SEC Commissioner Wants To Limit Shareholder Activist Proposals

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If a Republican Securities and Exchange commissioner has his way, it will become more difficult for activist investors with a political agenda to get their proposals put to a shareholder vote.

“Activist investors and corporate gadflies have used these loose rules to hijack the shareholder proposal system,” SEC Republican Commissioner Daniel Gallagher was quoted as saying. “The vast majority of proposals are brought by individuals or institutions with idiosyncratic and often political agendas that are…unrelated to, or in conflict with, the interests of other shareholders.”

Greenhouse gas emissions among “dubious” proposals

As an example of politically motivated proposals Gallagher considers dubious cites Boston Common Asset Management, an investment manager focused on global sustainability initiatives.  Over a year ago the firm sought to require PNC Bank to report greenhouse gas emissions that were resulting from the bank’s investment portfolio.  The SEC determined climate change was a significant policy issue and thus should get in front of shareholders for a vote.

Gallagher, speaking to an a conference at Tulane University Law School in New Orleans, said it is “inexcusable” that the SEC’S rules are requiring investors to “subsidize activist agendas.”  Gallagher is proposing to make it more difficult for activist groups to get their issues on the ballot.  One idea is to raise the bar on who can submit proposals, which currently stands at any investor with over $2,000 invested, which Gallagher calls “absurdly low.”  He proposes raising it to $200,000 or even $2 million, potentially based on some formula that considers the stocks market capitalization.

Tighter submission policy

Gallagher also seeks to tighten the re-submission policy.  He says the current rules are problematic because an issue can re-appear on a ballot if it only receives as little as 3% to 10% of the vote.  He also wanted to ensure that politically appointed SEC commissioners make determinations on such policy matters, not SEC staff.

It is unclear if Gallagher’s proposals will gain acceptance inside the SEC, as the SEC Chair Mary Jo White, sets the policy agenda and many commissioners are not as conservative as Gallagher.

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