Every time I teach the shareholder proposal rule (Securities Exchange Act Rule 14a-8) in Business Associations, I always wonder the same thing: Why don't conservative activists use the rule more often? Under this rule, a shareholder who has owned at least 1% or $2,000 (whichever is less) of the issuer's voting securities for at least one year may submit to the issuer a proposal to be included on the company's proxy statement and voted on at the company's annual meeting of the shareholders.
In recent years, the shareholder proposal rule has been widely used by institutional investors to press corporate governance matters. For example, proposals in recent years have included such topics as repealing takeover defenses, confidential proxy voting, regulating executive compensation, and the like. Traditionally, however, shareholder proposals were the tool of choice of social activists. Prior to the end of apartheid in South Africa, for example, many proposals favored divestment from South Africa. Shareholders have also used Rule 14a-8 to urge tobacco companies to stop making cigarettes and utilities to get out of the nuclear power business. Many companies have received shareholder proposals relating to non-discrimination on the basis of sexual orientation. And so on.
Yet, we rarely - if ever - see conservative activists using the proposal rule. I find this most curious. Granted, libertarian and pro-business activists might avoid the rule, but what about social activists? Why aren't the Pat Robertsons and James Dobsons of the world using Rule 14a-8 as a cheap way of spreading their views of corporate social responsibility?
A reader who pretty clearly knows what he's talking about wrote in with these thoughts:
It seems that conservatives have attempted to push a limited agenda through the 14a-8 process. For instance, here is a list of some "conservative"proposals that have been submitted:
- prohibit providing support to abortion providers;
- cease supporting NPR;
- charitable contributions to a particular organization or cause;
- prohibit advertising on certain TV shows or with stations that run objectionable material; and
- prohibit the company from giving same sex benefits.
In almost all of these cases, these types of proposals were excluded under 14a-8(i)(7) [as an ordinary business matter]. Which brings me to your point. I think that most proposals pushing a conservative agenda would deal with ordinary business matters. Most significant social policy proposals (cigarettes, the environment, slave labor, etc) tend to be liberal positions. Also, this may be a stereotype, but most conservatives are more interested in making money than the particulars of how the company does it. Most conservatives do not feel strongly enough about how Exxon drills for oil or how much GE pays its senior executives as long as shareholder value is increasing. Therefore, most positions that would be advocated would probably fall into (i)(7).
Earlier you asked about Abercrombie and Fitch's advertising and the use of 14a-8 to limit their advertising. A shareholder proposal seeking to stop an ad campaign would probably fall into the 14a-8(i)(7) - method of advertising line of no-action letters. Additionally, it helps to understand the people submitting proposals. Most proposals are submitted by unions, nuns and John Chevedden/Evelyn Davis types. The average shareholder (liberal or conservative) does not submit shareholder proposals and conservatives do not organize (like the sisters or unions) to push for their vision. Maybe this will change in the future, but I doubt it. That's my brief take on the situation.
