In this Shareholder Action Handbook, we will try to point you to proven strategies that work. Shareowner action can be complicated, just like the cartoon to the left from Nearing Zero. However, it is less complicated than it looks.
Please e-mail me and let me know what other resources should be included in our Shareholder Action Handbook.
Those just getting started in corporate governance might benefit from taking a quick spin through a PowerPoint presentation I prepared on how I got interested in the subject, which also outlines five things people can do to make corporate governance more democratic. The talk is entitled Corporate Governance for the 99%. I would be happy to give similar presentations to your group if interested and I’m available. (request file) Four steps in shareowner action from Social Funds. Wikipedia on Shareholder Resolutions.
Shareowner Action Handbook: Vote
Before even thinking about filing proxy proposals, make sure you are taking the most fundamental shareowner action by voting your proxies. Seeing how funds vote before the meeting can often be helpful. Primary sources include:
- Australia’s Local Government Super
- Calvert – After typing the company’s name or ticker in the search box, click the +Expand button
- CPP Investment Board (Canada)
- COPERA (Colorado)
- Florida SBA
- FundVotes (Research by contract)
- New York City Comptroller After typing the company’s name or ticker in the search box, click the +Expand button listed under one of the sections to open the company vote results.
- OPERS (Ohio Public Employees Retirement System)
- OTPP (Ontario Teachers Pension Plan)
- Pax World
- Proxy Democracy (Best free aggregator but temporarily inoperative)
- Proxy Insight (best database of proxy votes, both current and historical)
- TRS (Pre-disclosing by Teachers Retirement System of Texas appears to have ended for now.)
- Trillium Asset Management
The best source I have found for locating votes announced before annual meetings is Proxy Insight, a subscription service. If you really want to know who is voting how… or even who is likely to vote one way or another based on the historical record, Proxy Insight has the best data I have found. If you want to hire someone to analyze proxy votes, another great resource is Jackie Cook’s Fund Votes.
Shareowner Action Handbook: Search Edgar
Shareowner Action Handbook: How to File Proxy Proposals
The most fundamental resource for filing proposals is the Electronic Code of Federal Regulations, specifically § 240.14a-8 Shareholder proposals. One of the best relatively up-to-date (2011) booklets on filing shareowner proposals from the Council of Institutional Investors (download pdf). It provides step-by-step guidance. See also, AFL-CIO page How to File a Shareholder Resolution. Northwest Corporate Accountability Project: Somewhat dated but worth scanning through for advice around filing resolutions. Another fantastic resource is The Shareholder Action Guide.
Basically, shareowners need to hold at least $2,000 of common stock in a company for a year before filing a proposal. The SEC looks back within the 60 calendar days before the date the shareowner submits the proposal to determine if value value was at least at $2,000 at some point during that time.
Need help? Investor Voice – Hire this experienced group to file and pass your resolution.
Shareowner Action Handbook: Proposal Templates
Shareowner action shouldn’t be undertaken in a vacuum. It is always easier to borrow language from prior submissions than it is to write your proposal from scratch. If the language has served for a couple of years, there is a good chance it withstood the test of a no-action request to the SEC. In addition, funds often vote against or abstain from proposals they have never seen before. Using a prior submission often means funds have developed a voting policy on the topic. Two great overview sources are proxy preview 2016 and ICCR’s 2016 Proxy Resolutions and Voting Guide.
Three of the best no-cost databases of proposals that made it into the proxy are:
- Ceres (limited to resolutions on sustainability)
- ICCR’s Shareholder Proposal Database (limited to proposals of its own members)
- ProxyMonitor.org (from the conservative Manhattan Institute for Policy Research and limited to Fortune 250)
Shareowner Action Handbook: Subscription Services
- Proxy Insight provides comprehensive information on the votes of key global shareholders.
- SharkRepellent, FactSet’s corporate governance database, provides takeover defense and corporate governance data for more than 5,600 U.S. incorporated public companies.
