ESG Investing

A New Bill Could Stifle Shareholder Engagement


A new effort is being launched in Congress to restrict the ability of shareholders to resubmit proxy proposals. If passed, the proposed law could restrict shareholder engagement strategies by making it harder for resolutions to gain momentum.

What Stands to Change

The proposed law, known formally as H.R. 5756, was introduced by congressman Sean Duffy, a Wisconsin Republican who introduced a similar bill last year to put limits on proxy advisors.

Of the new proposal, proxy advisor service Glass Lewis said that “[s]hareholder rights are once again under legislative threat,” commenting that the bill is a standalone version of portions of the Financial Choice Act, which also seeks to limit shareholder engagement and is currently stalled in Congress. (On a related note, Duffy has also sponsored a bill to increase regulations around Glass Lewis’s and other proxy advisors’ role in shareholder voting.)

Under current US law, companies may exclude proposals from proxy materials under certain conditions. Proposals may be excluded if they deal substantially with the same subject as proposals that have been put forward in the past five years and:

  • Have been considered once and received less than 3% of shareholder votes
  • Have been considered twice and received less than 6% of votes
  • Have been considered three times and received less than 10% of votes

Duffy’s bill would dramatically increase those shareholder vote thresholds to make it easier for companies to exclude proxy resubmissions. The percentage of votes needed would rise to 6%, 15%, and 30%, respectively.

Why It Matters

“Making it harder for shareholder proposals to be resubmitted from year to year would make it that much harder for proponents to refine their ideas and build a coalition of support,” Glass Lewis said. “This often takes several years, both to generate interest in the underlying topic, and to convince other shareholders that the specific proposal offers the appropriate means of addressing the topic.”

Also criticizing the proposal was the Interfaith Center on Corporate Responsibility (ICCR), a coalition of faith- and values-based institutional investors representing $400 billion in assets under management that supports shareholder engagement.

Higher resubmission thresholds are likely to prematurely exclude a large number of proposals, negatively impacting shareholder filing of proposals on critical emerging issues,” the ICCR said. “The current thresholds provide a reasonable amount of time for emerging issues to gain support among investors while ensuring that only those proposals that garner meaningful support remain on the ballot for multiple years.”

Among the examples it cited were efforts to compel oil companies to report on the risks of climate change. While these efforts initially received less than 5% of shareholder votes and would not have met the increased thresholds proposed in Duffy’s bill, resubmitted resolutions have gained momentum among shareholders in recent years.

In 2017, a resolution calling on oil companies to assess how their businesses would be impacted by aligning with the Paris Agreement’s 2-degree Celsius warming limit won 67% of shareholder votes at Occidental Petroleum and 62% at ExxonMobil, even though the boards at both firms opposed the measure.

Ceres, a nonprofit organization focused on sustainability issues, has produced a detailed report explaining the benefits of the current SEC rules on proxy proposals and urging Congress to preserve them to ensure that shareholder voices for meaningful change continue to be heard. “The current US shareholder proposal system provides important benefits for investors and companies,” Ceres notes in the conclusion of its report. “Changing the existing finely tuned SEC rules and practices for overseeing shareholder proposals is likely to do much more harm than good.”

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