Experts from the Social Investment Forum (SIF) and Interfaith Center on Corporate Responsibility (ICCR) gave an unusual warning on Tuesday saying that any efforts by the Security and Exchange Commission (SEC) to limit investors’ rights to participate in shareholder resolution processes will be met by fierce opposition.
The SEC proposed putting through similar legislation in 1997 and was defeated by a coalition of over 300 concerned organizations.
The SEC is having an Open Commission meeting on Wednesday, July 25th at which it has been rumored that it will propose the same sort of limitations on investors’ rights as it did a decade ago.
Investors are the owners of a corporation that offers stock for purchase. Their owning of shares gives them certain rights with regard to the operational decisions of that corporation. Corporate leaders are mandated to act in the best interests of their corporation’s shareholders whenever a decision about company dealings is made. This mandate includes taking action to make the corporation more profitable whenever possible as well as behaving socially in ways acceptable to the shareholders.
The limitations expected to be proposed by the SEC would have the effect of restricting shareholders’ rights and powers in approving or disapproving of proposed actions to be taken by a corporation’s board of directors.
Specifically, there would be restrictions on “advisory” resolutions, which have accounted for nearly all shareholder resolutions reached over the last 35 years.
The Social Investment Forum has previously found that there would have been devastating effects to investors and society if the SEC’s proposed limitations in 1997 had been put into action.
Shareholder resubmissions on issues of grievance or contention would have failed four times more often. Corporate governance resolutions, such as dictates on executives’ compensation and other related matters of great importance to shareholders, would have failed six times as often. Corporate social responsibility resolutions, which address shareholder concerns on matters like environmental liabilities, race and gender issues, drug use, and company involvement with sweatshop labor, would have been effectively obliterated, among many other deleterious effects, according to the Forum.
The SIF has previously sided with the SEC to pass legislation regarding meaningful disclosure of proxy voting by mutual funds and investment advisors in 2003. That legislation was staunchly opposed by the investment industry.
“The right of investors to file resolutions and seek investor support when necessary should not be diminished in any way. We are serving notice to the SEC and others today that we will strongly oppose any move to take away shareholder rights to move advisory resolutions. We are concerned about some alarming ideas raised at the recent SEC roundtable meetings regarding shareholder resolutions,” said SIF Chair and Senior Vice-President of Walden Asset Management Tim Smith.
“These resolutions are an important part of the exercise of our fiduciary duty as owners of companies. We can point to many examples where these resolutions have resulted in changes in company policies and practices that were beneficial to shareholder interests. Extensive documentation has shown how shareholder resolutions lead to constructive dialogue between owners and management,” added ICCR Board of Governors Member John Wilson.
Wilson is also the director of Socially Responsible Investing for Christian Brothers Investment Services, Inc.
Social Investment Forum, Washington, D.C. (PR Newswire), “Groups to SEC: Hands Off Shareholder Resolution Process for Investors”
Social Investment Forum SEC Shareholder Rights Study