Shareholder Activists Lobby Against Proposed Rule Changes
Submitted by: Subodh Mishra, Managing Editor

Two socially focused investor organizations are calling for the Securities and Exchange Commission to take no action on proposed rule changes affecting proxy access and non-binding shareholder proposals, arguing to do so may “irreparably harm the rights of shareholders.”

The Social Investment Forum and Interfaith Center on Corporate Responsibility on Aug. 29 launched a Web site which aims to enlist 500 institutions and financial professionals to back their position. The site will facilitate the filing of comment letters, with copies going to both the SEC and lawmakers, forum and center officials said.

“We strongly oppose proposals at the SEC to either eliminate the shareholder resolution process or make it more difficult to sponsor resolutions,” said Tim Smith, Social Investment Forum chairman and senior vice-president of Walden Asset Management, in a statement announcing the Web site’s launch. “We also oppose any step to make it more difficult for investors to help nominate directors.”

Investors have until Oct. 2 to file comments on draft SEC rules, one of which would potentially allow for director nominations, or “proxy access,” while also modifying investors’ ability to file non-binding proposals. A second draft rule would effectively bar proxy access.

As part of the first proposed rule, the agency is seeking comment on whether a company or its shareholders should have the ability to propose and adopt bylaws that would establish procedures for including non-binding proposals in company proxy materials.

The draft proposal details a number of questions on implementing a bylaw governing such resolutions, while, notably, also seeking comment on potential changes to the existing economic, holding duration, and resubmission thresholds for filing non-binding resolutions.

For example, the draft rules seek comment on a potential increase in resubmission thresholds to 10, 15, and 20 percent over the first three years. Currently, resubmission thresholds for first-year proposals are set at 3 percent support of votes cast “for” and “against,” while second-year proposals must get at least 6 percent, and proposals in their third year must achieve 10 percent support.

Such a change may lead to fewer socially focused proposals, activists say, which tend to get limited support in their first few years on corporate ballots.

Social Investment Forum and ICCR officials say their Web-based campaign aims to “surpass by a significant margin” a 1997-1998 campaign in which more than 300 socially responsible, religious, labor and other groups joined forces to oppose an earlier SEC staff plan to “gut” the shareholder resolution process. The groups prevailed in that fight and the SEC was forced to back down, withdrawing the widely criticized proposal, social issue advocates said.

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