Shareholder Resolutions


Shareholders in a publicly traded company are entitled to introduce shareholder resolutions, or proposals, to the company management to be voted on in the next annual meeting. These resolutions may pertain to company policies and procedures, corporate governance or issues of social or environmental concern. Shareholder resolutions are a meaningful way for shareholders to encourage corporate responsibility and discourage company practices that are unsustainable or unethical. Often, a shareholder resolution will fail to win a majority of the shares voted, but still succeed in persuading management to adopt some or all of the requested changes because the resolution was favored by a significant number of shareholders.
 
Who May File a Shareholder Resolution?
In the United States, the regulations and bulletins that the Securities and Exchange Commission (SEC) has issued under Section 14a-8 of the Securities Exchange Act of 1934 govern the inclusion of shareholder proposals in proxy statements. This shareholder proposal rule permits shareholders to file a proposal at a company if they own at least $2,000 or 1 percent of the company’s shares and have held the shares continuously for the year prior to the company’s annual submission deadline.
 
SEC Rules on Subject Matter and Format of Resolutions
Under the SEC rules, shareholder proposals are limited to 500 words and cannot contain false or misleading information or be based on or motivated by a personal grievance. Proposals also generally need to address corporate environmental, social and governance policy questions that are considered significant public issues; they cannot pertain to “ordinary business” issues such as employee benefits, personnel changes or the sale of particular products. Finally, the shareholder proponent—or a designated representative—must attend the annual meeting in person to present the proposal formally. (Companies typically treat a resolution that is not presented as if it had never been filed.)
 
Companies receiving proposals can challenge them at the SEC based on the proposal’s content or length or the ability of the proponents to prove they meet share ownership requirements. The SEC acts as a referee in these cases by sending a letter to both corporate management and the filers of the resolution with its opinion on whether the company can omit the proposal from its meeting agenda and proxy statement—or must include it.
 
Persistence of a Shareholder Resolution
The SEC sets fairly low support thresholds for first-time shareholder proposals, recognizing that it may take a few years for shareholders to learn about the issues underlying proposals. To resubmit resolutions in subsequent years after an initial filing, the proposal must win the support of at least 3 percent of the shares voted in its first year, 6 percent in its second and 10 percent in its third year and all years thereafter. The SEC calculates support levels by dividing the total votes cast for the proposal by the total votes cast for and against the proposal. (It does not count abstentions.) If a proposal fails to meet the requisite resubmission thresholds, the filer must wait three years to resubmit it.  In sum, a proposal that consistently gets the support of at least 10 percent of the shares voted can be re-filed indefinitely, assuming it meets the overall requirements for proper subject matter.
The Impact of Shareholder Resolutions
It is rare for shareholder resolutions on ESG issues to win the support of the majority of shares voted at company annual meetings. Moreover, most shareholder resolutions filed are non-binding, meaning that even if they gain a majority of votes, the company need not comply with their requests. Despite these constraints, filing shareholder resolutions can achieve important successes, as noted below.

Political Spending: Investor demands for disclosure and oversight of corporate political spending and lobbying expenditures now dominate the social issues proxy season. Concerned shareholders want companies to exercise proper oversight to ensure these payments serve the best interests of the firms and their shareholders and will not harm their reputations. The campaign on political spending, advised by the Center for Political Accountability (CPA), has been waged by an investor coalition that includes pension funds, labor unions, environmental groups and sustainable investment managers. The lobbying resolutions have been led by the American Federation of Federal, State, County and Municipal Employees (AFSCME) and Walden Asset Management and have involved over 50 filers.
 
Since the start of this shareholder campaign in 2004, the CPA and its allies have persuaded scores of major companies to disclose and require board oversight of their political spending with corporate funds. The campaign's effectiveness has been aided by strong investor support.

In the 2016 season, approximately half of the resolutions on lobbying targeted companies that lobby against regulations to cut greenhouse gas emissions or that pay dues, make contributions to or sit on the boards of organizations that oppose legislation to curb greenhouse gas emissions.

Proponents withdrew more than 20 proposals in exchange for substantive commitments from the target companies. They included the following:


  • Zevin Asset Management withdrew a resolution at Walmart when the company agreed to post its federal lobbying totals on an annual basis. In 2015, in response to a similar resolution from Zevin, it took the precedent of disclosing its state-by-state lobbying payments.
  • Le Fonds de Solidarité withdrew a proposal at Bank of America when the company made improvements in its lobbying disclosure.
  • The New York State Comptroller's office was able to withdraw resolutions at Coca-Cola Enterprises, Raytheon, Waste Management, Union Pacific and Centerpoint Energy when they agreed to publicly report all direct and indirect corporate political spending, including payments made to any organization that wirtes and endorses model legislation.
 
