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SEC vote weakens corporate accountability and shareholder engagement

ImpactAlpha, Nov. 6 – A controversial vote by the Securities & Exchange Commission yesterday would make it harder for investors to file shareholder resolutions seeking to hold corporate management to account on issues ranging from climate risk to gun control to executive pay and diversity. The rules would also clamp down on proxy advisors (prompting Institutional Shareholder Services to file suit against the SEC).

The changes have been long sought by business groups including the Business Roundtable, even as it has issued lofty rhetoric about accountability to employees, customers, suppliers and communities.

Corporate accountability is key to the success of ‘stakeholder capitalism’

“Today’s proposal simply shields CEOs from accountability to investors,” said Commissioner Robert J. Jackson Jr., in his dissent. “Whatever problems plague corporate America today, too much accountability is not one of them.”

Reaction to the 3-2 vote, which will be followed by a 60-day comment period, was swift and furious.

Climate risk

“While the Administration is pulling out of the Paris Accords, it is unconscionable to try and make it harder for investors to ask companies to take climate action,” tweeted USSIF’s Lisa Woll. Shareholder resolutions addressing climate risk have been gaining increasing investor support.

Small shareholders

Shareholder proposals have encouraged many companies to adopt governance policies that today are viewed widely as best practice, noted the Council of Institutional Investors in a handy fact sheet. Up until 1983, the process was available to any owner of a single share of stock, the group said. With higher proposed thresholds, “we are on a slippery slope that strips that right from more and more small shareholders, whose ideas can be as important and valuable to consider as those of larger holders.”

Environmental, social and governance

The shareholder resolution process “has served as a cost effective way for corporate management and boards to gain a better understanding of shareholder priorities and concerns, particularly those of longer-term shareholders concerned about the impact of environmental, social, and governance issues,” said Josh Zinner of the Interfaith Center on Corporate Responsibility, which has been a particularly effective user of shareholder resolutions.

On guns, faith-based investors provide an object lesson in shareholder engagement

“We see this unjustified action by the SEC as part of a broader move across this Administration to realign the regulatory landscape in favor of corporate interests at the expense of the public interest.”

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