Tri-CRI Speaks Out Against Efforts to Limit Shareholder Voice

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Members of the Tri-State Coalition for Responsible Investment stand in strong opposition to a draft bill under consideration that threatens to effectively eliminate the shareholder proposal process regulated by SEC Rule 14a-8. As part of a larger bill to roll back Dodd-Frank known as the Financial CHOICE Act 2.0, House Financial Services Chairman Jeb Hensarling (R-Texas), the proposed changes would require shareholders to own 1 percent of a company’s outstanding stock for three years to file resolutions and double the vote needed to resubmit proposals for multiple years. A House vote is anticipated for Wednesday, June 7th.

These changes would virtually silence the members of our Coalition, as well as colleagues in the faith-based and values-driven investor community by removing their ability to file proposals. This would prevent consideration of critical issues raised in shareholder resolutions that urge companies 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. 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 justice. If the proposed changes move forward, we are concerned because the large shareholders that would meet the proposed ownership threshold do not have a history of participating in shareholder proposal filing, and this avenue of advocacy and communication with corporate leadership would effectively be closed off.

This bill would change existing law to:
1.) Requiring a 1% ownership (of total market capitalization) of a company over a three-year period in order to be eligible to submit a proposal.
2.) Increase the threshold to refile a shareholder proposal in subsequent years to 6% of the vote in year 1 (from 3%); 15% in year 2 (from 6%); and 30% in year 3 (from 10%).
3.) Prohibit the submission of proposals on behalf of a shareholder (what the bill refers to as “filing by proxy”).

Tri-CRI members are working to communicate the value of the shareholder proposal process and the important changes that have occurred as a result of this process. 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, baby 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 negative impacts of corporate activities on communities and other stakeholders. This process is a way for our Coalition members to integrate the values of Catholic Social Teaching such as preferential option for the poor and care of creation into our advocacy with corporations.

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, a website dedicated to compiling data and investor perspectives on the right to file shareholder proposals. It provides case studies and research on benefits of investors’ insights and foresight.

Chairman Hensarling’s bill was influenced by a proposal made by the Business Roundtable, an association of leading U.S. CEOs, outlining recommendations to “modernize” the shareholder proposal process, which the BRT views as costly and inefficient for corporations. The BRT attempted to frame shareholder proposals as disconnected from shareholder values and connected to an activist agenda, encouraging a requirement that filers disclose their “motivations, goals, economic interests and holding in the company’s securities”, among other provisions to limit shareholders’ ability to file resolutions.

Recent articles:
How the CHOICE Act eliminates key shareholder right, The Hill, 6/5/2017
Investor Group, Pension Funds Oppose Financial Choice Act, The Wall Street Journal, 5/17/17
Financial Choice Act would limit efforts to advance corporate responsibility, The Christian Citizen, 5/15/17
GOP Plan May Signal End Of ‘Socially Responsible Investing, NPR, 5/3/17
Financial Regulation Bill Could Threaten Shareholder Proposal Process, Bloomberg BNA, 4/16/17
Proposed Bill in Congress Would Silence Activist Investors, Triple Pundit, 4/25/17
Big corporations are trying to silence their own shareholders, Washington Post, 4/13/17

Additional resources:
Download a shareholder proposal rule Resources Page compiled by ICCR

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