Investor groups representing $65 trillion tell Trump Admin that current shareholder resolution process is working well to protect investors

Mar 21st 2017

Demonstrating strong investor opposition to special interest efforts to weaken key elements of the shareholder resolution process (SEC rule 14a-8), a group of leading investor organizations representing $65 trillion in assets wrote last week to the Trump administration urging support for the SEC’s existing shareholder proposal process, which is providing wide-ranging benefits.

The letter was sent Friday to Gary D. Cohn, director of the National Economic Council, who was urged in a February Business Roundtable (BRT) letter to amend or repeal allegedly burdensome regulations such as portions of SEC rule 14a-8.

“Our members are long-term shareholders who can attest to the fact that for over 45 years the shareholder proposal process has served as a cost effective way for corporate management and boards of directors to gain a better understanding of shareholder priorities and concerns and to benefit from those insights on critical and emerging risks and opportunities,” wrote the five organizations, which collectively represent $65 trillion in assets. “The process has proven to be valuable to numerous companies and has given shareholders an important voice.”

“The existing shareholder proposal process under 14a-8 is well functioning - it does not need to be repealed or amended,” the letter concludes.

The letter was sent by the chief executives from the Council of Institutional Investors (CII), The Forum for Sustainable and Responsible Investment (US SIF), Interfaith Center on Corporate Responsibility (ICCR), Ceres’ Investor Network on Climate Risk (INCR), and Principles for Responsible Investment (PRI).

It comes as many of the group‘s largest institutional investors are filing a record number of shareholder resolutions pressing for stronger corporate disclosure and action on key sustainability issues, such as climate change, global water risks, diversity and human rights abuses in supply chains. Earlier this week, the nation’s largest public pension fund, CalPERS, announced it will be active in 17 shareholder proxy efforts this year, all of them focused on energy companies which are facing wide-ranging risks as climate change trends are forcing an economic transition towards low-carbon technologies and away from fossil fuels.

"Shareowner proposals ensure corporate boards listen to investors' concerns - from increasing diversity, to supporting workers' rights, to enacting proxy access - and implement policies that create sustainable value. They help create a culture of accountability,” said New York City Comptroller Scott M. Stringer, a member of Ceres’ INCR who oversees one of the nation’s largest public pension funds. “That's why it's no surprise the CEOs who make up the Business Roundtable want to eviscerate this right - it benefits companies and investors at the occasional expense of CEO power and pay.”

The letter states that Rule 14a-8’s process has had a strongly positive effect by highlighting ineffective corporate governance, enhancing transparency, and promoting corporate actions on a range of environmental, social and governance issues that promote economic growth and job creation over the long term while increasing long term shareholder value.

Among the specific benefits where shareholder resolutions have produced positive results enhancing shareholder value:

  • Independence of a majority of corporate board directors, and only independent directors serving on audit, governance-nominations and compensation committees 
  • Board diversity 
  • Auditor independence 
  • Annual election of all directors 
  • The ability for shareowners to nominate candidates to serve on boards
  • The need to manage supply chain risks 
  • The need to manage climate risk, as well as other environmental risks 
  • Workplace diversity and non-discrimination 

“The trillions of dollars of capital that vote for shareholder proposals, as well as those that file shareholder proposals, recognize the evidence: decades of shareholder proposals have led to strong, sustainable, and state-of-the-art business practices at America’s companies,” said Jonas Kron, senior vice president at Trillium Asset Management. “This is not the time to weaken the current rule 14a-8."

"It is vitally important for investors to protect their right to file shareholder resolutions that seek to raise important issues that impact long term shareholder value including governance, climate change and board diversity,” said Timothy Smith, director of ESG shareowner engagement at Walden Asset Management. “The BRT campaign seeks to cripple the ability of shareholders to exercise this right, which would be a disservice to investors and companies alike. We believe hundreds of companies have benefited positively from engagements with shareholders prompted by the filing of shareholder proposals."

"One of the fundamental and long-standing rights of public equity ownership is the ability to submit proposals for consideration by all owners of a company,” said Anne Sheehan, director of corporate governance at the California State Teachers’ Retirement System (CalSTRS).  “This right has allowed investors like CalSTRS to incorporate value-adding changes at portfolio companies on issues such as majority vote. In fact, over the past five years, over 500 companies have adopted a majority voting standard at CalSTRS urging thru the use of the shareholder proposal process.  In only a very limited number of these situations did the proposal actually go to a vote of the shareholders, a testament to the power of this shareholder accountability mechanism."