- Concerned investors have contacted the U.S. Securities and Exchange Commission, ahead of a proposed rule change that could make it difficult for stakeholders to influence corporate behavior.
- The proposed SEC rule change could make it difficult for less-wealthy investors to influence corporate conduct on a range of issues including climate change.
- The proposed rule change risks running afoul of ESG investors with about $70 trillion of assets under management in 2017.
A slew of alarmed investors have contacted the U.S. Securities and Exchange Commission ahead of a proposed rule change that could make it more difficult for small investors to propose new strategies concerning issues like climate change to publicly traded companies.
The SEC has received more than 13,500 comments since the end of last year from people, including Wisconsin Sen.Tammy Baldwin (D., Wis.) and New York City Comptroller Scott Stringer, in regards to a proposal to raise the monetary value of stocks an investor needs to hold in a company to file shareholder proposals to $25,000, up from the current level of $2,000.
The agency has also proposed to increase the level of shareholder support a resolution needs to garner in order for it to be resubmitted for consideration in subsequent years. The move could deprive less-wealthy investors of the ability to influence corporate conduct on a range of issues from pollution to gender parity.
A cursory count of the submitted letters puts many investors such as Sarah Zoen at odds with the proposed change. Previously, the agency was on track to take final action on the matter sometime in May.
“As a shareholder who cares about the long-term value of my investments and the private sector’s environmental and human rights footprint alike, I am deeply concerned about the inevitable adverse impacts that the Proposed Rule would inflict on my portfolio and society,” Ms. Zoen wrote in a letter to the SEC in February.
Meanwhile, Phillip Goldstein, a co-founder of Bulldog Investors LLC, says the rule change may be addressing a legitimate corporate concern about excessive and frivolous shareholder proposals. “Large companies like Microsoft and Exxon may have a legitimate complaint,” Goldstein told Karma. “They have millions of shareholders and they are getting inundated by social and political proposals and it takes money to sift through them.”
Still, Goldstein says his investment firm, which he says has about $250 million of assets under administration, has made successful use of such proposals to further his clients’ interests. “I don’t want to throw out the baby with the bathwater,” he said. “I do think the rule is valuable.”
Goldstein wrote the SEC in March to urge the agency to stop a potential move by companies to opt out of the rule by only allowing votes on shareholder proposals that have been approved by a company board.
Other stakeholders such as Andrew Behar, the chief executive officer of the non-profit organization As You Sow, says worries about excessive shareholder proposals are overblown.
His organization which partners with investors to field shareholder resolutions keeps a tally of such actions. As of now, millions of U.S. investors filed about 429 resolutions regarding environmental, social and sustainable governance issues for the 2020 proxy season, an uptick from 366 last year.
Mr. Behar says shareholder actions have potentially saved companies such as YUM! Brands, Inc., which owns businesses including KFC and Pizza Hut, from attracting lawsuits and negative publicity.
Following an As You Sow-sponsored shareholder resolution last year, Yum decided to phase out, by 2022, the use of polystyrene foam, a type of packaging that is rarely recycled and has been deemed a possible carcinogen by third parties.
The proposed SEC rule change risks running afoul of ESG stakeholders with about $70 trillion of assets under management in 2017. They are signatories of the umbrella organization Principles for Responsible Investment.
The SEC extended the comment period on the proposed rule change due to the COVID-19 pandemic. The agency declined to comment for this article.
Mr. Behar says the proposed rule change would not completely impede investor action.
“We are looking at other ways to speak to the companies. We are looking at potential litigation,“ Behar told Karma. “We are not going to stop. We are just going to try other venues that are going to cost companies more money.”