The SEC voted in September to raise the threshold for share- holder proposals to be includedin a company’s proxy statement.
The amendments to Section 14A- 8 ofthe Securities and Exchange Act of 1934require that a shareholder own at least$2,000 worth of stock for three years tosponsor a first-time proxy proposal, upfrom one year currently.
A shareholder also could submit aproposal if he or she or an institutionlike an endowment owned $25,000worth of stock for one year or $15,000for two years.
Proxy proposal resubmissions, whichare allowed the time to gather momentum, also face tighter restrictions underthe new regulations. A minimum 5%vote is required for a first resubmissionin the following five years, up from 3%.Proposals resubmitted twice or three ormore times in the prior five years wouldrequire minimum votes of 15% and 25%in support, respectively, in the followingthree years, up from 6% and 10%.
The new rules will take effect 60 daysafter publication in the Federal Registerand apply to any shareholder proposalssubmitted for an annual or special meeting held on or after Jan. 1, 2020. Theywere first proposed in November 2019.
SEC Chairman Jay Clayton, in a state-
ment, said the amendments “ensure
there is an appropriate alignment of
interests between shareholder-propo-
nents and their fellow shareholders
and illustrate again why retrospective
review and, as appropriate, moderniza-
tion of our rules is necessary.”
The rules had not changed much since
amendments approved in 1954 and 1998.
Commissioner Elad Roisman noted
the amendments “aim to ensure that
shareholder-proponents demonstrate a
sufficient economic stake or investment
interest in a company before they are
able to submit proposals to be included
in a company proxy’s statement, paid for
by all shareholders.”
Recently confirmed Commissioner
Caroline Crenshaw said the expected
benefit for companies will come at the
expense of the small shareholder. The
amendments are “designed to reduce
costs for corporations” but will simul-
taneously hurt smaller investors who
cannot afford to invest $25,000 or wait
years to suggest a solution to a problem
they’ve already identified.
“The rule leaves most majority ofinvestors a hard choice: maintain adiversified and well-balanced portfolioas experts recommend but be shut fromcorporate discourse, or participate inthe conversation but take on the greaterrisk that investing $25,000 of retirementsavings in a single stock will pay off?”said Crenshaw in a statement.
The new rules are especially problematic for investor groups focused onenvironmental, social and governancefactors that affect companies.
Danielle Fugere, president of As YouSow, noted that the SEC vote “comes ata time when shareholders are appropriately acknowledging — and asking theircompanies to address — a wide rangeof social and environmental issues thathave the potential to harm our environment, economy, and companies’ value.… The SEC’s new rule demonstrates afailure to understand and support thisnecessary transition.”
HOW MUCH SRI IS IN A PORFOLIO?
OpenInvest, a financial services company specializing in the sustainableinvesting, has introduced a new productto help financial advisors review clientportfolios for their social impact.
The subscription-based service, calledPortfolio Diagnosis, is part of the company’s environmental, social and governance solutions and uses algorithms toanalyze different assets in client portfolios, whether they be stocks, mutualfunds or ETFs, or a combination thereof.The proprietary algorithms, in turn, arebased on an ESG data aggregation system that currently draws from morethan 15 providers and 200 indicators.
The product can, for example, analyzea portfolio for its impact on reducinggreenhouse gases, fighting deforestation, supporting LGBTQ rights and supporting refugees. Those are just four ofthe 16 “causes” that OpenInvest tracksin portfolios — split almost equallybetween investments to hold and thoseto divest.
Costs for the new product were notdisclosed and will vary by firm, according to a spokeswoman.
Bernice Napach can be reached email@example.com.
By Bernice Napach
SEC Votes to Restrict Shareholder Proposals
Move particularly thwarts small investors and ESG push.