What are Shareholder Rights & the 14a-8 Rule?
The US Securities and Exchange Commission (SEC) is an independent agency of the federal government that defines and protects shareholder rights. Shareholders are entitled to engage directly with management of the companies they hold, and may also use specific strategies, including the filing of a shareholder resolution. In the US, shareholders that have owned at least $2,000 of stock in an American company for at least a year have the right to submit a proposal of up to 500 words to appear on the proxy to be voted upon at that company’s annual meeting. IASJ and other interfaith investors often file shareholder resolutions that urge companies to address risks that they believe are not being adequately addressed by corporate management, including to acknowledge the moral imperative to mitigate climate change, respect human rights in the global supply chain, reduce water contamination from their operations, and uphold business standards in the financial markets.
What is Rule 14a-8?
SEC Rule 14a-8 in the Securities and Exchange Act of 1934 provides for and establishes the guidelines that govern shareholders’ right to file resolutions. Several staff legal bulletins elaborate on the guidelines for the content and format of a proposal, such as preventing shareholders from filing on topics based on personal grievance, or issues that are “insignificant” to the company. Companies may seek “No Action” relief from the SEC to allow them to exclude a shareholder resolution from the proxy statement if they feel it falls out of the bounds of Rule 14a-8. Traditionally, the SEC will issue a response to the proponent of the resolution and company on whether a resolution must be included in the proxy to be voted upon.
How are Shareholder Rights at Risk?
An effort began in 2016, led by corporate trade associations, to question the value and efficacy of the shareholder proposal process. In May 2019, the SEC announced that it was considering a rulemaking that would make adjustments to Rule 14a-8, which would make it more difficult for shareholders like the Affiliates of IASJ to exercise their rights to file resolutions. Some of the proposed changes would allow for only large shareholders to file resolutions, or necessitate that smaller shareholders hold stock for an extended number of years. Other potential changes would make it harder for shareholders to re-file resolutions year after year by requiring a resolution obtain a large number of shareholder votes if they wish to re-submit a resolution at subsequent annual meetings. Investor Advocates for Social Justice stands in strong opposition to any SEC rulemaking that would limit investors’ ability to bring critical issues to light with companies and investors through the shareholder proposal process.
Our voice to raise these important issues that impact not only shareholder value but also the fundamental relationship between corporations and the communities in which they operate is essential for accountability and social, economic, and environmental justice. If the proposed changes to Rule 14a-8 move forward, we are concerned that fewer issues would be brought before companies through this process and this avenue of advocacy and communication with corporate leadership would effectively be closed off, given that the large shareholders who would maintain eligibility to file do not have a history of participating in shareholder proposal filing.
How Has IASJ Spoken Out for Shareholder Rights?
IASJ is committed to active ownership and shareholder advocacy, conducting dialogues with over 50 companies each year, and filing hundreds of shareholder resolutions since our founding. We value the ability to file shareholder resolutions and are sharing our perspective on the value of the shareholder proposal process in the efforts to maintain this right. The filing of proposals has initiated dozens of constructive dialogues with corporate leadership over the years and led to serious commitments to address issues of concern – such as GMOs, climate disclosure, marketing of infant formula, PCB contamination in the Hudson River, and ethical recruitment. We see this as an effective way to identify emerging risks that are not yet being adequately managed by corporations. Many of the concerns raised in our shareholder resolutions are also linked to long-term risks that are not considered in short-term financial reporting or identify negative impacts of corporate activities on communities and other stakeholders that are not otherwise addressed.
Investor networks ICCR, Ceres, and USSIF issued a joint press release defending the shareholder proposal process and a report titled the Business Case for 14a-8. In response to efforts to roll back essential investor rights, USSIF and ICCR jointly launched InvestorRightsForum.com, a website dedicated to compiling data and investor perspectives on the importance of the right to file shareholder proposals, providing case studies and research on benefits of investors’ insights and foresight.