In the United States, a shareholder has two basic ways of getting an issue before a meeting of the shareholders of one of his portfolio companies. The shareholder can go to the meeting, make a motion from the floor and hope (or plan) for a second. In which event, the chair of the meeting typically will use one of the discretionary powers granted by SEC Rule 14a-4(c) to vote all of the shares represented at the meeting by proxies against the motion. Since the vast majority of shares are voted by proxy, the floor motion is sure to fail.
Alternatively, the shareholder can use SEC Rule 14a-8 to put a proposal on the company's proxy statement. There are significant limitations on the types of proposals that can be made and which shareholders are eligible to use the rule, however.
Frans Overkleeft blogs at The Defining Tension that:
... employing the 14a-8 mechanism doesn't get activists very far: because the notion of 'board supremacy' is firmly embedded in virtually all of the U.S. states' corporate law, it is generally recognized that such proposals are of little practical relevance and even if adopted would not prompt the board into action. In the U.S., a shareholder activist will typically have to seize control or at least make a credible threat to do so before any of his desired actions will indeed be taken. Thus, shareholder proposals gather little attention in the U.S. and directors of U.S. listed companies will generally not lose a lot of sleep over them.
The situation in The Netherlands, however, is quite different. Basically, a shareholder - provided that he meets the share ownerhip threshold and that all formalities have been duly observed - pursuant to the statutory agenda access right introduced in 2004 may request any item to be put on the agenda. These items can be discussed, but can also be put to a shareholder vote. At the moment, there is no real substantive check as to which of such items may be voted on. Consequently, these items may also include issues which normally fall within the scope of the board's authority, such as proposals regarding the strategy of the company or proposals relating to a possible entire- or partial sale of the business. Sometimes, these proposals can be framed as outright instructions from the shareholders to management. Even though it is generally held that such resolutions adopted by the general meeting of shareholders would not be considered binding vis-à-vis management, such resolution may still exert a significant amount of pressure on management.
The differences between US and Netherlands law may not be that great in practice. Although US shareholders generally cannot phrase their 14a-8 proposals as "instructions," but rather must phrase them as recommendations, that difference appears to be mere semantics if the Dutch "instructions" are not binding on management. Conversely, nonbinding shareholder proposals that receive a majority vote in their favor are increasingly influential in US companies. One recent study found that:
The frequency of implementation [of non-binding, majority-vote (MV) shareholder proposals] has almost doubled after 2002, reaching more than 40%. ... Outside directors implementing MV shareholder proposals experience a one-fifth reduction in the likelihood of losing their board seat and in the likelihood of losing other directorships.
Thus, resolutions are becoming more important as a form of effective shareholder activism. Of course, given my negative views on shareholder activism, I'm not at all persuaded this is a positive trend. On this much, I thus agree with Overkleeft's conclusion:
Whatever direction we may choose [with respect to increasing or decreasing shareholder power], ... we need to make sure that it is a well-informed and sensible decision. Let’s start by putting all relevant issues in the proper context and by analyzing the playing field of shareholder influence in listed companies in its entirety instead of getting lost in details.
