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Harvard reviews House ESG working group’s interim report (2023)
| Environmental, social, and corporate governance |
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In its “ESG Midyear Review,” the Harvard Law School Forum on Corporate Governance addressed the Financial Services Committee’s ESG working group and, specifically, its efforts to improve the shareholder proposal process. Starting with the working group’s interim report, author Cyndy Posner gets into the details and says the following:
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The report identifies a number of priorities, including reforming the proxy system, ensuring the accountability of the proxy advisory firms, enhancing the alignment of voting decisions with retail investors’ best interests (also involves proxy advisors), increasing transparency and oversight of large asset managers “to ensure their practices reflect the pecuniary interest of retail investors,” improving ESG rating agency accountability and transparency, and protecting U.S. companies from burdensome EU regulations. In addition, in light of the “politicization of the SEC”—as the Working Group sees it—another priority is to “strengthen oversight and conduct thorough investigations into federal regulatory efforts that would contort our financial system into a vehicle to implement climate policy,” and to “demand transparency, responsibility, and adherence to statutory limits from financial and consumer regulatory agencies.” I counted at least 18 bills that the Committee is proposing to address these issues. … the Working Group appears to view the shareholder proposal process as a critical mechanism used by activists to impose their agendas on companies, as evidenced by the volume of ESG-related shareholder proposals submitted this proxy season. The “recent surge in ESG-related proposals,” the Working Group contended, “adds unnecessary pressure on corporate boards, wastes corporate resources, and hinders informed decision-making by retail investors, who must spend valuable time reading and evaluating these proposals.” In the Working Group’s view, the “no-action letter process has become a mechanism for SEC staff to project its views about the ‘significance’ of non-securities issues, rather than a process for ensuring shareholder proponents’ interests are aligned with those of their fellow shareholders.” According to the report, the increase in shareholder proposals resulted from changes in rule interpretations by the SEC “that made it easier for politically motivated proposals to be included in annual proxy statements. This resulted in a 51 percent rise in environmental proposals and a 20 percent increase in social proposals. Chair Gensler’s use of the SEC as a political tool is deeply concerning, as it puts the investments of hard-working Americans at risk and sets a dangerous precedent of weaponizing the agency for progressive purposes.” The report is referring to Corp Fin’s SLB 14L, the effect of which was to relax some of the interpretations of “significant social policy,” “micromanagement” and “economic relevance” imposed under three Clayton-era SLBs, which were rescinded, making exclusion of shareholder proposals—particularly proposals related to environmental and social issues—more of a challenge for companies. SLB 14L presented its approach as a return to the perspective that historically prevailed prior to the issuance of the three rescinded SLBs. … The Working Group also took issue with the current ownership thresholds for submission of shareholder proposals, under which relatively small shareholders can submit proposals. In the Working Group’s view, these thresholds allow the process to be “overwhelmingly exploited by activists driven by social or political agendas, leading to an increasing number of ESG-related shareholder proposals. Moreover, given the significant influence of proxy advisors, companies are unable to exclude repeat ESG-related proposals, regardless of whether shareholders have previously rejected them. As a favorable recommendation from a proxy advisor firm can easily garner 25 investor percent support, shareholder proposals backed by proxy advisors can be resubmitted indefinitely, even if they don’t necessarily serve the long-term interests of companies and retail investors.” The report advocated that the SEC raise the thresholds for submission and and resubmission of shareholder proposals. The SEC’s proposed amendments to Rule 14a-8 were another concern raised by the Working Group, particularly the proposed amendment to Rule 14a-8(i)(12), the resubmission exclusion, which would provide that a shareholder proposal would constitute a “resubmission”—and therefore could be excluded if, among other things, the proposal did not reach specified minimum vote thresholds—if it “substantially duplicates” a prior proposal by “address[ing] the same subject matter and seek[ing] the same objective by the same means.” The Working Group contends that these “proposed changes will result in significant abuse and circumvention of the rule, allowing activists to resubmit previously rejected proposals by making minor modifications to the text of the proposals,” and “will only serve to encourage more activism, placing additional strain on companies’ and investors’ time and resources.” The report concluded by advocating “sensible reforms to the SEC’s no-action letter process” as well as greater autonomy for companies “in developing their own shareholder proposal procedures. By recognizing that corporate governance is primarily the responsibility of the company and its shareholders, decision-making should remain in the hands of those directly impacted.”[1] |
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See also
- Environmental, social, and corporate governance (ESG)
- Economy and Society: Ballotpedia's ESG newsletter
External links
Footnotes
- ↑ Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
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