‘Shareholder voice is being muted on critical social and environmental issues’: Investors write to US regulator

A $72.7bn investor coalition has told the US Securities and Exchange Commission it is “concern[ed] that shareholder voice is being muted on critical social and environmental issues” under its current proxy voting rules.

The State Treasurers of Wisconsin, Massachusetts and Maine and Australian super fund HESTA are among those to have signed a letter to Gary Gensler, Chair of the financial regulator, focusing on ‘Rule 14-a-8(i)(7)’, which allows companies to exclude shareholder proposals that relate to “ordinary business” practices and are therefore considered the remit of management. 

Companies can use the SEC’s ‘no action’ process to seek reassurance that they won’t be penalised by the regulator for excluding certain resolutions at annual meetings. ‘Ordinary business’ is one of a number of reasons they can cite for their request to exclude – along with micromanagement and a belief that the requests have already been dealt with. 

US-based non-profit The Shareholder Commons (TSC), which coordinated the letter, has had five of its proposals struck off the ballot at annual meetings this year on ‘ordinary business’ grounds. Those resolutions were filed at CVS, Goldman Sachs, Chase, Marriott International and State Street, and asked the companies to report on how specific business lines or practices impacted the environment or society, and how such costs affected shareholders. 

Similar proposals filed at YUM! Brands, McDonald’s and PepsiCo went to the ballot. YUM! Brands agreed to produce the requested report and the proposal was withdrawn. The proposals at McDonalds and PepsiCo attracted around 12% support each.  

The letter to the SEC argues that such proposals should not be allowed to be excluded if a company contributes significantly to a social or environmental cost or risk, citing the commitments made by many large CEOs as part of the Business Roundtable’s recent statement on corporate purpose and the need for companies to consider stakeholders beyond shareholders. 

“In a recent study, a leading asset manager determined that publicly listed companies imposed social and environmental costs on the economy with a value of $2.2tn annually – more than 2.5% of global GDP and more than half of the profits those companies earned,” the letter continues.  “These costs have many sources, including pollution, water withdrawal, climate change, and inequality. The cost externalization proposals ask  companies to examine their own contribution to this dangerous phenomenon.”