A shareholder proposal gives investors a figurative seat at the boardroom table. If you own stock in a large, publicly-traded company, chances are it has weathered at least one shareholder proposal in recent years.
Investors have used this powerful tool to advocate for changes they believe will enhance shareholder value, such as limiting CEO pay or improving product safety. And in some cases, investors have successfully changed corporate practices using shareholder proposals.
Shareholder proposal basics
In addition to voting on new board members, shareholders can support or reject proposals to change how companies operate. Usually related to environmental, social and governance (ESG) issues, these shareholder proposals may send such strong signals that corporate management adopts them, though they are technically non-binding.
Once a shareholder proposal has been filed with the Securities and Exchange Commission, four outcomes are possible.
- Withdrawal: Shareholder resolutions are sometimes withdrawn before they go to a vote because company management and investors have reached an agreement on the issue at hand. Investors and companies alike prefer this outcome for its efficiency and economy.
- Pass: Resolutions that go to a vote are said to pass if they receive over 50% of votes in favor. The company does not have to follow the request made by shareholders, but the higher the vote, the harder it is for companies to justify ignoring the will of shareholders.
- Fail: When less than 50% of shareholder votes are in favor of the proposal, it is said to fail.
- No action: Finally, some resolutions are disallowed by the Securities and Exchange Commission for being frivolous or related to standard business practices. Companies may also ask the SEC for a "no-action" finding when the shareholder resolution involves new issues that lack precedence.
Shareholder resolutions have a long history of pushing for greater corporate disclosure or policies to reduce investor risk. Shareholder proposals often address regulatory gaps or long-term risks or opportunities.
How to file a shareholder resolution
You don't have to be a power broker to file a resolution; you simply have to hold $2,000 worth of stock for at least three years. Resolutions must be no more than 500 words and hew to guidelines set by the Securities and Exchange Commission. Proponents must also attend the company's annual meeting, or send a representative in their place.
Also, institutional investors with which you're affiliated — say, a religious organization, your alma mater or a pension fund — may already be working on your issue or may be willing to take it up. Some organizations that follow best practices for filing shareholder resolutions include the Interfaith Center on Corporate Responsibility, Ceres and As You Sow. You may also co-file with an organization or individual who does most of the work, but includes your name and input on the proposal.
You can hold your mutual fund accountable, too. Funds must disclose on their web sites how they vote proxies. Don't like what you see? Call your fund company and say so.
Ellen writes on environmental, social and governance (ESG) investing and sustainability. She was an ESG manager and analyst at Calvert Investments for 15 years, focusing on climate change and consumer staples. She served on the sustainability councils of several Fortune 500 companies, led corporate engagements, and filed shareholder proposals.
Prior to joining Calvert, Ellen was a program officer for Winrock International, managing loans to alternative energy projects in Latin America. She earned a master’s from University of California in international relations and Latin America. She is fluent in Spanish and Portuguese.
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