Julie Gorte and Tim Smith offer a Harvard corporate law blog post claiming three things about SEC Rule 14a-8:
- Shareholder resolutions usually focus on material issues aimed at improving corporate financial performance.
- Shareholder proposals under the current SEC rules are not burdensome, and in the vast majority of cases, are not even binding.
- The voice of shareholders is valuable both to companies and to investors alike.
All three are demonstrably false. (Unless otherwise indicated, the following comes from Proxy Monitor.)
- In 2016, 51% of all shareholder proposals related to social policy rather than corporate governance or executive compensation. Over the previous decade, almost 40% related to social policy rather than economic issues. As the Business Roundtable observed, "Most social, environmental and political proposals, such as those related to corporate political spending, climate change and human rights, have only an attenuated connection to shareholder value and are generally not issues material to a company’s business."
- If proposals are not binding, they serve only as a way for shareholders to communicate with the company. They could so at a lot less expense by sending an email. In contrast, the shareholder proposal rule is costing companies and society a large fortune. Again, to quote the Business Roundtable, "also costing companies tens of millions of dollars and countless hours of management time through the cost of negotiating with proponents, seeking SEC no-action relief to exclude proposals from proxy statements, preparing opposition statements and other activities that are diverting from creating long-term shareholder value." The NY Times reports that "One estimate puts companies’ costs at $87,000 for each proposal, or more than $90 million a year ...."
- The evidence strongly suggests that most investors do not value shareholder proposals. First, as the NY Times reports, only three investors -- John Chevedden, William Steiner, James McRitchie and their families -- account for over 70% of all proposals. It's a damned expensive system to let three aging gadflies get their jollies off. Add in the fact that almost all proposals fail to attract a majority of share votes and it becomes obvious that the vast majority of investors do not value this system.
Most investors don't care about shareholder proposals. The only ones who care are a small handful of gadflies who need to get a life and a somewhat larger group of mostly left-leaning social and political activists looking for a free soapbox to advertise their cause. Why the rest of us should be forced to subsidize them escapes me.