Executive Compensation – Say on Pay: From 2006 through 2010, a coalition of institutional and individual investors with combined assets of more than $1 trillion urged US companies to adopt an advisory vote on executive compensation, or “Say on Pay,” a common practice in British corporate governance. These investors wanted an official channel for shareholders to express their concerns to corporate boards about huge pay packages that seem unrelated to financial performance. The Dodd-Frank financial reform law, enacted in 2010, now requires publicly traded companies to allow an advisory shareholder vote on executive pay at least once every three years.
 
Although only a relatively low percentage of companies have failed their advisory votes, there is anecdotal evidence that many companies consider the threat of failure a major incentive to ensure that pay packages are defensible. A basic rule of thumb is that a Say on Pay package that receives a "No" vote in the 35 percent range deserves careful board reevaluation and discussions with investors. 
 
Separation of CEO and Board Chair: Investors concerned about good governance have long called for US companies to separate the positions of chief executive officer and board chair, and to ensure that the board chair is independent—not a current or former executive of the company. Although it is common practice in other industrialized countries to separate these two powerful positions to ensure checks and balances in the boardroom, the practice has been slower to catch on in the United States. Still, there has been notable progress in the last few years. Spencer Stuart, an executive search firm, reports that 48 percent of S&P 500 companies' boards have separated the chair and CEO positions, compared with 29 percent in 2005. At 29 percent of these companies, the chair is independent, compared with just 9 percent in 2005. Much of that improvement can probably be traced to shareholder advocacy. Since 2007, shareholder resolutions requesting that the current or former CEO not serve as the chair of the board have consistently averaged support of well over a quarter of the shares voted.
 
Sustainability Reporting: Shareholders have frequently asked firms to review the broad sustainability of their operations, not only in terms of their environmental impact, but also in how they deal with labor and community issues. Proponents withdrew the majority of the sustainability reporting proposals they filed from 2010 through 2014, usually after successful negotiations with the target companies. But in 2015 and 2016, over half of the sustainability proposals went to votes, as proponents took a tougher approach, looking for committments to action rather than aspirational statements. Several companies subsequently agreed to disclose the requested reports, including Clarcor, where a sustainability reporting proposal earned 61 percent support in 2016.
 
Hydraulic Fracturing: Since 2010, many shareholders have turned their attention to the potential risks of hydraulic fracturing, a technique used in drilling for natural gas in which chemicals are injected at high pressure underground to break up rock and force the natural gas to the surface. There are concerns that the procedure may harm water supplies for local communities, especially as drilling companies are looking at natural gas reserves in New York and Pennsylvania. The campaign began in 2010, when proposals came to votes at six companies and won notably high levels of support for a first-year campaign, ranging from 21 percent to 42 percent. 

In 2014, the investor coalition of sustainable investment firms and public pension funds stepped up the campaign by filing shareholder proposals at Chevron, ExxonMobil, EQT, EOG, Pioneer Natural Resources and Occidental Petroleum. They issued a scorecard report, Disclosing the Facts: Transparency and Risk in Hydraulic Fracturing Operations, benchmarking companies engaged in hydraulic fracturing practices against investor needs for disclosure. As they noted in a press release, "Companies that received shareholder proposals this year were among those receiving the lowest scores, with no company disclosing information on even half of the 32 indicators assessed." The proponents have subsequently withdrawn proposals at companies that have agreed to step up their disclosure. In 2016, for example, As You Sow withdrew resolutions at Carrizo Oil and Gas and at Newfield Exploration, when both companies agreed to disclose more information about their water use, leak detection and other concerns relating to hydraulic fracturing, and to continue dialogue with As You Sow.
  
Sexual Orientation Non-Discrimination: In recent years, shareholders, including public pension funds and sustainable and responsible investment firms, have been able to withdraw scores of resolutions asking companies to pledge not to discriminate against employees based on their sexual orientation when the companies have agreed to expand their non-discrimination policies to include this guarantee. Since the mid-1990s, more than 200 resolutions on this issue have been filed, with 150 withdrawn. Shareholder proponents are aided in their negotiations with companies by the high levels of support such resolutions receive when they do go to votes. Indeed, from 2014 through 2016, such proposals have consistently won average support of 30 percent or more. In 2016, the one proposal along these lines that came to a vote -- at JB Hunt Transport Services -- won majority support. A major victory for the long-running campaign occurred in 2015, when ExxonMobil at long last agreed to amend its fair employment policy to include sexual orientation and gender identity. The company had received a shareholder proposal ever year since 2001 from the New York State Comptroller or other shareholders asking it to adopt such a policy.