investing

Shareholders Shake Things Up This Proxy Season

Hot-button issues this year include climate change and board diversity.

This proxy season, big mutual fund companies and investors alike will get a chance to make their voices heard by corporate executives on key issues.

Shareholders will likely file 800 to 900 proposals—also called resolutions—this year with the goal of bringing a variety of initiatives to a vote at annual shareholder meetings. Top issues for 2019 proposals include climate change, corporate political contributions and gender diversity on executive boards. Although management isn’t obligated to act after the shareholders vote on such proposals, a majority vote in favor of a resolution sends a powerful message that executives often heed. Last year, for instance, a 69% vote in favor of disclosures on firearm safety at gunmaker Sturm Ruger prompted the firm to follow suit. In 2017, ExxonMobil agreed to produce reports on climate change after 62% of shareholders voted for the proposal.

Those resolutions were noteworthy not only because of the results but also because of who voted in favor of them: major mutual fund providers. Until 2017, firms such as Vanguard, BlackRock and State Street (which collectively manage about $14 trillion in investor assets) typically either voted their proxies in favor of executives or stayed above the fray entirely. “Mutual fund companies are recognizing that issues such as climate change represent risks that affect these companies’ bottom lines,” says Heidi Welsh, executive director of the Sustainable Investments Institute, an investing research firm.

Still, she expects mutual fund firms to stay away from more politicized issues, such as immigration policy and corporate political spending. Mutual fund voting has boosted support for environmental and sustainability-focused shareholder resolutions. The average vote in favor of such proposals reached a record-high 24% in 2018, up from 15% a decade earlier.

Companies must also consider another important shareholder group: their own employees. Once a perk reserved for executives, stock-based compensation is increasingly making its way to the rank and file, especially at tech firms. Shareholding employees at Amazon submitted a proposal in December asking execs to take action on climate change. Last year, Alphabet employees joined a proposal that would have linked executive pay to diversity initiatives. Employees who are also shareholders have a better chance of being heard on issues that are important to them, says Welsh.

Last year, shareholders withdrew about 30% of all proposals they filed. Oddly enough, that indicates a win for shareholders. If a resolution is withdrawn before it can come to a vote, it’s typically a sign that management has agreed to take action on the proposed initiative.

Changing standards. The bar for filing a shareholder resolution is low. To qualify, the Securities and Exchange Commission requires investors to have held $2,000 worth of company stock for a year. But if you want to file, read the rules first (see SEC Staff Legal Bulletin No. 14I). Companies often petition the SEC to exclude proposals, and the agency can do so for a litany of reasons.

In December, SEC chairman Jay Clayton said the SEC would consider stricter rules for shareholders wishing to submit resolutions. But similar proposals have failed to gain traction in Congress, and experts say such changes aren’t likely before the 2020 presidential election.

Most Popular

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer
Coronavirus and Your Money

Where's My Stimulus Check? Use the IRS's "Get My Payment" Portal to Get an Answer

The IRS has an online tool that lets you track the status of your stimulus checks.
February 19, 2021
Want More Tax-Free Retirement Income? One Man’s Whole Life Decision
life insurance

Want More Tax-Free Retirement Income? One Man’s Whole Life Decision

Whole life insurance might not be something that’s on your retirement planning radar, but for this client, here’s how it served his need to control ta…
February 23, 2021
The Current Plan for $1,400 Checks
Coronavirus and Your Money

The Current Plan for $1,400 Checks

Here's what you need to know about the stimulus check plan currently being considered in Congress for President Biden's COVID-relief package.
February 18, 2021

Recommended

Bonds: 10 Things You Need to Know
Investing for Income

Bonds: 10 Things You Need to Know

Bonds can be more complex than stocks, but it's not hard to become a knowledgeable fixed-income investor.
July 22, 2020
2 Top-Tier T. Rowe Price Mutual Funds
mutual funds

2 Top-Tier T. Rowe Price Mutual Funds

T. Rowe Price's mutual funds typically stand out among their peers, but these two selections provide elite equity and bond exposure for this point in …
February 24, 2021
How Green Are Your Bonds?
Becoming an Investor

How Green Are Your Bonds?

Fixed-income investors can make an environmental impact.
February 23, 2021
Warren Buffett Stocks Ranked: The Berkshire Hathaway Portfolio
stocks

Warren Buffett Stocks Ranked: The Berkshire Hathaway Portfolio

The Berkshire Hathaway portfolio is a diverse set of blue chips and, increasingly, lesser-known growth bets. Here's a look at every stock picked by Wa…
February 17, 2021