Handling Shareholder Proposals

Nicholas J Price
Shareholder proposals are an important tool for activist shareholders. It's more than a suggestion or an opinion; it's a formal recommendation for a specific policy change to improve the company or a request for the company to advocate for a certain issue. The most successful shareholder proposals can stand up to the opposition and will likely garner the support of other shareholders.

Shareholder proposals have helped to improve corporate governance in important ways in past years in the United States. In recent years, shareholders have voiced loud concerns related to environmental and social issues, including issues like climate change, risk management, diversity, sustainability reporting and inclusion in the workplace. Other issues, like director elections, the adoption of a majority vote standard for director elections and proxy access, were targets of shareholder activism.

Every year, shareholders revisit past topics and new issues start trends as well. The year 2019 is no different and companies will see a variety of old and new issues at proxy time.

With the approach of every proxy season, board directors usually spend a lot of their time analyzing trends so that they can anticipate activist shareholder proposals. A board management software solution is the modern governance approach to analyzing shareholder trends and proposals.

Who Can Submit a Shareholder Proposal?

Several decades ago, any shareholder could submit a shareholder proposal, even if they had only one share and bought it the day before the annual meeting. The SEC now has rules that state that only shareholders who own over $2,000 in stock, or who own 1% of the company, have the right to submit a shareholder proposal. The SEC also requires companies to add proposals to the agenda at the next shareholders' meeting so they can be voted on. The SEC also has the authority to provide special permission to have a proposal excluded from consideration.

What Should the Shareholder Propose?

To be considered and taken seriously, shareholder proposals should be well thought out and state a specific course of action. Proposals should include details about how the policy can be implemented and provide specifics on how the company can adopt the change and add it to the bylaws.

Common issues that shareholders may address are issues around executive pay, changes in shareholder voting rights, social issues, environmental issues and advocating for corporate charitable contributions. Fewer proposals about executive pay have been coming forth as shareholders have been given more voting rights on the issue.

Trends in Shareholder Proposals for 2019

Financial experts are starting to highlight some of the trends around shareholder concerns for 2019. Along with the traditional governance topics, companies are likely to see a continued focus on social and environmental issues. In fact, social and environmental issues are surpassing issues around governance and are becoming more specific in nature.

Some of the other shareholder proposals for companies to be aware of are:

  • Climate change
  • Political contributions
  • Human capital management
  • Environmental impact
  • Human rights
Along governance lines, shareholders will likely submit proposals over issues such as requiring that the board chair be served by an independent director, reducing the supermajority vote standard, rights to call for special meetings and actions by unanimous written consent.

Governance issues will focus on certain key issues, including previously filed issues. Companies will likely continue to see shareholder proposals around political contributions, lobbying, requests to reveal targets on carbon emissions, and proposals related to sustainability and climate change risks.

New Shareholder Proposal Topics for 2019

In 2019, companies will most likely receive shareholder proposals on new topics like pricing for drugs, plastics and immigration detention.

Healthcare is a major topic in the U.S. and rising drug costs are a concern for patients, politicians and shareholders alike.

The advocacy group, As You Sow, is making waves with shareholders about the problem of microplastics polluting our oceans and the impact that it has on marine plants and animals. As You Sow filed shareholder proposals at four of the largest oil and chemicals companies. The group is asking for increased disclosures on pellet spills and how companies handle clean-up actions during the production of resin. The activist group has also filed several resolutions about recycling and recyclable packaging at food and beverage companies.

Not a day goes by that the media doesn't report on human rights issues in some capacity. With the Trump administration's focus on keeping illegal immigrants out of the country, shareholders are expected to submit proposals that relate to immigration policies and practices. In 2018, two of the hot issues were gun violence and the opioid epidemic and these issues will almost surely surface again this year.

Shareholders are making headway with companies on environmental proposals. In 2018, a large percentage of E&S proposals were withdrawn by shareholders as companies were able to come to agreements with shareholders.

Types of Governance Shareholder Proposals

Over time, some general patterns have emerged about the types of shareholder proposals. These patterns provide insight into the length of their campaigns and the level of support they receive.

  1. High Support and Easily Adopted. These proposals drop once practices are put into place and become the norm.
  2. Medium Support and/or Difficult to Enact. These proposals get a fair amount of support, but companies are slow to adopt and implement them, which means that the campaigns tend to last longer.
  3. High Support Followed by Market-Wide Mandate. These are proposals that have strong support and where campaigns end with a legal mandate.
  4. Lack of Traction. These proposals can't get enough traction to result in meaningful change.
Time has shown that shareholder proposals can have a major impact on governance practices and other critical issues that companies are facing. It's time for boards to take a modern approach to governance. The best way that they can do that is by using a board management software system that's highly secure and mobile. Diligent Corporation is a modern governance company and an industry leader in board management software solutions that brings disparate tools together into one secure product suite. The tools are fully integrated and work together to assist boards in decision-making around shareholder proposals.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.