Paul Hodgson: What Happens to Old Shareholder Resolutions When They Die?

Should withdrawn proposals count as “wins” for shareholders?

The area of withdrawn shareholder resolutions in the US is one of the least studied and most challenging areas of shareholder activism. There are many sources of data for the number of withdrawn resolutions but most have no data depth. To help solve this problem, I contacted Heidi Welsh, co-founder of Si2, the Sustainable Investments Institute, which reputedly had a goldmine of data on this issue. Perhaps because we both keep chickens, Heidi shared with me just a small part of the database of environmental and social shareholder resolutions that Si2 has been compiling for the last five years.
This private database contains such entries as: “NYSCRF [New York State Common Retirement Fund] withdrew the proposal, citing “commitments” the company has made. The Southern Company [a US utility] had challenged the proposal at the SEC, arguing it could be excluded because a substantially similar proposal has appeared on the ballot three times in the last five years and not received over 10% of the vote (Rule 14a-8, i-12). A similar resolution received 9.9% support in 2010, missing the needed 10% threshold. No SEC decision occurred because of the withdrawal.” Now that’s what I call depth of data. And there is similar depth on well over 2,000 resolutions.
Rule 14a-8, which actually has been in the news of late because of the proxy access challenges, is the SEC regulation that governs the submission of shareholder resolutions. It is used by shareholders to get proposals on the ballot and by companies to exclude them.
The database contains information on proposals that went to a vote, including the vote counts, on proposals that were omitted (successfully challenged by a company under Rule 14a-8), and on resolutions that were withdrawn, for a number of reasons.
Heidi’s own analysis of just some of the data, for example, shows that proposals on issues that receive high levels of support are the least likely to be taken off proxy statements after company challenges and are typically the most responsive to negotiated withdrawals. For example, over the three years 2011-2013, board diversity resolutions were subject to 39 votes with an average level of support of almost 30%. A mere 4% were omitted, but over two-thirds of the total originally filed were withdrawn before the annual meeting, generally because of company commitments to implement the policy requested.

Heidi’s analysis also shows that about four out of 10 filed proposals end up getting withdrawn each year, a proportion that has stayed about the same for the last five years—up from only a quarter of filings in 2004.The Energy and Consumer Discretionary sectors received the greatest number of proposals in the five-year period 2010-2014, with more than 300 proposals each. In addition, the data shows the level of support for environmental and social shareholder proposals has increased over the last five years. It has grown from 18.2% on average in 2010 to 21.9% for nearly 200 proposals in 2014 for which results were available at the time of the analysis.
Si2 also found that resolutions at Energy companies garnered among the highest levels of support with an average vote count over 2% over the five years 2010 to 2014. As far as withdrawn proposals at Energy companies goes, it was found that the most common were coal and shale energy (fracking) resolutions, mostly to do with disclosure. Investors withdrew more than half of the proposals they filed on these subjects. Some 41% of sustainable governance resolutions were withdrawn. In contrast, 70% of political activity resolutions went to a vote and even more motions on environmental management (74%) were voted on.
Fascinatingly, the database also allows you to identify the most aggressively challenging companies, i.e. those companies with the best success records in asking the SEC to omit a shareholder resolution. JPMorgan, Pfizer, Dominion Resources and Johnson & Johnson top the list over the last five years, with 10 or more omissions in the period. JPMorgan and Dominion are also high on the list of companies with the largest number of shareholder resolutions over the last five years, and may even have led the field had they been less successful in challenging resolutions. At the top of that list is Chevron, with 29 shareholder resolutions between 2010 and 2014.
But it is the withdrawn resolutions in particular, that interested me. According to my own analysis of the data, 958 of the 2,068 resolutions were voted on between 2010 and 2014. There was no vote on 33, usually for a technical reason such as it was not presented at the meeting or there was a takeover before the AGM. Some 289 resolutions were omitted because of a successful challenge by the company through what is called a No Action letter to the SEC.

In contrast, 146 of the resolutions voted on had survived a challenge to the SEC to get on to the proxy ballot. There were 782 withdrawn resolutions in the period, including 142 in 2014 alone. Of the total, 47 were withdrawn after a challenge to the SEC usually involving some technical aspect of Rule 14a-8, such as “failure to provide proof of stock ownership.”
A further eight were withdrawn despite surviving an SEC challenge either because management acquiesced or the proponent withdrew before the SEC had made a decision, and 88 were withdrawn and the SEC subsequently did not issue a decision. Of these two last categories, a total of 12 saw company acquiescence. That leaves 639 where resolutions were withdrawn because progress was made by the shareholder in getting management to agree to some or all of the requests in the resolution. With the 12 from the other groups, that makes a total of 651 resolutions resolved without a proxy vote.
That seems like progress to me, but it is not a figure ever included in anyone’s analysis of shareholder resolution success. It is, however, a huge figure, especially when compared to the 20 E&S votes that were majority supported in the same period.
So what were these withdrawn resolutions and what happened to them? The following gives a very small selection, with brief or detailed descriptions, all taken from the latest proxy season, 2014. The first four are given in brief. First, the Unitarian Universalists withdrew a proposal on gender identity when ConocoPhilips agreed to add gender identity and expression to its nondiscrimination policy. Second, Oxfam America withdrew a request for a report on supply chain land rights after Pepsico adopted a zero tolerance policy for illegal activities in its supply chain, saying it would not allow any land displacements of legitimate landowners.

