Shareholders Protect Right to File Resolutions, Lose on Rights for Director Nominations

Late last month, the Securities and Exchange Commission (SEC) closed an opening that had given investors a little more power to nominate directors at publicly traded companies. At issue is whether investors can nominate directors to appear on the company’s proxy ballots mailed out to all shareholders. Shareholders have the right to send out nominations on their own competing proxy ballots, but the costs and logistics of doing so are so onerous that this almost never happens, so advocates for shareholder rights have long sought rules granting them access to nominate directors on the company proxy.
Those advocates won a victory last year when a federal appeals court struck down the SEC’s past rules denying shareholders access to nominate directors on companies’ proxies. In response, the SEC proposed two different changes to its proxy access rules. One option would have granted proxy access for director nominations to shareholders holding more than 5 percent of a company’s shares. The other would restore the rules that deny shareholders proxy access to nominate directors. Sadly, the SEC denied shareholder rights and adopted the second option, although the chairman of the SEC has promised to revisit the issue in the year to come.
There was one bright note in a disappointing decision. In its proposals on proxy access, the SEC posed a series of questions about whether to limit the types of shareholder resolutions that Trillium Asset Management Corporation and our allies rely on every day to prod companies towards greater corporate responsibility. The Social Investment Forum, the Interfaith Center on Corporate Responsibility, labor pension funds, and Trillium and other leaders in the socially responsible investment world banded together to oppose any new limits on the shareholder proposal process. Our efforts and the efforts of other shareholder rights’ advocates generated over 34,000 comments to the SEC opposing any weakening of shareholder proposals. We joined these groups in lobbying key Congressional leaders and SEC members and in sponsoring a national poll which found broad investor opposition to weakening shareholder proposals. As a result of this groundswell of support for shareholder advocacy tools, the SEC did not pursue any of the options it was considering to limit shareholder proposals.