Companies fight activist shareholders

Companies finally have a chance to get activist shareholders out of the boardroom, and NAM is playing a leading role in doing so (The Wall Street Journal, subscription).

What’s going on: “After a change in SEC policy made it easier for shareholders to submit specific proposals, investors of all political stripes are increasingly pressing companies on key issues such as climate, abortion, guns and diversity, submitting hundreds of proposals each year,” however, ongoing litigation aims to put an end to the practice whereby issues that often have nothing to do with a company’s operations are put to a vote at the annual proxy meetings of publicly traded companies.

• In November 2021, the SEC issued new guidance – over strong opposition from NAM – requiring companies to allow a vote on any proposal that raises a political issue with a “broad social impact,” regardless of whether the issue is material to the company’s business or not.
• In “a lawsuit before a federal appeals court in New Orleans, the National Association of Manufacturers … argues that the SEC has overstepped its bounds and should not be involved in deciding which proposals will be adopted.”
• Individual companies are also taking the case to court, with Exxon Mobil “suing” two shareholder advocates, arguing that they were activists pursuing a “Trojan horse” strategy to acquire a platform that would deliberately harm its business despite owning only a small amount of stock.”

Why is it important: Corporate proxy meetings are not the appropriate place to make political decisions that are irrelevant to the company’s business, and imposing divisive issues on the proxy ballot creates unnecessary controversy and diverts time and resources from growing the business and creating shareholder value, NAM said House Financial Services Committee last summer.

• Since the SEC’s new policy went into effect, the number of activist proposals has skyrocketed. This year, shareholder activists imposed a record 739 proposals on company proxy statements.
• “Shareholders who have held as little as $2,000 in company stock for at least three years are eligible to submit proposals under SEC rules.”

Last sentence: “NAM is fighting to ensure that manufacturers can focus on the needs of long-term shareholders: Main Street investors and manufacturing workers saving for a new home, a child’s education or a secure retirement,” said NAM Vice President of Domestic Policy Charles Crain . “Activists, empowered by the SEC, are distracting from these goals in pursuit of narrow policy agendas, which threatens production growth and job creation.”