Each year, public companies hold annual shareholder meetings to evaluate a company’s performance, elect board directors, and discuss the business’s priorities for the year ahead. At these meetings, companies consider proposals from shareholders interested in guiding corporate decision-making, and the company, in turn, relies on its broader shareholder base to vote on the merits of a proposal. Enabled by the Securities and Exchange Commission ("SEC"), a handful of special interest, politically-motivated activist shareholders are increasingly forcing public companies to consider proposals that do not have the company’s long-term success in mind.
Look no further than ExxonMobil’s annual meeting, where a shareholder proposal sponsored by two activist investors caused the company to seek recourse in court. One of the sponsors publicly stated that “Exxon should shrink”; the other bragged that its proposals are “Trojan Horse[s]” designed to wind down the company’s core business. Despite investors repeatedly rejecting previous proposals on the same question, ExxonMobil was once again forced to consider this proposal because the SEC would not grant an exemption. In frustration, ExxonMobil filed a lawsuit against the activist sponsors of the proposal, which the Chamber supported in an amicus filing.
While ExxonMobil’s shareholders overwhelmingly rejected a coordinated attack in response to the company’s lawsuit, a handful of well-coordinated activists will continue to force companies to consider the political whims of a few across the marketplace unless policy at the SEC changes.
Underpinning ExxonMobil’s – and many other companies’ – frustration is that the SEC has created new opportunities for this politically-minded subset of activists to commandeer corporate proxy statements for their own political ends, especially via its 2021 Staff Legal Bulletin 14-L (SLB 14-L).
SLB 14-L makes it more difficult for companies to seek no-action relief from the SEC for proposals that have a “broad societal impact,” a loosely defined term that relies on staff interpretation for its application. The proxy process is not about forcing votes to advance political agendas with “broad societal impact.” Worse still, the SEC has recently proposed a rulemaking to make the process even more onerous for companies.
Despite repeated warnings from the Chamber, including a recent appearance on CNBC’s “Squawk Box,” and oversight from Congress, the SEC has overtly politicized the proxy process and thus bears the brunt of responsibility for the results. The SEC must reverse Staff Legal Bulletin 14-L and do its job by putting a stop to these efforts to politicize the shareholder system. Otherwise, it is likely more companies will seek recourse against shareholder activists in the future.
About the authors
Evan Williams
Evan Williams is Vice President at the U.S. Chamber of Commerce Center for Capital Markets Competitiveness (CCMC).
