On September 23, 2020, the Securities and Exchange Commission (SEC) announced amendments to the rule that determines eligibility requirements for a shareholder proposal to be included in the proxy statement of a public company.[i] It took this decision despite vocal opposition from asset managers and asset owners, shareholder advocacy and financial industry organizations.

In our opinion, these amendments to Rule 14a-8 will significantly hinder the ability of shareholders to advocate for positive changes in corporate governance and practices.  While these amendments will affect all resolutions, we are especially concerned that shareholders will find it significantly harder to raise critical environmental, social and governance (ESG) issues with companies.

More specifically, in our opinion, the amendments will greatly hinder the ability of investors to gain access to data that helps them assess corporate ESG performance. Shareholder resolutions are one of the only tools available to concerned shareholders who want to understand what companies are doing in relation to various ESG issues and ultimately to help improve corporate practices. Examples of successful shareholder initiatives in recent years includes:

  • Barclays PLC is the largest fossil fuel financier in Europe and among the largest globally. In 2020, investors identified Barclays as having weaker climate policy vs. some of its European peers. The campaign group, ShareAction, spearheaded the shareholder vote with support from As You Sow and various other shareholder advocates. Following this investor engagement, Barclays said it will implement measures to reduce its carbon footprint to net zero by 2050 beginning with its power and energy portfolios, which it plans to reduce in carbon-dioxide intensity by 30% and 15%, respectively, by 2025. [ii]
  • In 2017, a coalition of 71 investors issued a warning regarding the overuse of antibiotics by food and restaurant companies. The concern focused on how overuse of antibiotics in meat and poultry builds resistance in humans. [iii] As of 2019, 13 of the biggest restaurant chains have made progress putting responsible antibiotic use policies into place including Burger King, Chipotle, McDonald’s and others. More are making headway to improve, e.g., Applebee’s and Pizza Hut. Action to eliminate and or reduce the use of antibiotics in beef is lagging behind poultry but some progress has been made thanks to shareholder engagement and action.[iv]

Ultimately, shareholders are the biggest losers in this change to SEC regulations. Resolutions often raise critical issues and provide companies with important information that can be used by management to prevent future financial and reputational risks related to ESG factors.

The amendments to SEC rule won’t end shareholder engagement, though they will make the process more drawn-out and costly.  Nonetheless, we strongly encourage investors to continue engaging with the companies they are invested in and to work with their asset managers, investment advisors and/or nonprofit intermediaries and actively vote their proxies and support important resolutions on the issues they care about.  The results may prove to be worth the effort.

Rule 14a-8: Before and After [v] [vi]

Download a PDF of SEC Setback for Shareholders.

[i] https://www.sec.gov/news/press-release/2020-220

[ii] https://www.wsj.com/articles/barclays-pledges-net-zero-emissions-by-2050-11585594682#:~:text=Barclays%20PLC%20said%20Monday%20that,Paris%20Agreement%20on%20climate%20change.

[iii] https://www.foodingredientsfirst.com/news/investors-push-food-giants-to-a-path-of-less-antibiotic-resistance.html

[iv] https://www.consumerreports.org/overuse-of-antibiotics/most-fast-food-chains-still-serve-beef-raised-with-antibiotics/

[v] https://www.sec.gov/news/press-release/2020-220

[vi] https://www.foley.com/en/insights/publications/2020/09/sec-amends-rule-14a-8-modernize-shareholder