A large coalition of U.S. businesses on Monday renewed a push to convince the Trump administration to overhaul the process under which shareholders communicate with companies, changes that impact major asset firms and Main Street investors alike.
Continue Reading Below
The advocacy efforts from the U.S. Chamber of Commerce, National Association of Manufacturers and over 300 companies -- including the Walgreens Boot Alliance, Inc. and Dollar Tree – center on the often arcane proxy process.
In a letter sent Monday to Securities and Exchange Commission Chairman Jay Clayton spearheaded by Nasdaq Inc., the signatories said the current system is “driving many companies out of the public markets.”
“The U.S. proxy process is critical to public company governance,” they wrote. “These issues have real effects on the economy, job creation and global competitiveness.”
Currently, any investor with at least a $2,000 stake in a company can introduce a resolution intended to direct a corporate board to take a specific action, ranging from CEO pay to disclosing political donations. Adding complexity to the system are proxy advisory firms, which offer voting advice to shareholders on the proposals.
The process has increasingly become more controversial, as political activists on both sides of the aisle employ it in greater frequency to goad top companies to embrace more ideologically aligned policies.
The conservative Free Enterprise Project, for example, is behind a shareholder proposal at Apple to push the tech giant to interview more ideologically diverse candidates for board seats. Conversely, backing from asset managers like BlackRock, Vanguard and others is pushing support for more liberal-leaning environmental and social policies up to an all-time high.
To help curb the trend, corporate America is lobbying to raise the minimum amount that investors must meet in order to file a proposal and place more restrictive requirements around when a resolution can be reintroduced if it previously failed to garner a majority support among investors.
Top U.S. businesses are also seeking to put additional transparency measures on proxy advisory firms like Institutional Shareholder Services and Glass Lewis. The companies have immense influence over the shareholder proposal process, given that large investment firms that have substantial stake in companies rely on the recommendations when voting their shares.
Among the key complaints is the potential conflict of interest at ISS and Glass Lewis, as well as the accuracy of the voting recommendations they issue.
“Given the impact of the proxy advisory firms’ decision-making and recommendations on the capital markets, and the large percentage of institutional voting that follows their recommendations, the ability to identify and correct errors is crucial for accuracy and accountability,” Monday’s letter reads.
Proxy advisers -- particularly ISS, which operates both a consulting business and an advisory service -- argue they have proper protocols in place to mitigate any potential conflicts and stand behind the accuracy of their reports.
The U.S. House of Representatives previously passed legislation to force proxy advisers to register with the SEC. A bipartisan group of senators last Congress introduced a less-extreme version of that measure. Neither is expected to make it President Trump’s desk in 2019, turning the focus on the agency.
Clayton -- who has made protecting Main Street investors a centerpiece of his agenda at the helm of the agency -- has indicated the SEC will take action on the issue. The agency in 2018 held a roundtable on the proxy process and supporters of a shift believe it will soon act.