Clearing the Bar: Shareholder Proposals and Resubmission Thresholds

Brandon Whitehill is a Research Analyst at the Council of Institutional Investors. This post is based on a CII Research and Education Fund memorandum by Mr. Whitehill.

The shareholder proposal process—when a public investor submits a proposal, the board of directors considers the issue and the company’s shareholders vote on the proposal—is a leading conduit for engagement and dialogue between investors and issuers in the U.S. public capital markets. Between 2011 and 2018, more than 3,600 shareholder proposals went to a vote at Russell 3000 companies, and many more were submitted but not voted. [1]

One-third of the proposals voted over this period went to a vote two or more times at the same company. But to be eligible for resubmission, a proposal must meet a minimum threshold of support in previous attempts. This analysis uses a dataset of the voted shareholder proposals between 2011 and 2018 at Russell 3000 companies to determine the impact of the current resubmission thresholds as well as the potential impact of proposals to raise them. [2]

The key findings of this analysis include:

  • The vast majority of shareholder proposals satisfy the current resubmission thresholds of 3%, 6% and 10%. About 95% of proposals are eligible for resubmission after the first attempt, 90% after the second and third attempts and nearly all proposals that clear those thresholds and are submitted again remain eligible in subsequent submissions.
  • About 20% of proposals win majority shareholder support on the first attempt.
  • Less than 5% of proposals that fail to win majority support the first time go on to pass in a subsequent attempt. Even so, proponents can often successfully engage companies if their proposals win substantial, but less than majority, support.
  • Looking at environmental, social and governance classifications (ESG), governance issues comprise the most common proposal subject matter and win the highest levels of support. About 97% of governance proposals, 92% of environmental proposals and 87% of social proposals satisfy the current resubmission thresholds during this period.
  • Raising the resubmission thresholds will necessarily exclude more proposals. A modest increase to 5%, 10% and 15% would roughly double the number of ineligible proposals. A more substantial increase to 6%, 15% and 30%, as included in the Financial CHOICE Act and advocated by certain management-oriented groups, would triple the number. Doubling the current thresholds to 6%, 12% and 20% would have an impact that falls between these two scenarios.
  • The 6/15/30 scenario could render more than half of environmental and social proposal ineligible for resubmission, particularly after the third attempt. Under the 5/10/15 and 6/12/20 scenarios, about 90% of governance proposals and 70% of environmental and social proposals would remain eligible for resubmission.
  • Of the proposals that were eligible under existing rules but would fail to satisfy the increased thresholds, only about one-third were actually resubmitted between 2011 and 2018, and those that were gained two to four percentage points in support on average. Raising the resubmission thresholds could, however, exclude anywhere from seven to 38 proposals that went on to win substantially higher support when resubmitted, depending on the scenario (see Box 1).

Box 1–Impact of Raised Resubmission Threshold Scenarios

This analysis considers three proposals to raise the resubmission thresholds: a modest 5/10/15, a doubling 6/12/20 and a substantial 6/15/30 increase scenario. The table below shows the impact of each scenario based on the dataset of 3,620 shareholder proposals voted at Russell 3000 companies between 2011 and 2018. For more detail, see Table 11 on page 19 of the complete publication, available here.

Excludable proposals shows the number of proposals eligible for resubmission under the current 3/6/10 thresholds that would be excludable in each scenario. Resubmitted is the number of proposals that were actually resubmitted. Higher support refers to the number of proposals that went on to win substantially higher support in a subsequent attempt that would be excludable in each scenario. And change in support is the average percentage point change in support in the next attempt for those proposals that were resubmitted.

Scenario Excludable Proposals Resubmitted Higher Support Change in Support
Modest (5/10/15) 240 73 7 +2.7%
Doubling (6/12/20) 348 122 15 +3.9%
1997/CHOICE (6/15/30) 457 180 38 +2.8%

The complete publication is available here.

Endnotes

1All data for the 2011–2018 dataset used in this analysis come from ISS Link, SEC Filings and CII analysis. Download the dataset at https://www.ciiref.org/resubmission-thresholds.(go back)

2No analysis of shareholder proposals and resubmission thresholds is perfect, including this one. The dataset used here relies on the descriptions of shareholder proposals assigned by ISS Link, which does not always comport with what the SEC or courts might judge as a proposal on “substantially the same subject matter.” For example, ISS classifies a proposal to reduce a supermajority voting threshold differently from one eliminating a supermajority threshold, when in reality the proposals could be the same or substantially similar. The dataset for this analysis does, however, take into account the five-year lookback on resubmission thresholds. For example, if a proposal was voted in 2011 and resubmitted in 2016, the 2016 attempt is coded to correspond with the first-year threshold.(go back)

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