Shareowner Action Handbook: SEC Guidance
Required Description under Rule 14a-4(a)(3) of Rule 14a-8 Shareholder Proposals
Question: Rule 14a-4(a)(3) requires that the form of proxy “identify clearly and impartially each separate matter intended to be acted upon.” How specifically must a registrant describe a Rule 14a-8 shareholder proposal on its proxy card?
Answer: The proxy card should clearly identify and describe the specific action on which shareholders will be asked to vote. This same principle applies to both management and shareholder proposals. For example, it would not be appropriate to describe a management proposal to amend a company’s articles of incorporation to increase the number of authorized shares of common stock as “a proposal to amend our articles of incorporation.” Similarly, it would not be appropriate to describe a shareholder proposal to amend a company’s bylaws to allow shareholders holding 10% of the company’s common stock to call a special meeting as “a shareholder proposal on special meetings.” The following descriptions of shareholder proposals also would not satisfy Rule 14a-4(a)(3):
- A shareholder proposal on executive compensation;
- A shareholder proposal on the environment;
- A shareholder proposal, if properly presented; and
- Shareholder proposal #3.
Supplement the above with the following SEC: Staff Legal Bulletins:
- Staff Legal Bulletin No. 14 – explains no-action process, answers common questions re deadlines, market value, counting, calculating deadlines, resubmission thresholds, etc.
- 14B (CF), explains the rule 14a-8 no-action process
- 14C (CF), rule 14a-8(i)(6) proposals on director independence; rule 14a-8(i)(7) proposals on environmental or public health issues; company FAX numbers for proponents; written materials that should accompany a no-action request; withdrawal. “In those instances where the company does not disclose in its proxy statement a facsimile number for submitting proposals, we encourage shareholder proponents to contact the company to obtain the correct facsimile number.”
- 14D (CF), request, or require a board unilaterally amend company’s articles; correspondence to each other; e-mail address for no-action requests [email protected]
- 14E (CF), proposals relating to risk; succession planning; manner for notifying correspondence
- 14F (CF), Brokers and banks that constitute “record” holders; proof of ownership; submission of revised proposals
- 14G (CF), which address the issues of what is needed; to evidence stock ownership for the purpose of filing a shareowner proposal and use of websites in shareowner proposals. Be sure to confirm whether you broker or bank is a DTC participant by checking DTC’s member participant list. If it isn’t, you will need to take at least one additional step.
A shareholder could satisfy Rule 14a-8(b)(2)(i) by obtaining and submitting two proof of ownership statements verifying that, at the time the proposal was submitted, the required amount of securities were continuously held for at least one year – one from the shareholder’s broker or bank confirming the shareholder’s ownership, and the other from the DTC participant confirming the broker or bank’s ownership. 14G (CF) clarifies, two letters are not needed if the broker and clearing bank are within the same overall firm.
- 14H (CF) addresses the provisions of Rule 14a-8(i)(9), which permits a company to exclude a proposal “[i]f the proposal directly conflicts with one of the company’s own proposals to be submitted to shareholders at the same meeting.” For several years SEC staff have misinterpreted that to mean companies can gin up a proposal on the same subject and get the shareholder proposal thrown out. The SLB clarifies the exclusion only applies “if a reasonable shareholder could not logically vote in favor of both proposals.” That should curtail most abuses. Therefore we can expect use of this exclusion to be rare going forward. See also “Directly Conflicts” Clarified by Staff Legal Bulletin.
