Risk & Compliance

New SEC Policy Seen as Threat to Proxy Votes

Under new guidance, SEC staff have rejected only one of 11 company requests to block shareholder votes on environmental proposals.
Matthew HellerApril 20, 2018

Companies including Amazon, PayPal, and Dunkin’ Brands have succeeded in blocking shareholder votes on environmental issues under new regulatory guidance.

The U.S. Securities and Exchange Commission released the guidance in November after being lobbied by business groups to limit shareholder resolutions. Companies appear to be reaping benefits from it, according to an S&P analysis that found SEC staff have rejected only one of 11 company requests to use the “ordinary business” exception to block votes on environmental proposals.

Shareholder rights advocates are now concerned that the SEC is eroding the viability of the proxy process.

“I think the options are being significantly limited,” Christine Jantz, founder and president of Jantz Management, which submitted shareholder resolutions for the current proxy season, told S&P Global Market Intelligence.

Under SEC rules, companies can reject a shareholder vote on a resolution that “deals with a matter relating to the company’s ordinary business operations” unless the proposal focuses on “sufficiently significant” policy issues.

The SEC’s new guidelines indicated staff would be deferential to corporate boards in deciding whether the exception applies to a proposal.

“These determinations often raise difficult judgment calls that the Division [of Corporate Finance] believes are in the first instance matters that the board of directors is generally in a better position to determine,” the agency’s Bulletin 14I stated.

Proposals that will now not be coming to a vote this proxy season include one that would have required the Dunkin’ Brands board to assess the environmental impact of the company’s use of K-Cup Pods packaging.

SEC staff also sided with American Airlines over a resolution on the impacts of smaller cabin sizes on plus-size people in its proxy materials. Only Entergy Corp.’s request to block a vote on a climate change-related proposal was not approved.

Tom Quaadman, executive vice president of the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness, believes the SEC let through proposals it never should have under the Obama administration.

“A properly calibrated shareholder system is going to make sure that those proposals that are actually important to companies will be considered,” he said.