SRI groups hit back at SEC’s Gallagher over governance comments

SEC Commissioner objects to “activist investors and corporate gadflies”

US socially responsible investment groups, asset management firm Boston Common and advocacy group As You Sow, have hit back at a top Securities and Exchange Commission (SEC) official for his criticism about shareholder proposals at US firms.
Boston Common, which runs around $2bn (€1.4bn), has responded to the remarks by SEC Commissioner Daniel Gallagher, including where he described a proposal from Boston Common itself as “dubious.”
In a recent speech, Daniel Gallagher, one of the SEC’s five commissioners, called for the stock exchange regulator to tighten its rules to prevent “activist investors and corporate gadflies from hijacking the shareholder proposal system.”
“The vast majority of proposals are brought by individuals or institutions with idiosyncratic and often political agendas that are unrelated to, or in conflict with, the interests of other shareholders,” Gallagher told a conference in New Orleans in March. He cited Boston Common’s proposal at PNC Financial that asks the Pittsburgh-based bank to disclose any regulatory risks associated with its lending to the coal industry as one example. According to him, the proposal is dubious and does not constitute a significant policy issue.
Gallagher also took aim at the new Sustainability Accounting Standards Board (SASB); all told, his remarks caused dismay within the corporate governance community.
The SEC cleared the Boston Common proposal to appear on the ballot at PNC’s annual general meeting (AGM). However, Gallagher said such decisions should not be left to staff but to SEC commissioners.Gallagher also called the $2,000 ownership threshold for making shareholder proposals “absurdly low” and said he favoured limiting the amount of times proposals could be resubmitted to three.
In response, Boston Common’s Managing Director Lauren Compere has written to Gallagher to take up the issue.
“Certain industries such as coal, in which PNC is highly involved, are disproportionately at risk of being subject to climate-related regulatory change. Lenders and investors expose themselves to systemic tail risks that may not be properly discounted in historically-based loan loss or valuation models,” Compere wrote.
PNC’s disclosure of these risks are, compared such peers as Wells Fargo, Credit Suisse and HSBC, “insufficient, piecemeal and anecdotal,” Compere wrote, adding that since the bank refused to engage with her firm on the issue, the asset manager decided on a shareholder proposal.
Moreover, Compere said that as its proposal gained 22.8% of the shareholder vote at the bank’s AGM last year, it was anything but idiosyncratic. On the contrary, “we believe that a broad spectrum of investors are aware of and concerned about the potential long-term implications of climate risk in their portfolios,” she wrote. PNC will hold its AGM on April 22.

Meanwhile, Andrew Behar, CEO at As You Sow, noted that Gallagher’s speech followed an earlier op-ed by the Wall Street Journal ’s Edward Knight suggesting similar restrictions. “It appears that there is a coordinated rhetoric storm gathering to severely limit shareholders’ right to free-speech,” Behar said.