Examining the zombie ‘shareholder proposals’ debate at the SEC Roundtable

The SEC Proxy Process Roundtable panel on ‘shareholder proposals’ back in November – perhaps because it had representatives from both the US Chamber of Commerce and the Business Roundtable – was definitely the most contentious of the three; the first being on proxy plumbing, the third on proxy advisors. You can read an overview of the Roundtables here
It was probably the Roundtable that SEC commissioner Elad Roisman was referring to when he called for “fact-based submissions”. Claims made by critics of the shareholder proposal process often focus on so-called ‘zombie’ proposals – those alleged repeat proposals that get minimum vote support and are refiled every year. This is what is dubbed ‘the politicization’ of E&S proposals.
It is important, contentious corporate governance terrain and worth a more detailed examination. And, in response to Roisman’s request, here is some actual data!
Neither the Chamber, nor any number of opponents of the current system, mentions that voting support has hit record levels, and that more shareholder proposals were withdrawn this year than were actually voted on; a first.
Not every proposal was withdrawn as a result of a company agreeing to the proponent’s request, but most were, according to research from Heidi Welsh, founding executive director of the Sustainable Investments Institute (Si2), which analyses and writes about corporate responsibility issues, which was submitted to the SEC as a comment letter in the days running up to the panel. Welsh notes that some of the “increase in withdrawals came at least in part because of some strategic retreats by proponents who judged they would lose company challenges and withdrew before any SEC response to company arguments”. But most were due to deals being struck.The hard facts, according to Welsh, are: “Withdrawn proposals (211) exceeded the number voted on (a projected 178) for the first time ever.” That’s a wide margin. In addition, despite fears over SLB14i, omissions fell to 66 from 77 last year. The number of withdrawals also brought the number of proposals being voted on down substantially, from 237 last year, according to Welsh’s figures. It is the lowest of the decade, she noted in S12’s SEC submission
Welsh’s figures get very granular on particular topics. Withdrawals rose for gender pay equity proposals, 26 compared to 16 last year. Some 17 equal employment opportunity reporting proposals were withdrawn, compared to seven in 2017. Even some political activity proposals were withdrawn, 22 this year, four more than last year. Environmental and governance withdrawals showed a less dramatic change, though for carbon asset risk reporting, the number of withdrawals almost doubled, to 16. There were 28 withdrawals on board diversity, and 19 on sustainability reporting.
And average support for those proposals going to vote is at an all-time high of 25.1%, according to Welsh. “In the last three years, 25 resolutions have earned majority support. Support is highest for climate change resolutions and sustainability reports, as well as disclosure of political activity and diversity data,” she said. No wonder the Chamber and the BRT want the system challenged.
And now to what the Chamber calls ‘zombie’ proposals. A Chamber paper on them says: “Over the last two decades, a large number of proposals have been submitted three or more times at companies without garnering majority support – thus becoming ‘zombie’ proposals that stick around long after shareholders
have decided they have no merit.” It argues that a ‘6%, 15%, 30% resubmission’ – i.e. a proposal must receive those levels of support respectively in successive years for them to be allowed to be resubmitted – will get rid of these ‘zombie’ proposals. The current thresholds are 3% – 6% – 10%. But the paper fails, despite a large number of questionable statistics, to show that the system is burdened by shareholder proposals receiving support in the teens or 20s and being resubmitted. This message was repeated on the roundtable panel by Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness (CCMC).
Also on the panel was Michael Garland, Assistant Comptroller for Corporate Governance and Responsible Investment at the New York City funds, who went on to speak to the Senate banking committee on the same issue https://www.responsible-investor.com/home/article/senate_proxy/. Garland told a long story about proposals from the 1990s, which sought to prevent companies from exercising sexual discrimination and/or discrimination against sexual orientation. At the beginning of the campaign, these received 10% support, last year one received 50% support. “Had we not been able to resubmit them,” he said, “this would never have been achieved.” Most shareholders and issuers take time to catch up, thus the need for resubmission.
Jonas Kron, Senior Vice President and Director of Shareholder Advocacy, at Trillium Asset Management, questioned the whole existence of zombie proposals.Two-thirds of shareholder proposals, he said, don’t even come back for a second year, even if they have support in the teens, and only four or five of those with support in the 20s survive a little longer. Like Garland, he remembers one LGBTQ proposal that lived on for a decade and then passed. And noted a gender and racial discrimination proposal at Home Depot that again lasted for a decade, but last year got 48% of the vote.
Rees noted that it was already difficulty to achieve resubmission at companies with dual class shares, despite significant levels of public shareholder support, though that is a problem that could be solved by having different rules for them. Aeisha Mastagni, Investment Officer within the Corporate Governance Unit at CalSTRS, also on the panel, said: “The facts don’t carry the case that there are all of these low support proposals that hang around forever”. Ning Chiu, Counsel in the Capital Markets Group of law firm Davis Polk said she was aware of a proposal that had been around for 17 years. However, a single zombie is hardly the night of the living dead. It seems that the Chamber is trying to solve a problem that does not exist.

Link to SEC Panels video archives