Shareholder Resolutions

Mechanics

Any shareholder with $2,000 or more invested in a company may propose a resolution, as determined by Rule 14a–8 of the 1934 act. Once a resolution has been proposed and approved for submission to all shareholders by the SEC, it must then receive a certain threshold of support to remain alive for submission in subsequent years: 3% in the first year, 6% in the second year, and 10% in the third year qualify for future consideration.

According to Rule 14a–8 of the Securities Exchange Act of 1934, companies can exclude resolutions from consideration if they relate to or contain (1) personal grievances, (2) self-interested proposals that provide a personal benefit to the person introducing the proposal that would not accrue to other shareholders, (3) ordinary business matters, (4) impermissibly vague or misleading statements, and (5) impractical or overly general proposals that the company lacks the power to implement. As opposed to the conditions for exclusion, the major condition for acceptance is that the resolution relates to a substantial business policy and not just mundane business matters. Courts have included employment and social issues as substantial business policies, and corporate governance concerns easily qualify.

History and Evolution

The first wave of shareholder resolutions started in the 1960s and focused on the social causes of the day, particularly equal employment opportunity, napalm production during the Vietnam War, investment in South Africa, and the environment. Social issues of concern more than 30 years later include global warming, human rights, and corporate political practices.

An early pioneer in sponsoring shareholder resolutions was Saul Alinsky, a community organizer from Chicago who targeted firms like Eastman Kodak on equal employment issues. Ralph Nader then adopted the tactic, as part of his pressure on General Motors Corporation through Campaign GM. It was only through religious institutional sponsorship, however, that shareholder resolutions spread rapidly in the 1970s. The Interfaith Center on Corporate Responsibility, since its founding in 1971, has coordinated 200 to 300 shareholder resolution campaigns annually.

In the 1990s, shareholder resolutions began to focus on mainstream corporate governance concerns, relevant to a greater number of shareholders, and executive compensation has been the subject of many resolutions. Since 1990, support levels have grown dramatically from the 3% to 10% range for most social issues to a much higher 20% to 50% range. Many of the traditional institutional investors, including pension funds and labor unions, have sponsored the corporate governance resolutions.

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