- 14I(CF) provides a roadmap to corporations on how to exclude shareholder proposals under Exchange Act Rule 14a-8(i)(7) (the “ordinary business” exception) when the significance of the proposal to the company’s business is at issue and Rule 14a-8(i)(5) (the “economic relevance” exception or 5% rule). Additionally, the new guidance seeks to impose an additional information burden from shareholders for so-called “proposals by proxy” and clarifies how images can be excludable. (see SLB 14I (CF) – SRI Conference: 1st Impression)
14J (CF) provides additional guidance on the excludability of shareholder proposals under Rule 14a-8(i)(5) (the “economic relevance” exception) and Rule 14a-8(i)(7) (the “ordinary business” exception). Clarifies that a proposal seeking study or report may be excludable if the underlying substance of the report relates to the imposition or assumption of specific timeframes or methods for implementing complex policies. Non-exhaustive list of factors in board’s analysis:
- The extent to which the proposal relates to the company’s core business activities;
- Quantitative data, including financial statement impact, related to the matter that illustrate whether or not a matter is significant to the company;
- Whether the company has already addressed the issue in some manner, including the difference between the proposal’s specific request and the actions the company has already taken, and an analysis of whether the difference presents a significant policy issue for the company;
- The extent of shareholder engagement on the issue and the level of shareholder interest expressed through that engagement;
- Whether anyone other than the proponent has requested the type of action or information sought by the proposal; and
- Whether the company’s shareholders have previously voted on the matter and the board’s views as to the related voting results.
SEC Rule 14a-8 Proposals of Security Holders, lays out various grounds that can be used to omit shareholder resolutions or proposals (both terms are used interchangeably). When companies object to a proposal, they frequently hire a law firm to research and document every possible reason they can think of to exclude your proposal.
Companies or their legal counsel then file a request to the SEC, asking them to take no action if the company omits the resolution from the proxy.
The letters come from staff at the Division of Corporation Finance (CorpFin) and the Commission is rarely involved. Although no-action letters are only opinions, they are given substantial weight by courts when cases end up there… which is rare. Requests for no-action letters will usually cite similar instances where no-action relief was granted in the past. Shareholder Proposals: SEC Staff’s Role explains the process. The first SEC database below can be valuable in defending proposals, since you can look up most letters issued since 2007. The second database tracks incoming requests. CorpFin has not yet responded to these, which can be interesting to review to know regarding issues, corporations and shareholder actions.
Shareowner Action Handbook: SEC No-Action Letters
If a company intends to exclude a proposal from its proxy materials, it must submit its no-action request to the Commission no later than 80 calendar days before it files its definitive proxy statement unless it demonstrates “good cause” for missing the deadline. NYSE recommends that shareholders receive notice of a shareholders’ meeting, along with proxy solicitation material, a minimum of 20 days before the meeting. Most allow more like 30.
- Shareholder Proposal No-Action Letters Issued Under Exchange Act Rule 14a-8– contains alpha and chronological listings of letters from companies requesting the SEC to take “no action” if they exclude a shareowner proposal and includes responses from shareowners defending their right to submit proposals.
- Incoming No-Action Requests Under Exchange Act Rule 14a-8.
Shareowner Action Handbook: Reconsideration
- New facts have arisen.
- There has been a change in law.
- The company (shareholder) can demonstrate that the staff clearly erred in its no-action decision.
Shareowner Action Handbook: Guidance from Law Firms to Issuers
It is often very helpful to know what law firms are telling their clients about the last proxy season, the current season and developments on no-action requests. I should be updating and adding more to this section. Feel free to recommend some of the best or most topical discussions.
- SEC Staff Declines to Exclude Proposals on the Basis of Inflammatory or Incorrect Supporting Statements DavisPolk
- Proxy Access in 2015 – The Year in Review Sidley
- Head’s Up for 2013 Proxy Season: Guidance for How to Address ISS and Glass Lewis Policy Changes. Weil
- Some Tips from an In-House Lawyer: Working with Shareholder Proposals and Proponents by Rick Hansen. Dated but still helpful.
Shareowner Action Handbook: Winning
- The Investment Stewardship Ecosystem – BlacRock’s Primer
- Exempt Proxy Solicitations. Those don’t get enough use.
- VotePal.com – They’ve proven anyone can run a proxy contest. How about you?
Shareowner Action: Change the World by Changing the Rules
Want to change SEC rules or procedures? Yes, you can petition the Commission but I haven’t had much luck with that route. Send comments to the SEC’s Investor Advisory Committee. If the SEC-IAC takes up your cause and sends a recommendation to the Commission, they are legally obligated to respond. Also, send your comments to me, James McRitchie. If I agree with you, I will help get the word out and help you lobby for change.