The Democrats in Congress want to empower three shareholder gadflies to harass corporate boards to no useful purpose

As I reported last year, the SEC finally made some long overdue reforms that limit who can make proposals but do not change the subject matters to which proposals can be addressed:

• Amend the criteria that a shareholder must satisfy to be eligible to have a proposal included in a company’s proxy statement. A shareholder now must demonstrate continuous ownership of at least:
  
  • $2,000 of the company’s securities entitled to vote on the proposal for at least three years;
  • $15,000 of the company’s securities entitled to vote on the proposal for at least two years; or
  • $25,000 of the company’s securities entitled to vote on the proposal for at least one year.
  • Aggregation of holdings for purposes of meeting the ownership requirements will no longer be permitted.
• Modify the rule limiting the number of proposals that may be submitted for a particular company’s shareholders’ meeting (the “one-proposal rule”) to establish that a single person may not submit multiple proposals at the same shareholders’ meeting, whether the person submits a proposal as a shareholder or as a representative of a shareholder.
  • Under the existing rule, some activists tried to get around the one proposal per company limit by advancing a proposal in their own name while advancing a second proposal purportedly while acting as a representative of another shareholder. The change shuts down that loophole.
• The proponent must state in writing that it is available to meet with company management (at the latter's option) at specified times not less than 10 days or more than 30 days after the proposal is submitted.
  • This is purported to increase the likelihood of shareholder-management engagement.
• Revise the levels of shareholder support a proposal must receive to be eligible resubmit the same proposal at the same company’s future shareholders’ meetings.
  • A shareholder proposal will be excludable from a company’s proxy materials if it addresses substantially the same subject matter as a proposal, or proposals, previously included in the company’s proxy materials within the preceding five calendar years if the most recent vote occurred within the preceding three calendar years and the most recent vote was:
    • Less than 5 percent of the votes cast if previously voted on once;
    • Less than 15 percent of the votes cast if previously voted on twice; or
    • Less than 25 percent of the votes cast if previously voted on three or more times.

Predictably, these rather modest changes produced ferocious complaints from activist shareholders and their allies in both the academy and politics.

Now Bloomberg reports that the new chair of the Senate Banking Committee--far-left Senator Sherrod Brown--wants to repeal those common sense rules. 

This is absurd. As I documented last year:

First, the previous $2,000 limit was adopted in 1998 and has never been adjusted for inflation:

Under the new rule, as long as the shareholder is a long-term investor, you actually need a smaller investment—in real dollars—than you did in 1998.

In addition, the thresholds are set so low that owners of minuscule percentage of a company's stock get to force a vote on their pet proposal:

If Senator Brown did any investigation he would discover--although he probably would never admit it--that the retail investors who do use the shareholder proposal are mainly just three longstanding gadflies who have abused the system for years (charts from Proxy Monitor):

In fact, when you break it down, basically what Senator Brown is doing here is protecting one person:

John Chevedden is an interesting fellow. In any case, however, add in his less vigorous compatriots, Ken Steiner and James McRitchie, and the three of them "sponsored 38% of all shareholder proposals."

Why is Senator Brown so bound and determined to ensure that these three hobbyists get to keep being gadflies with no skin in the game? 

 

If Senator Brown did any investigation he would discover--although he probably would never admit it--that the retail investors who do use the shareholder proposal are mainly just three longstanding gadflies who have abused the system for years (charts from Proxy Monitor):

In fact, when you break it down, basically what Senator Brown is doing here is protecting one person:

John Chevedden is an interesting fellow. In any case, however, add in his less vigorous compatriots, Ken Steiner and James McRitchie, and the three of them "sponsored 38% of all shareholder proposals."

Why is Senator Brown so bound and determined to ensure that these three hobbyists get to keep being gadflies with no skin in the game?