Two groups are up in arms over the possibility of the SEC taking away some shareholder rights. According to experts from the Social Investment Forum (SIF) and Interfaith Center on Corporate Responsibility (ICCR) the proposal of a new proxy-related rule by the SEC may result in the same kind of widespread investor opposition that defeated a similar proposal in 1997-1998. One of the major concerns is the possibility of new limits on so-called "advisory" resolutions, which have accounted for about 95 percent of shareholder resolutions over the last 35 years.
Any effort by the U.S. Securities and Exchange Commission (SEC) to limit the rights of investors to participate in the shareholder resolution process would galvanize the same kind of widespread investor opposition that defeated a similar proposal in 1997-1998, according to experts from the Social Investment Forum (SIF) and Interfaith Center on Corporate Responsibility (ICCR).
This unusual cautionary note was sounded today on the eve of a SEC Open Commission meeting Wednesday (July 25, 2007) at which the SEC may unveil new proxy-related rule proposals. One of the major concerns is the possibility of new limits on so-called "advisory" resolutions, which have accounted for about 95 percent of shareholder resolutions over the last 35 years.
A SEC proposal to restrict shareholder rights would trigger a repeat of the contentious 1997-1998 battle in which more than 300 socially responsible investment, religious, labor and other groups coalesced to oppose an SEC staff plan to gut the shareholder resolution process by increasing the threshold for reconsideration of resolutions in subsequent years. On the other hand, many of the same groups worked with the SEC in 2003 to face down strong industry opposition to a Commission rule requiring meaningful disclosure of proxy voting by mutual funds and investment advisors.
SIF Chair and Senior Vice-President of Walden Asset Management Tim Smith said: "The right of investors to file resolutions and seek investor support when necessary should not be diminished in any way. We are serving notice to the SEC and others today that we will strongly oppose any move to take away shareholder rights to move advisory resolutions. We are concerned about some alarming ideas raised at the recent SEC roundtable meetings regarding shareholder resolutions, and the suggestion that the right of shareowners to sponsor advisory shareholder resolutions either be eliminated or further restricted. Our members have been deeply involved in the process of shareholder advocacy through letters and dialogue with companies, sponsorship of shareholder resolutions and by voting proxies. For decades, this process has been a central means for formalizing communication between concerned investors and management on social, environmental and governance issues."
ICCR Board of Governors Member John Wilson, who also is director of Socially Responsible Investing for Christian Brothers Investment Services, Inc. (CBIS), said: "These resolutions are an important part of the exercise of our fiduciary duty as owners of companies. We can point to many examples where these resolutions have resulted in changes in company policies and practices that were beneficial to shareholder interests. Extensive documentation has shown how shareholder resolutions lead to constructive dialogue between owners and management. Voting proxies is another important tool of management accountability to shareholders. Non-binding shareholder resolutions ensure that investors have some say in the matters that come before all shareholders for a vote."
Institutional Shareholder Services (ISS) Social Issues Services Director Meg Voorhes said: "More than 95 percent of the shareowner resolutions filed in the last 35 years have been 'advisory,' yet they have had a profound and identifiable impact on business thinking and decision making in corporate board rooms. While new, creative methods to improve investor-management communications would be welcome, eliminating the right of investors to petition the Board and management and to garner support of other shareholders through resolutions would be a significant step backward. Major institutional investors—including the CalPERS, New York City and State of Connecticut pension funds, religious investors, foundations, trade union pension funds, and socially concerned mutual funds and investment managers—have engaged companies in private dialogue and public persuasion, including filing shareholder resolutions on literally hundreds of governance reforms and social and environmental issues."
SIF CEO Lisa Woll said: "If these ideas to restrict advisory proposals became a formal SEC rulemaking proposal, we expect there would be vigorous opposition from both individual and institutional investors. We have urged the SEC to drop this concept before it gets to the proposal stage. It is important to note that many resolutions filed by small individual investors requesting corporate governance reforms have resulted in votes of 50-85 percent this past year. Social and environmental resolutions filed by small shareowners are also garnering substantial support. Obviously the size of one's investment does not relate to the quality of one's ideas or the support given by shareowners in a company. It is the genius of the SEC's proxy system that shareholders of every size can participate in the marketplace of ideas by filing resolutions, and that the principal test of those ideas is their ability to garner support of fellow shareowners."
ABOUT THE SOCIAL INVESTMENT FORUM
The Social Investment Forum (http://www.socialinvest.org) is the national association for the social investment industry. It is dedicated to the concept, practice, and growth of socially responsible investing. The Forum's 500-plus members include financial planners, banks, mutual fund companies, research companies, foundations, and community investing institutions.
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