Third, Boston Common Asset Management withdrew a request for a report on lobbying after discussions with Visa; the company noted it has ended its support for the American Legislative Exchange Council, put in place greater board oversight and an annual review of its lobbying. It also will disclose memberships in any trade associations which write model legislation, boosting its disclosure. Fourth, The Sustainability Group withdrew its proposal on board diversity after Apple added language to its nominating committee charter stressing the importance of diversity in director candidate selection, and made it clear the company is seeking women and minority candidates.
The following three withdrawn proposals are discussed in greater detail.
A proposal on publishing a sustainability report at Honeywell was withdrawn by NY State Common after an agreement with the company. The resolution asked for a comprehensive sustainability report outlining the company’s short and long-term responses to ESG-related issues, including objective and quantitative goals relating to each issue. Honeywell wrote to the Office of the State Comptroller to say that: “We are delighted to tell you that for the first time Honeywell intends to publish a capsule sustainability report….” The letter goes on to say that much of what will be included in the report was published already but scattered over many pages of the website. Honeywell’s Corporate Citizenship report, first published last year, fully implemented the proposal. The sustainability proposal was filed at Honeywell for the first time last year.In 2014, Arjuna Capital and As You Sow co-filed a now infamous proposal calling on Exxon Mobil to publish a report on climate change risk. The proponents withdrew it after Exxon Mobil, in a major policy shift given the number of years such a resolution had been proposed, agreed to provide information on fossil fuel asset risks. In some ways, Exxon’s agreement was as much of a spoiler as Whole Foods’ filing of its own management proxy access proposal. While the company finally recognised that climate change existed, it also noted that it was not going to do anything about it – other than energy use reduction – because it did not believe the political process capable of coming to any decision. The subsequent report including such sentences as the following:
In assessing the economic viability of proved reserves, we do not believe a scenario consistent with reducing GHG emissions by 80% by 2050, as suggested by the “low carbon scenario,” lies within the “reasonably likely to occur” range of planning assumptions, since we consider the scenario highly unlikely.
This was not what either Arjuna or As You Sow expected and they commissioned a Carbon Tracker Initiative report that strongly rebutted Exxon’s findings. Danielle Fugere, chief counsel at As You Sow, said that the group had had a call with Exxon explaining its concerns recently and that they are continuing to engage with the company. “While the report was disappointing,” said Fugere, “it did give some information that hadn’t been published before, it did force the company to look at the ‘2% risk’, and Exxon did acknowledge the fact of global warming which it hadn’t before. But the report did not address the issue effectively and it is still ‘business as usual’.”
In further response, the two shareholders have filed another proposal for the 2015 annual meeting that seeks the return of capital to shareholders “rather than invest in high-cost high-carbon projects.” As You Sow’s first asset risk proposal was filed at Consol Energy in 2013, moving on to a number of companies, including Exxon last year. The resolutions, however, are only part of the campaign. Fugere said that, in addition to the resolutions, many letters were sent to major oil, gas and coal producers in 2014, with a wide variety of responses. “Some generated dialogues with investors,” said Fugere, “a few companies, ConocoPhillips and Chevron, for example, posted information and data on their websites. None of the companies fully addressed the issue and talked about worldwide reductions in GHGs. In fact, all the responses were fairly limited.” The same asset risk resolution was filed at seven other companies in 2014, garnering the most votes at Anadarko, with 30% of shareholders supporting it. “The dividend resolution filed this year at both Exxon and Chevron, which omitted the asset risk resolution last year because the SEC didn’t understand the difference between asset risk and climate change, is a step up,” said Fugere, “because company responses were unsatisfactory. What we are trying to do is alert companies to investor concerns about stranded assets, so it makes economic sense for them to reduce investment in high carbon projects.”

Walden Asset Management also withdrew a proposal on GHG emissions at Cabot Oil & Gas in 2014. Interestingly, as with many successful withdrawn proposals, the resolution followed a number of other successful proposals on similar issues, adding more proof to the Croatan Institute’s findings on consistent, long-term campaigning. The other proposals at Cabot Oil & Gas included a 2012 proposal asking for a sustainability report which earned 39% support; and NY Common withdrew a 2013 proposal asking for more disclosure about hydraulic fracturing (fracking) after the company agreed to provide it. The Walden proposal was withdrawn, in part, because the company agreed to set qualitative GHG reduction goals.
I spoke to Aaron Ziulkowski at Walden to understand what led to the resolution and its subsequent withdrawal. The firm began the process in late summer and early autumn 2013 with a letter sent out to around 30 companies asking for conversations on climate-related issues. Cabot was among them, but did not reply. So Walden filed its resolution. An initial conversation with the corporate secretary at the company did not go well until it was realised that there was a real misunderstanding of what was being asked.In fact, this was one of the reasons the company did not respond to the letter. At a subsequent meeting, the corporate secretary brought in subject matter experts and gradually it was disclosed that the company was already undertaking a large variety of activities relating to reducing energy use, though not because of climate change issues, but because it saved them money. None of this information was in the public domain so Walden agreed to withdraw as long as Cabot agreed to disclose its current steps and forecast further reductions in GHGs over the next 12 months at a minimum. Cabot discloses these targets here.
Clearly, vote results on shareholder resolutions tell only a partial story of the proposal process. Withdrawn proposals should count as “wins” for shareholders. If they were added to majority supported resolutions that went to a vote, the shareholder resolution process would look significantly more effective than some bare statistics show.

Paul Hodgson is an independent governance analyst.