule change could solve this by permitting more general proposals that foster meaningful discussions between proponents and management.
- The proposed rule changes on duplication and resubmission would curb an unintended “race to the proxy” by right-wing proponents. The 2023 proxy season saw a rash of so-called “blocking proposals” – resolutions submitted by anti-ESG activists that seek to prevent ESG proposals from appearing in the company proxy. The proposed changes would allow more proxy items – even divergent ones – with a greater range of options for investor consideration.
- The proposed rule changes regarding duplicative proposals are intended to allow proponents to look at possibly duplicative proposals before a company files a so-called “no-action” request (in which a company seeks SEC permission to strike a proposal from the proxy). Requiring companies to notify proponents when they believe there is duplication would foster communication between investors and reduce the number of duplicative proposals – all of which enhances discussion while being less taxing on corporate resources.
Newground's own comment letter offers this reflection:
"If there are two observations that have been true or might broadly characterize the entirety of our nearly 30 years of filing shareholder resolutions, they would be that the process: (1) has been fraught with subjectivity; and (2) has thwarted a nuanced and robust discussion of important ideas – often ahead of these issues emerging as everyday topics of national conversation."
The coalition’s joint statement concludes: “We appreciate the Commission’s and Staff’s continued efforts to create a fairer and more efficiently functioning shareholder proposal process. The shareholder proposal rule is a keystone of corporate governance, allowing investors to identify and vote on which issues they see as pivotal to the company’s future and to their interest as investors, as well as guiding America’s public corporations to fitness in a future that is ever changing.”
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