from USSIF's Shareholder Rights Rulemaking Toolkit:

Shareholder Proposals

• Rule 14a-8 is not broken, so why is the SEC trying to fix it? Shareholder proposals are a vitally important, market-based mechanism for investors to communicate with boards, management and other shareholders and stakeholders on important corporate governance, risk and policy issues affecting companies.

• On average, only 13 percent of Russell 3000 companies received a shareholder proposal in any one year between 2004 and 2017. In other words, the average Russell 3000 company can expect to receive a proposal once every 7.7 years.

• Holding a diversified portfolio may conflict with higher filing thresholds. The current threshold requires a shareholder to maintain at least $2,000 in shareholdings in order to be able to file proposals. This places the opportunity for filing of shareholder proposals within reach of an individual with average holdings. However, increasing the amount of shares to be held would conflict with the ability of Main Street shareholders to maintain a diversified portfolio by requiring larger holdings in order to bring a proposal forward.

• The new submission thresholds will make it significantly more difficult for investors to get critical issues on the meeting agendas of publicly traded companies. Time and again, individual investors, asset managers and institutional owners have raised an array of concerns at American companies to improve companies and make them better investments over the longer term. They have encouraged companies to diversify their boards of directors, to align executive compensation incentives with the long-term good of the company, to manage human rights in the supply chain and to reduce their greenhouse gas emissions.

• Many proposals that garnered substantial support upon re-filing would have been excluded if the second and third-year thresholds were raised to 15% and 25%. Just among governance proposals from 2011 to 2018 this includes: six for an independent board chair (UMB Financial, American Express, AutoNation, Chevron, Wendy's and KeyCorp), twelve proposals seeking disclosure of political contributions or lobbying payments (Wynn Resorts, Allstate, Republic Services, Nike, FedEx, Express Scripts, Charles Schwab, IBM, Citigroup, Verizon, UnitedHealth Group and Devon Energy), three proposals urging One Share One Vote (Alphabet, United Parcel Service and Telephone and Data Systems). Shareholders who were prepared to support these proposals upon the re-filing would have been denied their rights to do so if re-filing thresholds had been increased, especially if third-year resubmission thresholds exceeded twenty percent.

• Additional data: The proposed rules would also exclude up to 35% of independent Chair shareholder proposals, 40% of proxy access proposals, 50% of board diversity proposals, and nearly 65% of report on climate change proposals, and 40% of political spending disclosure proposals. (https://www.sec.gov/news/statements/2019/jackson-data-appendix-on-proposals-to-restrict-shareholder-voting.pdf)

• Poorly performing proposals are already screened out by the current thresholds. In 2019 shareholders consistently provided less than 3% support to proposals seeking an ideological litmus test for board members at Discovery, Starbucks, Apple, Twitter and Amazon. Shareholders at Exelon similarly rejected a proposal to “burn more coal” with only 1.6 percent support. Investors also rejected a request to report on how Gilead Sciences spent its share of the federal tax cut, a proposal that earned only 2.2%. These proposals would be barred from resubmission.

• Shareholder proposals raise issues before they erode shareholder value. This process is one of the most visible and verifiable ways in which investors can practice responsible ownership. A key element is to allow shareholders to raise issues before a crisis that erodes shareholder value arises.

• A substantial majority of large companies have sexual orientation nondiscrimination policies largely as a result of hundreds of shareholder proposals. A 2016 analysis by Credit Suisse found that 270 companies that provided inclusive LGBTQ work environments outperformed global stock markets by 3 percent annually for the previous 6 years.

• Significant changes to thresholds will lead to unintended consequences. Changes to ownership and resubmission thresholds will have unintended consequences that are costly and inefficient. Alternatives to shareholder proposals include voting against directors, lawsuits, books and records requests and requests for additional regulations. Each of these is more onerous and adversarial than including a 500-word proposal in the proxy statement for the consideration of shareholders.

• The job of the SEC is to protect investors. Making it more difficult for investors to file resolutions—and in some cases impossible to resubmit resolutions—doesn’t protect investors, and in the long run, it will not help companies either.

Proxy Advisors

• The proxy advisor proposal will give corporate management substantial editorial influence over reports and recommendations on their companies. Proxy advisory firms help investors meet their fiduciary responsibilities by providing independent, efficient and cost-effective research services to inform their proxy voting decisions. It is inappropriate to give companies the automatic right to preview proxy advisory firm reports and to lobby the authors to change recommendations.

• Claims that proxy advisory firms wield excessive influence over how institutional investors vote and that institutional investors vote in lockstep with proxy advisor recommendations are not supported by the facts. While ISS recommended voting against say-on-pay proposals at 12.3% of Russell 3000 companies in 2018, just 2.4% of those companies received less than majority shareholder support on their say-on-pay proposals. In 2019, Glass Lewis recommended in favor of 89% of directors and 84% of say-on-pay proposals, while directors received average support of 96% and say-on-pay proposals garnered average support of 93%. These examples demonstrate that investors don’t blindly follow proxy advisor recommendations. In fact, according to ISS, 85% of its top 100 clients use a custom voting policy.