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.

Climate Change: A surge in shareholder proposals on climate change began in 2014 as investors wrestled with the prospects of “stranded” carbon assets, US and global efforts to curb greenhouse gas emissions and the calls by 350.org and other groups for divestment from fossil fuel companies. That surge has shown no signs of diminishing. 
 
In the 2018 season, many shareholder proponents found that they were able to secure agreements from companies, in some cases after those proposals had received high votes in the previous years. Several companies in 2018 agreed to produce assessments of how their business operations could be aligned with the goal of preventing a rise in global temperatures of greater than 2 degrees Celsius above the pre-industrial era. 
 
The New York State Common Retirement Fund, for example, announced early in 2018 that it had secured an agreement from Duke Energy to produce a climate change risk assessment that includes an analysis of the Paris Climate Agreement goals. The Fund’s proposal to Duke in 2017 with this request had won the support of 46 percent of the shares voted. After filing or re-filing resolutions at several energy companies in 2018 with similar requests, it was able to secure agreements to produce the requested reports from ExxonMobil (where the Fund’s proposal had received 62 percent support in 2017), PPL (56.8 percent in 2017), American Electric Power, DTE Energy, Dominion Energy and Southwestern Energy.
 
The Miller/Howard investment firm was able to withdraw resolutions concerning control of methane emissions at four oil and gas companies—Anadarko Petroleum, Devon Energy, EQT and Energen—when they agreed to improve their disclosures about mitigating methane leaks. Notably, EQT, which is the largest natural gas producer in the United States, has joined an industry initiative to reduce methane emissions to no more than 1 percent across the chain from wellhead to burner tip.
 

 
Fair Labor and Pay Standards: For much of the past decade, the majority of shareholder proposals filed on fair labor standards asked companies to adopt non-discrimination policies with regard to sexual orientation and gender identity. Investors strongly supported these proposals, frequently giving them majority support. Indeed, the one proposal on this issue that came to a vote in the last three years—at J.B. Hunt Transport Services—received the support of 54.7 percent of the shares voted. Given this context, shareholder proponents have had leverage in persuading companies to put the requested policies in place, and virtually all the other 20 proposals asking for such non-discrimination policies have been withdrawn following successful negotiations.
 
In the last three years, as anti-discrimination policies on sexual orientation have become commonplace at US corporations, responsible investors have focused on some other persistent workplace discrimination issues. A large batch of proposals, filed mostly by SRI firms, asked companies to report on EEO and affirmative action. While just three such proposals were filed in 2016, the numbers had swelled to 12 and 20, respectively, in 2017 and 2018. These proposals have also benefited from strong support from investors. Trillium’s proposal at Palo Alto Networks in 2017 achieved majority support, and the four proposals on this issue that came to votes by mid-2018 averaged support of 37 percent. 
 
Another initiative, which began in 2016, has asked companies to report on the gender pay gap. Arjuna Capital filed proposals at 10 technology companies asking for a report on company policies and goals to reduce this gap, which it defined as “the difference between male and female earnings expressed as a percentage of male earnings.”   Vote levels ranged from under 7 percent at Facebook to 51 percent at EBay, but Arjuna was also able to withdraw its proposals at several companies when they reported that the gender pay gap was closed or would be closed shortly.

 
 
Proxy Access: The board elections of publicly traded corporations have almost never been competitive, but shareholders have sought—and won—the rights to nominate their own candidates under certain conditions. Typically, shareholders are presented with a single slate of candidates approved by the company’s nominating committee. Until recently, shareholders wishing to propose alternative candidates had to send out their own alternative proxy ballots, which few have the resources to do. In 2015, however, New York City Comptroller Scott Stringer spearheaded a major proxy access shareholder campaign. The comptroller’s proposal, on behalf of the city’s pension funds, asked target companies to present a proxy access bylaw to shareholders for approval. It specified that the bylaw should allow shareholders that have collectively owned 3 percent of the company’s stock continuously for three years to nominate alternative candidates for up to a quarter of the board seats. 
 
Over the course of 2015, 120 proxy access proposals were filed, 75 by the New York City funds. Of the 94 that went to votes, 60 percent received majority support. In 2016, New York City reported that it was able to withdraw more than 70 percent of the 72 proposals it filed when the companies agreed to enact proxy access without the need for a vote. By the end of 2017, 475 US companies had adopted proxy access provisions, including 65 percent of the S&P 500, compared with fewer than 1 percent in 2013.