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. A shareholder resolution need not win a majority of the shares voted to succeed in persuading management to adopt some or all of the requested changes.
 
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—which was changed in late-2020—permits shareholders to file a proposal at a company if they own at least $25,000 of the company’s share for one year or $15,000 for two years to file a resolution, while smaller shareholders owning between $2,000 and $15,000 would have to wait three years to be eligible to file.

Additionally, the SEC’s new rule changes how much support a resolution must win—measured by the percentage of the shares voted—in order to be resubmitted in subsequent years. The rule changes these thresholds from 3 percent (first year), 6 percent (second year) and 10 percent (third and subsequent years) to 5 percent, 15 percent and 25 percent, respectively. 

Under the previous rule, a shareholder had to own $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 to file a shareholder resolution. The SEC historically allowed resolutions that consistently earned the support of 10 percent or more of the shares voted to be resubmitted year after year, keeping them in the eye of management and other shareholders.  
 
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.

Corporate Political Activity: Investor demands for disclosure and oversight of corporate political spending and lobbying expenditures have long been one of the leading issues raised in shareholder proposals at US companies. Concerned shareholders want companies to exercise proper oversight to ensure that 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. Since the start of this initiative 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. Today, slightly more than 50 percent of S&P 500 companies today either disclose or prohibit contributions to state legislative, judicial and local candidates, political parties, political committees and other political entities organized under Section 527 of the Internal Revenue Code, such as Democratic and Republican governors’ associations and “Super PACs.”
 
In a related initiative, since 2012 the American Federation of State, County and Municipal Employees (AFSCME) and Walden Asset Management have led a coalition of more than 60 investors that have asked companies to report as well on indirect political spending—lobbying expenditures through trade associations and nonprofit organizations that do not have to report their donors. The filers have often asked companies to explain their membership in organizations whose lobbying positions contradict the companies’ policies on issues such as climate change, fair employment and public health. Coalition members have particularly targeted companies that are members of the American Legislative Exchange Council (ALEC), which lobbies against renewable energy mandates at the state level and opposes federal efforts to reduce greenhouse gas emissions.
 
A major highlight in the 2018 proxy season was ExxonMobil’s announcement in July that it was quitting ALEC. According to a company representative, the precipitating factor was ALEC’s efforts to persuade the federal government to drop its statement that climate change is a threat to public health. Notably, Exxon’s announcement came just weeks after a shareholder proposal, led by the United Steelworkers and joined by 25 co-filers, asked Exxon to disclose its federal and state lobbying, including payments to ALEC. Verizon withdrew from ALEC in September 2018, a few months after a lobbying disclosure proposal filed by Boston Common Asset Management received 36 percent support at the company’s annual meeting. In total, more than 110 companies have left ALEC in the face of questions from their shareholders.
 
These proposals averaged support between 24 and 27 percent from 2012 through 2018, but have seen a notable increase in support in the last two years.  In 2019, the 23 proposals that went to a vote averaged 32 percent support, with one proposal, filed by United Church Funds at Mallinckrodt, earning majority support of 80 percent.  In 2020, the 28 proposals voted through the end of July had earned average support of 33 percent, with two—at Alaska Air and McKesson—earning majority support of 52 percent. Altogether, the campaign has succeeded in persuading more than 90 companies to improve their lobbying disclosure.


 
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.
 
An initiative that began in 2016 has asked companies to report on the gender pay gap. By 2018, it had grown to more than 30 proposals filed by Arjuna Capital, the New York City pension funds and other investors, and the proponents reported several successful withdrawal negotiations. Arjuna, for example, withdrew its proposal at American Express when the company agreed to report on pay differentials between men and women by the end of 2018 and to make pay adjustments as necessary for a goal of 100 percent gender pay equity. New York City Comptroller Scott Stringer announced that eight of the financial and healthcare companies where it had filed gender pay equity proposals in 2018—Abbott Laboratories, Aetna, Baxter International, Edwards Life Sciences, Metlife, Principal Financial Group, Progressive and Travelers—had agreed to “disclose new information on how they identify and eliminate gender pay disparities among their employees.”
 
In 2019, 15 proposals on the racial and gender pay gap came to votes, averaging 27 percent support. The proponents had less success in 2020, when the average support for the 12 proposals that came to votes averaged just 12 percent.  Notable withdrawal agreements in the last two years included Citigroup, which agreed to provide data on its global median gender pay gap, and at Pfizer, which agreed to bring in outside experts to assess whether it has a gender pay gap globally or a racial gap within the United States. 
 
Another group of proposals, filed mostly by Trillium Asset Management and other investment firms, have asked companies to report on EEO and affirmative action. These proposals benefited from strong support from investors. The nine proposals on this issue that came to votes from 2018 to 2020 have consistently gained support of at least 28 percent, and one proposal to Travelers in 2019 earned majority support of just over 50 percent.  Similarly, As You Sow’s proposals asking Genuine Parts and O’Reilly Automotive to report on human capital management earned majority support of 79 and 66 percent, respectively.
 
A related initiative led by the New York City Comptroller’s Office has asked companies to provide breakdowns, by race and sex, of their workforce using the nine job categories defined by the US Equal Employment Opportunity Commission. The five proposals that came to votes in 2018 through 2020 earned average support over 40 percent.
 
The #MeToo movement has added urgency to and reinforced shareholder efforts to increase corporate transparency regarding sexual harassment in the workplace. In April 2019, McDonald’s, responding to a shareholder proposal from Clean Yield Asset Management, disclosed that it is not requiring employees to agree to mandatory arbitration of harassment and discrimination claims and that it will inform its board of directors if a nondisclosure agreement is sought in a case of harassment or discrimination. This victory follows similar decisions by Microsoft and Alphabet to eliminate mandatory arbitration and nondisclosure clauses as conditions of employment. In 2020, a resolution from the New York City pension funds asking Chipotle to report on its use of mandatory arbitration won 51 percent support.
 
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.
 
In 2019, proponents withdrew proposals at four companies that agreed to set or disclose reduction goals for greenhouse gas emissions: Emerson Electric, Home Depot, Vertex Pharmaceuticals and Vistra Energy.
 
In 2020, proponents were buoyed by several majority votes for climate-related resolutions.  Jantz Management’s call at Dollar Tree for a report on its greenhouse gas emissions goals received 74 percent support, the third highest vote ever won by a climate-related proposal opposed by management.