The Securities and Exchange Commission proposed on September 16 to repeal the rule that guarantees shareholders a place on their own company’s ballot.
Strip away the legal vocabulary and the change is simple. Right now, an American who has owned $2,000 of stock for three years can put a proposal on the agenda for the company’s annual meeting. Under the SEC’s plan, that right disappears, leaving each company to decide unilaterally whether its shareowners are heard at all.
Nobody is left to referee
Until this year, a company that wanted a shareholder’s proposal off its annual meeting ballot had to ask the SEC whether it could exclude it, and explain why it should be allowed to. The shareholder could provide a rebuttal. SEC staff would decide whether the company could leave it out, the record was public, and almost always both company and proponent abided by the verdict.
The SEC stopped answering those requests on August 14. A company now decides for itself whether it will allow a proposal on its agenda, without fear of penalty or enforcement from the SEC. The only recourse left to an omitted shareholder is to sue in federal court, at his own expense, in the few weeks before an annual meeting.
Repeal of the rule finishes the job. Chairman Paul Atkins (pictured above) says state laws and legislators should oversee shareholder proposals, with the federal government largely on the sidelines. Corporate boards and executives had every reason to celebrate: no more uncomfortable moments at their annual meetings being challenged by the people who own the company.
The elites who don’t file proposals will be the only ones left
Large asset managers and index funds will be fine. They rarely file proposals in the first place, because they can get a meeting with the board simply by asking.
The $2,000/three-year threshold is what lets a church group, a family investor, a small foundation or a watchdog organization be heard without millions of dollars in investment. Take it away and the only voices left in corporate governance are the institutions that already had management’s ear.
Steve Milloy, who runs the Free Enterprise Project at the National Center for Public Policy Research, put it bluntly: “The Trump administration has improved upon the famous adage that capitalists will sell communists the rope by which the latter would hang the former. Now the capitalists seem to be just giving the rope away.”
He is right about who wins. Free-market and conservative shareholder advocacy is small-dollar work, funded by individual donors and run on modest stock positions. It exists because the $2,000 door is open. The activists who spent decades pushing companies leftward already hold that ground, and they keep it whether the rule survives or not.
With these steps anticipated, National Legal and Policy Center has asked eleven companies to commit, in their own organizational documents, to keep accepting proposals at today’s required ownership levels, even if the federal rule that governs the proposal process is rescinded.
Procter & Gamble‘s shareholders will vote October 13, at the company’s annual meeting, on whether it should embed that standard. Oracle‘s owners take up the same resolution in November. Both votes will be counted while the SEC’s comment period on repeal is still open.
