Today, a group of around forty large European and American institutional investors (representing USD 4.8 trillion in assets under management), endorsed the Council of Institutional Investors' position that the Securities and Exchange Commission (SEC) should continue to be the preferred arbiter of shareholder proposals. Asimwe Ruganyoisa, RI Strategy ＆ Partnerships Manager at APG, explains why APG was one of them. “The SEC process gives the company an opportunity to engage with investors and have a constructive dialogue.”
Why is this statement important?
“It’s important to safeguard shareholder rights. One of these is the right to file shareholder proposals and to vote on them. It is a key instrument in our toolkit for responsible investment, specifically in stewardship. Normally, we engage with companies and we vote on matters that they put on the AGM agenda. But if we’re not satisfied with the progress of that engagement, we can file a shareholder proposal as a way to encourage companies to do more. It gives us a voice at the AGM and allows us to raise our concerns with other shareholders. As a long term investor we believe that sustainability ultimately does affect the financial performance of a company, so it is especially important for us to keep the right to file and vote on sustainability related shareholder proposals. Because at the end of the day, we do it in the interest of the company.”
In the statement it is claimed that the SEC process generally is superior to litigating differences over whether shareholder proposals should be put on the agenda of the AGM. Why is that?
“The key role of the SEC is to maintain a fair and efficient market and it also protects investors, by making sure there is truth and fairness. There are clear rules in place and the SEC’s Rule 14a-8 clearly outlines when a company must include a shareholder proposal and when it's allowed to exclude it. If the company assesses that a certain shareholder proposal negatively affects business operations, it can go to the SEC and state under that rule why it thinks this shareholder proposal should not be on the proxy statement. This system has worked well so far and one of the reasons for that is that the SEC has always communicated in a language that both large institutional investors and individual investors can understand. If these differences are addressed via litigation, the process might be more complicated and less inclusive for smaller or individual investors which might put that truth and fairness at risk.”
But isn’t a court also supposed to decide in the interest of truth and fairness?
“It is, but if an individual investor runs the risk of being taken to court by a large corporation, he or she will think twice before filing a shareholder proposal. A large corporation has access to a team of expensive lawyers, so in practice it’s not always an equal fight. Another more important reason why the SEC process is superior to litigating differences, is that it gives the company an opportunity to engage with investors and have a constructive dialogue. We acknowledge that the increased number of sustainability-related shareholder proposals might be a little overwhelming for companies. And maybe not all shareholder proposals have the highest quality, but a company can give feedback and help improve them during the filing process. A constructive dialogue like that is less likely to happen if you go to court.”
Has the increased number of shareholder proposals also led to a trend where companies increasingly go to court to settle disagreements on them?
“Until now, it has been incidental. But we don’t want it to become a trend and that’s why as investors we have made this public statement. By taking disagreements on shareholder proposals to court, a company is basically implying that its shareholders can’t assess these proposals critically. But proposals are just that, proposals. You’re only asking shareholders to vote on them. Companies need to have more faith in their shareholders’ discernment ability. So even if there was more quantity over quality, we want to make that assessment ourselves and see what’s good or not. It's not really up to the court to tell us that we can't.”