Investors concerned about the financial impact on banking of climate change, unequal pay and other hot-button issues are pushing back against an effort by an influential lobbying group to overhaul the shareholder proposal process.
The Business Roundtable, chaired by JPMorgan Chase CEO Jamie Dimon, is urging the Trump administration to curb the ability of small investors to bring issues to a shareholder vote during annual meetings. In a recent letter to the White House, the Roundtable argued in favor of raising the ownership threshold required to submit proposals.
“In too many cases, activist investors with insignificant stakes in public companies make shareholder proposals that pursue social or political agendas unrelated to the interests of the shareholders as a whole,” the Roundtable said.
The corporate lobbying group includes well-known CEOs from a range of industries, and the effort is not directed exclusively at banking. Still, investors with resolutions up for a vote this year at big banks warned that the change, if adopted, could be detrimental to shareholders and the industry itself.
Consider the ethics problems that have embroiled Wells Fargo — or bigger-picture problems facing the industry, such as the dearth of women in the C-suite. Shareholders, regardless of their stake, should have a right to publicly air their concerns in front of the board, investors said.
Moreover, several good-governance ideas that have become more mainstream — such as splitting the chairman and CEO role — took root in the shareholder proposal process, according to industry experts.
“We don’t see these as political issues,” said Josh Zinner, CEO of the Interfaith Center on Corporate Responsibility, a coalition of religious groups and other institutional investors. “These are issues that legitimately can affect the company’s bottom line in significant ways.”
The ICCR, which has been active in banking for years, is sponsoring a resolution on Wells Fargo’s 2017 proxy that calls for a report on the causes of the fraudulent activity that led to the bank’s blockbuster settlement with regulators.
The group has also previously filed resolutions in the industry on climate change and lobbying transparency, among other issues.
“It’s often the smaller investors that identify unmanaged risks and opportunities and bring them to the table,” said Natasha Lamb, managing director at Arjuna Capital in Boston.
Arjuna has filed shareholder resolutions at the four biggest banks, as well as American Express and Mastercard, for a report on the pay gap between male and female employees. The firm had success last year in pushing tech companies on the issue and nearly won a majority of shareholder votes at eBay.
“It’s a really important process — it represents the democratization of share ownership,” Lamb said. Arjuna has received opposition statements from all six financial companies, she said.
The push is part of a broader set of recommendations by the Roundtable for rolling back regulations on large corporations. In its Feb. 22 letter to the White House, the group — whose members include the CEOs of the four biggest banks — also called for scaling back a range of environmental, labor and health care rules.
Notably, the effort to overhaul securities rules comes as the number of shareholder proposals has declined.
Last year, 978 shareholder proposals were voted on at public companies, down 7% from four years earlier, according to Deloitte. Roughly half of the proposals voted on addressed shareholder rights, while about a third dealt with environmental and social issues.
Still, investor support for the proposals is higher than a decade ago, though it is starting to decline as well. About 61% of shareholder proposals received the backing of a quarter of all shareholders in 2016, compared with 65% in 2015 and 57% a decade earlier, according to the Council of Institutional Investors.
To submit a proposal, investors must own at least $2,000 of a company’s stock. The rule, known as 14a-8, was adopted by the Securities and Exchange Commission in 1983, and is designed to give small investors a platform to voice their concerns about a range of social issues, according to Jeff Kochian, a securities attorney at Akin Gump.
“It’s meant to get at these corporate gadflies — the people who are arguing for better disclosure on carbon emissions, or better disclosure on truly social issues,” Kochian said.
Many corporate CEOs view the process as “annoying,” he added. “But if 50% of shareholders think something is a good idea, generally the board is going to listen.”
Under the changes proposed by the Roundtable, investors would have to own a stake of between 0.15% and 1% of company to get a proposal on the proxy.
The SEC should “employ a holding requirement based solely on the percentage of stock owned,” the Roundtable said in an October report, arguing that a flat dollar-value threshold has a “disparate effect” based on the stock price and size of a company.
But the changes supported by the Roundtable could make submitting shareholder proposals — particularly at big companies — too expensive for small investors, according to Jeff Mahoney, general counsel at CII.
Mahoney offered Apple as an example. To meet the minimum threshold under the Roundtable proposal, investors would have to own over $1 billion in stock to submit a shareholder proposal, he said.
“It would be a dramatic change in what we believe is a very important shareholder right,” Mahoney said.
The CII was one of several shareholder groups that wrote an open letter to the White House this month, opposing the 14a-8 changes.
Investors with shareholder proposals slated for a vote at big banks in the weeks ahead say they are concerned about the Roundtable push but focused on forging ahead with their causes.
Lamb, the managing director at Arjuna, is quick to note that her firm’s gender pay resolutions last year received the backing of the influential proxy advisory firms.
It’s an issue that has a significant financial impact on big banks, Lamb said. She cited a range of statistics showing that women leave the financial services business at a higher rate than other industries.
She also noted that, among personal financial advisers, women paid significantly less on average than their male peers. Male advisers earn an average of $1,714 per week, compared with $953 for women, according to the Bureau of Labor Statistics.
“We don’t expect that businesses will change for the sake of doing the right thing — they need to see a financial benefit to change,” Lamb said. “When we file shareholder proposals, that’s the position we’re coming from.”
Whether the changes supported by the Roundtable are adopted remains to be seen. But Zinner at the ICCR said he and other investors are worried that the growing pro-business mood could offer a window of opportunity.
“Given the current political climate in Washington, we’re concerned that there’s more space for these views to gain currency, despite longstanding SEC policy around access for shareholders to file resolutions,” Zinner said.