The Shareholder Action Handbook will point to proven strategies that work. Shareowner action can be complicated, just like the cartoon to the left from Nearing Zero. However, it is less difficult than it looks.
I teach a class twice a year on Corporate Accountability (shareholder proposals and more) with several guest speakers. Here is an announcement. The class is offered through the Renaissance Society, an extension program of California State University, Sacramento. The class is held on Zoom, so can be taken from anywhere with a good internet connection. If interested, you can email me at email@example.com and I can keep you posted.
Please e-mail me and let me know what other resources should be included in our Shareholder Action Handbook.
Jump to Topics below.
- Getting Started
- Research How Funds Voted
- Search Edgar
- How to File Proxy Proposals
- Proposal Templates
- Subscription Services
- SEC Guidance (Staff Legal Bulletins)
- SEC No-Action Letters
- Guidance from Law Firms to Issuers
- Change the World by Changing the Rules
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. PRI’s Making Voting Count.
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, ICCR’s How to File a 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 the 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.
Also, consider big fund proxy voting guidelines. Their votes drive wins.
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 and ICCR’s Proxy Voting Guide.
No-cost databases of proposals that made it into the proxy include:
- As You Sow Resolution Tracker. I have been working with them on several.
- Ceres tracks shareholder proposals on proxy statements relating to environmental, social, and sustainable governance (ESG) issues.
- 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)
- Trillium Asset Management. You can search Trillium’s proxy votes.
Shareowner Action Handbook: Subscription Services
- Proxy Insight provides comprehensive information on the votes of key global shareholders.
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 with Staff Legal Bulletins (Full List 14 Series)
- 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 firstname.lastname@example.org
- 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.
- 14K (CF) This bulletin contains information regarding:
- the analytical framework of Rule 14a-8(i)(7), the “ordinary business” exception;
- board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
- the scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
- proof of ownership letters. The Division suggested the following formulation: “As of [date the proposal is submitted], [name of shareholder] held, and has held continuously for at least one year, [number of securities] shares of [company name] [class of securities].”
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 Responses (current for 2021)
- Shareholder Proposal No-Action Responses
- 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.
Shareowner Action Handbook: Reconsideration
If Staff denies the company’s no-action relief request (or grants it), the company (or shareholder) can request that the staff reconsider its determination. In general, the staff will only grant reconsideration requests if one of the following has occurred:
- 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.
Reconsideration is unlikely if the company (shareholder) simply restates the arguments from its original no-action request or advances new arguments that could have been presented in the original request. Alternatively, the company or shareholder can petition the full Securities and Exchange Commission to review the staff’s no-action decision. This petition process is conducted by Staff, which is ultimately responsible for determining whether the appeal includes matters that involve substantial importance and that are novel or highly complex and ripe for review by the SEC. It is highly unlikely that Staff will recommend the SEC review an appeal and, if reviewed, that the appeal will be granted. As proof reconsideration sometimes works, see SEC Reverses No-Actions Under Rule 14a-8(i)(9) On Request.
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.
- 2020 Proxy and Annual Report Season: Time to Get Ready—Already, Mayer Brown, LLP
- Preparing for the Shareholder Proposal Season, Skadden
- How Often Do Directors Fail to Receive Majority Support? Hunton Andrews Kurth
- 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 – BlackRock’s Primer
- Exempt Proxy Solicitations. Those don’t get enough use.
- Sustainalytics – Company ESG Profiles
- VotePal.com – They’ve proven anyone can run a proxy contest. How about you?
- Yahoo! Finance – Check the profile page of companies to find ISS Governance QualityScores
Shareowner Action: Change the World by Changing the Rules
Want to change SEC rules or procedures? Yes, you can petition the Commission. 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.
Shareowner Action: Networking
Other countries like Australia (Australian Shareholders Association) and the UK (UKSA and ShareSoc) have shareholder associations aimed at facilitating shareholder democracy. The US does not. Of course, you can always contact me to get involved. Three of us file a large proportion of shareholder proposals in the US.
There are some tools coming online. Today, social media drives public opinion, and changes it daily. Companies that fail to engage often regret it, just as many regret not engaging with activist investors. Most are familiar with Facebook, YouTube, WhatsApp, Messenger, WeChat, Instagram, Tumblr, Google, Twitter and other general-purpose social media sites. Newer social media sites and applications are being developed to generate public pressure around specific corporate accountability issues. Disclosure of proxy votes in real-time would help ground those developing opinions around factual information. A few examples are as follows:
As You Sow works directly “with corporate executives to collaboratively develop business policies and practices that reduce risk, benefit brand reputation, and increase the bottom line, while bringing positive environmental and social change.” They file proxy proposals, provide free online tools to screen mutual funds on specific ESG issues, and issue reports (CEO Pay, Proxy Preview, Proxy Voting Guidelines).
The Center for Political Accountability (CPA) leads efforts for corporate political disclosure and accountability and publishes the annual CPA-Zicklin Index, benchmarking companies. CPA’s Track Your Company database includes undisclosed company election-related spending and profiles. Collision Course examines the heightened risks companies face.
Change.org claims nearly 200 million users in 18 countries. Petition led campaigns targeted and changed Massage Envy (sexual assault issues), Walmart (banning dangerous paint strippers), and Starbucks (recycling), among others.
The Gender Diversity Exchange exposes “whether companies’ intentions match their outcomes to reward those that do well, encourage other companies to do better, and share their results.” The database includes information on each company’s directors, diversity policy, quantitative targets, policy implementation, women in the C-suite, percent of women in management and trends.
ICCR (Interfaith Center on Corporate Responsibility) pioneered the use of shareholder advocacy to press companies on environmental, social, and governance issues. Their coalition of over 300 global institutional investors currently represents more than $500 billion in managed assets. Read about the engagement process.
Just Capital surveys thousands of Americans to identify issues most important in defining a “more just economy.” Employees are gaining on shareholders as the top priority for Main Street at companies. An increased number also believe CEOs should take a stand on important social issues and that acting together can change corporate behavior. About 76% said they would take a job at a more just company, even if it paid 20% less.
Say.com provides a framework for communications between companies and shareholders for many uses. Unlike SEC Rule 14a-8 shareholder proposals, Say is not limited as to what questions shareholders can pose to companies.
Shareholder Rights Group, an association of investors formed to defend share owners’ rights to engage with public companies on governance and long-term value creation.
SumOfUs, claims “15,096,345 people stopping big corporations from behaving badly.” Accomplishments include getting the European Union to ban ”Bayer’s bee-killing pesticides” and McDonalds to reduce plastic waste.
Verity Platforms, creates tools to manage and facilitate collective engagements.
YourStake.org also facilitates the ability of individual shareholders to have their voices heard. Users create an “Ask” on any issue for public companies and funds. Once an Ask receives substantial support, a “Champion,” with a proven track record on social and environmental issues, is appointed to negotiate the Ask. Champions include Walden Asset Management and Zevin Asset Management.
Others? Please let me know.