Shareholder Rights Are Under Attack

There are efforts under way by members of Congress to curtail shareholder rights by radically changing the rules of the proxy process to make the filing of resolutions much more onerous for investors. 

Section 844 of the “Financial CHOICE Act” includes proposed changes to SEC rule 14(a)(8), the rule which governs shareholders’ rights to file resolutions. Proposed changes include:

  • unduly restricting the financial requirements of filing a shareholder resolution (from $2,000, to 1% of a company's stock);
  • increasing the length of time an investor  must hold shares from one year to three;
  • increasing refiling thresholds (to 6%, 15%, 30% -- up from 3%, 6% and 10%).

In practice, these changes would have the effect of preventing all but the largest shareholders from submitting proposals for the proxy: average and smaller investors would effectively be silenced.

Introduced by House Financial Services Chair Jeb Hensarling (R-TX) in 2016, the bill also takes aim at the financial protections enshrined in 2010’s Dodd-Frank law (read ICCR’s letter outlining the importance of Dodd-Frank here), and would eliminate numerous financial regulations and consumer protections. The Act would, for instance, remove the current cap on debit-card transaction fees. In addition to the impact on shareholder democracy, many believe the proposed regulatory rollbacks in the Financial CHOICE Act bill contain the seeds of the next financial crisis. 

For over 45 years the shareholder proposal process has served as a cost-effective way for corporate management and boards of directors to gain a better understanding of shareholder priorities and concerns and to benefit from those insights on critical and emerging risks and opportunities.

On May 4th, the Act was voted out of the House Financial Services Committee (the vote was 34-26 along party lines). On June 8, it went to a full vote of the House, passed, and has now moved to the Senate. You can follow its status here.

In response, ICCR, along with other investor organizations including Ceres, CII, USSIF, and PRI sent a letter to Gary Cohn, director of the National Economic Council urging opposition to the Act (available here). ICCR member Domini Impact Investments recently wrote to the CEO of Nasdaq, criticizing Nasdaq’s endorsement of the Financial CHOICE Act, Section 844 in particular.

Shareowner proposals ensure corporate boards listen to investors’ concerns - from increasing diversity, to supporting workers’ rights, to enacting proxy access - and implement policies that create sustainable value. They help create a culture of accountability,” said New York City Comptroller Scott M. Stringer  

The Act was instigated by lobbyists employed by the CEO group the Business Roundtable (BRT), led by JP Morgan Chase CEO Jamie Dimon, whose members include General Electric, Walmart and Dow.

Dimon and the BRT oppose what they perceive to be “self-serving shareholder activity and proposals not intended to benefit the company”. Investors argue that the Choice Act would seriously weaken their ability to assess corporate performance against peers and exercise oversight of the companies they own.  In impeding shareholder requests for greater transparency around the business risks they believe are material to their investment decisions, responsible investors caution against a return to pre-2008 risk-taking and short-termism which will end badly for not only shareholders, but the economy and society at large.

Further Reading

NPR: GOP Plan May Signal End Of 'Socially Responsible Investing
Wall Street JournalInvestor Group, Pension Funds Oppose Financial Choice Act
Investment NewsHouse committee approves Dodd-Frank replacement bill that includes repeal of DOL fiduciary rule


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