Congress takes aim at shareholder rights

Frank Sherman, Associate Director Seventh Generation Interfaith

Many of the laws and regulations protecting the environment, consumer and worker rights, immigrants and minorities have been under attack of late. Now Congress is going after investor rights that have benefited investors, companies and society as a whole for nearly 80 years. Proposed legislation would prevent most investors from being able to file shareholder proposals with companies on key issues they want further action on, such as board governance matters, corporate policies or emerging risks like climate change. The shareholder proposal process is a critical tool in Seventh Generation Interfaith members’ ability to influence corporate behavior.

The Business Roundtable and the U.S. Chamber of Commerce have been lobbying for these changes for years. Among other changes, the minimum stock holdings would be increased from $2,000 in shares for one year to 1 percent of the company’s outstanding stock for three years in order to file resolutions. In effect, even the nation’s largest institutional investors, including the nation’s largest public pension funds, would not be able to file shareholder resolutions with companies.“The shareholder proposal language in the bill is clearly an overreach,” said Jonas Kron, Senior Vice President, Trillium Asset Management. “For example, raising the ownership requirement to 1% would leave only 11 investors with enough shares to file shareholder proposals at Wells Fargo. None of those investors have ever filed a shareholder proposal. In the mean time, smaller, but no less important, institutional investors in Wells Fargo have filed strongly supported proposals on a range of very important governance and management issues that should be raised with Wells Fargo management and directors.”

The amendment to the SEC rules, part of a larger bill (the Financial Choice Act, aimed at replacing the Dodd-Frank Act, has been proposed by House Financial Services Chairman Jeb Hensarling (R-Texas).  A hearing on the bill is scheduled for Wednesday, April 26.

Many of the country’s largest investors are registering strong opposition to the legislation.  A recent report published by Ceres in collaboration with ICCR and US SIF: The Forum for Sustainable and Responsible Investment, outlines numerous benefits investors have seen from the shareholder proxy tool, including inclusion of more independent board directors, stronger disclosure on political spending, widespread adoption of international human rights principles and wide-ranging actions to mitigate climate change risks. Last year, investors filed about 1,000 shareholder proposals with companies, including about 500 focused on corporate governance issues and more than 400 focused on environmental and social issues.