Shareholder advocacy leverages the power of stock ownership to promote social change. Advocates utilize dialogue, the filing of shareholder resolutions, and shareholder solicitation campaigns to raise awareness, build coalitions, exert pressure, and effectively create change in company policies and practices.
Shareholder proposals are a formal communication channel between shareholders and management. There are several hundred shareholder proposals filed every year. Proposals to be voted on are placed on the company’s Proxy Statement, and all persons and institutions that own stock in the company can vote on the issue.
There are two common types of proposals filed - governance and social. Governance proposals focus on traditional management issues such as executive compensation, board composition, shareholder rights, and voting requirements. Social proposals call for reports or policy changes on social or environmental issues that can impact a company’s bottom line such as climate change, employee discrimination, toxic products, and sustainability.
Proxy Voting: A How-To Discussion and Live Demo
Interpreting Shareholder Votes
The vast majority of shareholder proposals are non-binding, meaning the company is not required by law to comply regardless of the level of support. The majority of a company’s shares are usually dominated by company management and large financial institutions, who often vote with management. Consequently, it is extremely rare (but not impossible) to get a majority vote on a proposal. A successful resolution is one which causes company action, not which garners a majority vote.
Recognizing this, the SEC requirement for a proposal to receive enough votes to be re-filed for the following year is 3% for the first year, 6% the second year, and 10% the third year.*
In general, social proposal votes more than 10% are difficult to ignore and often result in some action by the company to address the shareholders area of concern. Votes that receive 20-30% or more have garnered strong support from mainstream institutional investors and send a clear cut single to management. Only the least responsive of companies is willing to ignore one out of every three or four of its shareholders.
* Most people are surprised to learn that the vote is actually about a proposal meeting the SEC threshold to be refilled for the following year (and that a first year proposal receiving 3.1% of the vote is considered a ‘win’ by the SEC standards). Confusion about the vote is further complicated by the fact that the SEC threshold only calculates For vs. Against votes; yet some companies report all the vote category results of For, Against, Abstain and Not Voted – thus giving a deceptively lower figure for the shareholder proposal’s actual vote.
Do Shareholder Proposals Really Make Change?
Sometimes just one issue is raised at an individual company – for example a proposal filed by As You Sow at Home Depot asked the company to phase out of selling wood from old-growth forests. The proposal got the support of 11.8% of the shareholders and shortly thereafter, the company announced it would stop selling wood from endangered forests.
Other times it may be the same issue being raised at many companies. Over the years the “Report on Political Disclosure” shareholder proposals has convinced over 75 companies to adopt disclosure and board oversight of their political spending. Shareholder proposals calling for sexual orientation non-discrimination helped convince 70% of Fortune 1000 corporations in the US (and 97% of Fortune 100 companies) to bar discrimination in employment based on sexual orientation. And over 50 companies have adopted an advisory vote on executive compensation as advocated by the “Say on Pay” proposals.
The History of Shareholder Advocacy
In the past 30 years, thousands of social resolutions filed with companies by shareholder advocates have broken new ground in fostering more progressive corporate policies. These include increased representation of women and minorities on corporate boards and in executive positions, nondiscrimination in employment, better disclosure of environmental liabilities, stopping environmentally damaging projects, getting companies to leave countries with human rights abuses, and improving the wages, benefits and working conditions of workers.
Religious institutional investors have historically been the leaders of shareholder advocacy and still dominate the field. In recent years the socially responsible investment (SRI) community, environmental and human rights organizations, pension funds and organized labor have begun utilizing this unique means of reforming corporate practices.