The Securities and Exchange Commission (SEC) has announced new rules that would severely limit the ability of investors to file shareholder resolutions. The SEC proposals are a particular threat to proposals addressing environmental and social issues. On January 28, the Unitarian Universalist Association (UUA) submitted an official comment letter to the SEC stating, “We are strongly opposed to the proposed rules that would substantially raise the filing and resubmission thresholds and curb the ability of proxy advisors to offer independent advice to shareholders.” The letter is available here.
These changes have long been sought by corporations and their trade associations, such as the U.S. Chamber of Commerce and the National Association of Manufacturers. But now these changes are close to being implemented. Investors almost universally oppose these changes, yet three of the five SEC Commissioners seem poised to force the new rules through. However, the SEC’s mission, according to its website, is “to protect investors.” Nowhere does it say its purpose is to make life easier for corporate managers. Over 14,000 comments on the rules have been submitted to the SEC, most of them opposing the changes.[1]
The SEC’s proposed rulemaking would raise the thresholds for the filing and resubmission of shareholder proposals along with other changes in the process. According to the Investor Rights Forum, “For over half a century, the shareholder proposal process has aided investors of all sizes to convey key concerns to company directors and managers as well as fellow shareholders. The shareholder proposal process often sheds light on issues neglected by boards, leading to better-considered strategic decisions and more transparency.”
Investors have not sought these changes are not in support of them. One might understand otherwise from Chairman Jay Clayton’s statement announcing the proposal. In it he said that he was influenced by letters from ordinary investors, saying, “Some of the letters that struck me the most came from long-term Main Street investors, including an Army veteran and a Marine veteran, a police officer, a retired teacher, a public servant, a single Mom, a couple of retirees who saved for retirement, all of whom expressed concerns about the current proxy process.”[2] The only problem is that, according to Bloomberg, these letters turned out to be orchestrated by industry front groups funded in part by the National Association of Manufacturers. The article says, “But a close look at the seven letters Clayton highlighted, and about two dozen others submitted to the SEC by supposedly regular people, shows they are the product of a misleading – and laughably clumsy – public relations campaign by corporate interests.”[3]
The UUA has also signed on to comment letters from several partner investor organizations including the Principles for Responsible Investment and Ceres. In addition, the Interfaith Center on Corporate Responsibility submitted a letter on behalf of its members.
[1] https://www.investorrightsforum.com/new-blog-1/investors-overwhelmingly-oppose-secs-move-to-restrict-shareholder-rights
[2] https://www.sec.gov/news/public-statement/statement-clayton-2019-11-05-open-meeting
[3] https://www.bloomberg.com/news/articles/2019-11-19/sec-chairman-cites-fishy-letters-in-support-of-policy-change