January 14, 2020
I am writing to express my dismay about the proposed changes the SEC is considering to the shareholder proposal process. While I am writing in my personal capacity as an investor with a portion of my retirement account invested in publicly traded U.S. equites, my professional experience has allowed me to see firsthand the power of shareholder proposals to raise issues that corporations should manage in order to preserve long-term shareholder value. I have also seen just how often letters without accompanying shareholder proposals tend to be "lost" by corporations.
I have two primary concerns with the proposed rule changes.
First, the proposed increases to ownership requirements are unfair and will not improve the system. Instead, they will just make small Main Street investors wait a very long time before raising concerns through shareholder proposals. And let's be clear, it's the smallest investors who are least likely to be able to engage with management and the board in a serious way in the absence of a shareholder proposal. It's unlikely that a letter or a request for a conversation from Vanguard or BlackRock would go unanswered. It's very likely, however, that small investors who are unable to submit proposals until they've held shares for 3 years will find that their letters and requests for conversations go unanswered.
Second, the proposed increases to the resubmission thresholds are problematic. Of most concern is a new provision that would ultimately serve to eliminate proposals that enjoy relatively strong support from investors in the event that the vote for such proposals drops even a small amount after year 3. As US SIF has pointed out, "This sets up a bizarre scenario where a proposal that loses support from 49 percent to 44 percent in the fourth year (a 10 percent decline from 49 percent) can be omitted, but a proposal that remains steady at 27 percent on the fourth years vote can be resubmitted. This would imply that vote of 44 percent is a weaker outcome than a vote of 27 percent." The resubmission levels should remain at current levels, which are sufficient to weed out most proposals that don't begin to amass strong support from investors over the course of three years.
I believe that shareholder proposals raise issues with important implications for the long-term value of the companies I hold in my retirement account and urge the SEC not to pursue these wrongheaded changes.