Shareholders Ask SEC Chairman to ‘Resist Current Efforts to Curtail Investors’ Rights’

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BERKELEY, CA—OCT. 28, 2019—A group of concerned investors wrote to the U.S. Securities and Exchange Commission’s (SEC) Chairman Jay Clayton on Friday urging him to protect retail investors by opposing an impending rulemaking that would curtail shareholder rights. The letter notes that the rulemaking appears responsive to Business Roundtable and U.S. Chamber of Commerce demands to alter filing and resubmission thresholds on the theory that 25 or 30 percent of shareholder proposals are filed by only a few proponents.

The letter notes that there is no upsurge of such shareholder proposals — recent filings are consistent with the proposal process that has functioned well for decades. Instead, the letter notes that the motivating factor is due to the upsurge in YES votes by fellow shareholders on proposals addressing climate change and corporate governance. Clayton will likely hold the deciding vote on Nov. 5 when proposals are put forth by some members of the SEC. The letter asserts that the changes could inappropriately silence retail investors by rigging the rules against them while also curbing the rights of all shareholders to exercise their votes on important proposals at their companies.

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Chamber of Commerce influenced

Sanford Lewis, an attorney practicing in the SEC arena for nearly two decades, stated:

“Rulemaking proposals being considered by the SEC — which would significantly raise shareholder filing requirements and/or resubmission thresholds — could hobble the ability of many investors to file proposals on important governance, environmental, and social issues. The current rules enable investors to raise critical risk management issues with their companies, boards, and other shareholders, and achieve significant progress through engaging and voting on proposals. This rulemaking would be a dramatic and costly step backward for companies and their shareholders who are collectively addressing important issues such as climate change, diversity, human rights, and employee health and safety, among many others.

“Although the formal proposal of the commission has not yet been unveiled, from what we are able to discern, the approach under consideration, if it were in effect in the past, would have cut off dozens of successful proposals in recent years, and will also reduce the impetus for successful engagements between shareholders and their companies.”

John Chevedden, an individual shareholder who has filed numerous good governance resolutions over the years, noted:

“I work with a number of small individual investors who actively petition companies to make important governance changes using the shareholder resolution process. Scores of companies have made positive changes in response to these calls for change. It is disheartening to see the chair of the SEC, who is supposed to be championing the rights of Main Street shareowners, move so vigorously to limit or destroy the ability of small investors to file shareholder resolutions. This is a pitiful legacy for Chair Clayton to leave behind when small shareholders have been able to utilize this tool for close to 75 years.”

ESG issues

Tim Smith of Boston Trust Walden, who has been working in this field for 50 years and attended the first stockholder meeting where social and environmental resolutions were presented, said:

“Virtually every individual and institutional shareholder who has ever filed resolutions has reported to the SEC that there is not an urgent need to make radical changes in the SEC rules governing resolutions. The pressure to make these reforms comes from business trade associations such as the Business Roundtable and the U.S. Chamber of Commerce who ignore the fact that issues like climate change and diversity, the topic of multiple shareholder resolutions, are issues that deeply affect a company’s bottom line and are legitimate issues for stockholders to raise with companies.”

Danielle Fugere, president of As You Sow, a shareholder representative group that files proposals on behalf of a range of investors, said:

“Opponents have been unable to point to any demonstrable problem with the current shareholder system. Rather, the problem seems to be that shareholders have been voting for environmental, social, and governance proposals in ever greater numbers, a fact that doesn’t sit well with some large companies. We are hopeful that the SEC will not move this inequitable rulemaking forward. Limiting shareholders’ right to vote on proposals that reduce risk, create greater opportunity, and preserve value, is contrary to good government and sound business practice.”

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