A coalition of powerful US business lobby groups has petitioned the Securities and Exchange Commission to make it harder for shareholders to resubmit environmental, social and governance-related resolutions for company annual meetings.
The move follows criticism of shareholder ESG motions from SEC Commissioner Daniel Gallagher last month that dismayed the SRI sector. Gallagher said the volume of shareholder proposals – most of which are ESG-related – undermines the proxy voting system due largely to lax rules that permit resubmission of proposals which fail to win majority backing.
To avoid wasting more time and resources at the SEC and at US companies, he called for limiting resubmissions to three and for raising what he described the “absurdly low” $2,000 ownership threshold for submissions.
Now a group of US business lobbies, among them the Chamber of Commerce and the American Petroleum Institute, has followed up on Gallagher’s remarks.
In a petition to the SEC, a copy of which was seen by Responsible Investor, the groups urge the regulator to “increase significantly the percentage of favourable votes required” before a company must include previously rejected proposals in its AGM agenda. The business lobbies don’t specify what the required percentage should be.
Under current rules, a defeated shareholder proposal can be resubmitted if, in the first year it was voted on, it gets at least 3% backing. That threshold rises to 6% in the second year and to 10% in the third year. If a proposal fails to meet any of those thresholds, it may not be resubmitted for three years.
The business groups argue that the current rules lead to “wasted shareholder resources; diminished comprehension and attention of shareholders on matters of economic significance; as well as diffused management attention better spent on more economically significant matters.”They cite proposals dealing with environmental protection and labour rights. They note that between 2005 and 2013, only one environmental proposal out of 420 submitted won the support of a majority of shareholders. Similarly, only three out of 237 labour-related proposals received majority backing.
The lobbies also charged that US proxy advisory firms ISS and Glass Lewis were aiding “the tyranny of the minority,” because proposals they advocate can muster at least 10% of the shareholder vote.
Though dismayed by Gallagher’s speech and the petition, socially responsible investors in the US said they did not expect any changes to current SEC rules, as the SEC does not necessarily act on public petitions.
“The SEC can and does ignore petitions,“ said Sonia Kowal, director of socially responsible investing at Zevin Asset Management in Boston, adding that a prime example was a petition filed in August 2011 by Harvard Law Professor Lucian Bebchuk.
Bebchuk’s petition called on the SEC to require that listed US companies fully disclose their political contributions. Although the motion has set a new record for comments – most of which are in favour – the SEC has so far done nothing about it.
How the SEC conducts its business is either determined by laws passed by the US Congress or internally by the SEC’s five commissioners. Two of those commissioners, including Gallagher, are Republicans and three, including Chairwoman Mary Jo White, are Democrats. An SEC spokesman said any changes to policy made internally were the result of a majority vote of commissioners.
Zevin’s Kowal also said the petition from the business lobbies was a sign that they are concerned about the growing support among shareholders for proposals dealing with climate change or disclosure of political contributions.