The US regulator is being urged to ignore demands from big business to dilute shareholders’ ability to file resolutions at annual meetings.
A group of 30 investors, which includes religious orders, public pension funds and asset managers, warned it would be detrimental to corporate America.
It has written a letter to Jay Clayton, chairman of the Securities and Exchange Commission, ahead of a round-table meeting this week. SEC staff are set to examine the use of shareholder motions at annual meetings among other issues.
The focus on shareholder resolutions comes as corporate trade groups and businesses increase criticism of the current system, saying it is burdensome and prone to abuse.
Currently, an investor owning $2,000 of a company’s stock for at least a year is permitted to submit a shareholder proposal, although it will not necessarily be voted on.
One of the letter’s signatories dismissed the suggestion that the existing system had problems.
Jason Malinowski, chief investment officer at the $3bn Seattle City Employees’ Retirement System, said: “We don’t feel it is burdensome on companies. Most resolutions affect large companies that have the resources to address them.
“[The attack on shareholder resolutions] is a way to erode shareholder rights. It is trying to find a solution to a problem that doesn’t exist.”
Last month, the National Association of Manufacturers, the largest industrial trade association in the US, wrote to Mr Clayton claiming the shareholder proposal process had been hijacked.
It said “activists […] seek to force companies to act according to their own narrow interests rather than the good of the business or long-term investor returns”, adding: “The proxy ballot was designed for the majority of investors to constructively engage with company management, but it has devolved in many ways into a shouting match focused on social and political issues.”
James Debney, chief executive of American Outdoor Brands, which owns gunmaker Smith & Wesson, this year criticised shareholders who he claimed had “inappropriately and detrimentally” used the proxy process to advance a political agenda.
The shareholder group had backed a vote requiring American Outdoor Brands to provide evidence it was working on gun safety and monitoring violence associated with its products.
In recent years, investors have used shareholder proposals to call for better disclosure of climate change issues and lobbying by businesses, as well as to block a move to virtual annual meetings.
The NAM called the $2,000 threshold for submitting resolutions “incredibly low” and said it allowed shareholders to “spam company proxy ballots”. It also expressed concern about how easy it was for shareholders to resubmit unsuccessful motions the following year.
In their letter to Mr Clayton, however, the group of investors said most public companies did not receive any shareholder proposals. The investors, which include Maryland State Retirement and Pension System, Trillium Asset Management and the USA West Province of the Society of Jesus, said that a Russell 3000 company received a shareholder proposal once every 7.7 years on average.
The investors also pointed out that resubmitting shareholders’ proposals was often vital to driving change, such as the introduction of annual director elections.
It said that in 1987 just 16 per cent of shareholders backed proposals linked to annual director re-elections on average, but by 2012, this had risen to more than 80 per cent.
“Shareholder proposals frequently address emerging systemic risks to the US and global economies, such as the predatory lending that contributed to the 2008 financial crisis,” the investors wrote.
“The current process also allows investors to communicate with boards, management and other shareholders about the most effective, proactive way to protect investor interests with respect to corporate governance, risk, and policy issues affecting companies prior to a crisis.”
Tim Smith, director of environmental, social and governance shareholder engagement at Walden Asset Management, a US investor, said there was an attempt to “handcuff us or use the nuclear option to obliterate shareholder resolutions” by some organisations and businesses.
“There is a strong sentiment [among shareholders] that this is an exceedingly important right to protect,” he added.
“Investors are going the extra mile to try to protect this, whether by speaking to the SEC, speaking out publicly, talking to trade bodies or talking to big investors who don’t traditionally file resolutions but sometimes support them.”