Shutdown ties firms’ hands on unwanted shareholder proposals
Publicly traded companies may not get relief from SEC for initiatives they oppose
WASHINGTON— Publicly traded companies could have to put to a shareholder vote thorny proposals that they oppose if the government shutdown doesn’t end soon.
That is because the Securities and Exchange Commission, which is operating with a skeleton staff, must sign off on requests by companies to exclude proposals from a vote at annual shareholder meetings. The SEC each winter handles a wave of requests from corporations to keep unwanted initiatives off the proxy ballots that every public company is required to put before its stockholders.
The shareholder proposals, which are typically voted on during annual-meeting season in the spring, can range from targeting specific board members to pushing companies to adopt certain stances on environmental or social issues.
“Companies are stuck in limbo right now,” said Tom Quaadman, executive vice president at the U.S. Chamber of Commerce, a trade group. “They are going to become more vocal if the shutdown continues.”
Proposals are frequently excluded from ballots by the SEC. They can be struck if they have been voted on before by a company’s shareholders, because they are deemed to not be economically relevant to a compa- ny’s performance, or if they don’t relate to a company’s core business activities, among other reasons.
Apple Inc., for example, recently received SEC permission to exclude a shareholder proposal from its March1annual meeting that would have established a board of directors committee on social and environmental issues. Apple’s request was approved before the government shutdown.
Similar shareholder proposals at SunTrust Banks Inc., Verizon Communications Inc. and Applied Materials Inc., which makes computer chip manufacturing equipment, have been challenged by the companies at the SEC but not yet resolved by the agency, according to John Roe, head of ISS Analytics, the data intelligence arm of Institutional Shareholder Services.
Companies are supposed to file requests to the SEC for exemptions at least 80 days before they send out proxy materials to shareholders, to give commission staff sufficient time to consider the applications. The SEC typically responds within 30-45 days, though more complex issues can take nearly the entire 80 days.
Companies with meetings in March and April still have time to exclude proposals, provided the government shutdown ends in the near future, and have some recourse to prevent votes on proposals even if it continues.
“If the (SEC) staff redoubles their efforts they’ll be able to respond to many of the proposals in a way that’s responsive to the shareholders” once the shutdown ends, said Ronald Mueller, a partner at the law firm Gibson Dunn who works on corporate governance issues.
If the shutdown continues even after a company needs to send out its proxy statement to shareholders, the company could include proposals in the statements but not make them subject to a vote, saying it is awaiting a determination from the SEC, Mr. Mueller said.
A company also can negotiate with shareholders who made a proposal, striking a deal that results in it withdrawing the SEC application and removing the proposal from the proxy in exchange for concessions.
In 2018, of the 261 applications for relief filed with the SEC, 60 were withdrawn after companies struck deals with shareholders. The SEC allowed companies to exclude 65% of the remaining proposals, according to ISS Analytics.
Around 10% of shareholder proposals received majority support by stockholders last year. The majority of these dealt with shareholder voting power over company decisions, along with a handful on social and political issues.