Shareholder Advocacy Review – Winter 2022

We finally get to take some victory laps! After years battling the previous administration, we are finally seeing executive branch actions that roll back its archaic rules and guidance that clearly benefited corporations and not investors.

SUCCESSES
The Securities and Exchange Commission (SEC), for example, recently issued new guidance addressing the criteria by which shareholders may submit proposals to the ballot for a shareholder vote. The guidance restores the original intent of the shareholder submission process in order to reduce the subjectivity of SEC staff interpretations, which typically blow in the political winds depending on which party controls the executive branch.

The November 2021 Staff Legal Bulletin 14L (Bulletin) affirms that environmental, social, and governance (ESG) issues are relevant to mainstream investors, and that as such, shareholder proposals may address such matters when they state a clear, relevant, material, and specific request for company action. Whereas previous guidance allowed the SEC to exclude shareholder proposals from consideration if they were deemed to be insignificant by the company or an effort to micromanage it, the Bulletin affirms that proposals have merit if they are of significant shareholder interest, are economically relevant, and if existing company actions don’t currently address their essential purpose. Given that more and more investors integrate ESG issues into their investment decision-making process, the Bulletin affirms the right of shareholders to request changes at companies. For example, advisory proposals on a significant policy issue like climate change, requesting a company to set targets or improve its performance at the scale, pace and rigor required by external public policy goals and time frames, are not considered micromanagement unless they attempt to direct the minutiae of operations.

Additionally, in April 2021, we were part of an appeal to the Environmental Protection Agency (EPA) and Congress to permanently protect the world’s largest wild salmon fishery in Alaska’s Bristol Bay from large-scale mining. Such protection had been removed by the previous administration, but the EPA reinstated protections last fall by using the Clean Water Act, which restricts mine waste disposal in wetlands, rivers, and streams within the Bristol Bay watershed. The 2,800 acres of wetlands, 130 miles of streams, and 130 acres of open water affected by this decision surely are happy about it.

HOLDING COMPANIES ACCOUNTABLE
We wrote to the SEC in support of a petition (#4-774) requesting that the SEC issue a rule requiring companies to publicly disclose their Black Lives Matter (BLM) pledges. Firms promised more than $65 billion to BLM in the past two years, with many of them receiving praise and investor interest as a result. However, as of last fall, only 7% of these pledges, or $500 million, has been committed. Companies may have experienced a competitive advantage without being required to fulfill their pledges, which investors deserve to know. This petition would set up a framework for reporting such corporate activity that would allow investors to obtain accurate information about these companies’ charitable practices and investments in Black communities.

We also wrote to the SEC with our colleagues to support Commissioner Allison Lee’s suggestion to require companies to publicly disclose their Equal Employment Opportunity demographic data documenting employee gender, race and ethnicity statistics across job categories. While such information is already gathered and reported to federal agencies each year, it is not publicly disclosed, prohibiting investors from having consistent, comparable information to make investment decisions. While some companies voluntarily disclose this information, investors who want transparency and public accountability on workforce composition are seeking an SEC mandate so that investors can request that companies increase representation by women and people of color in corporate management. The research linking effective diversity, equity and inclusion (DEI) management and long-term shareholder value creation is now well-established, so we hope the SEC will assure that investors can easily gain access to such information.

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Michael Kramer

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