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By Ross Kerber and Jody Godoy
BOSTON / NEW YORK (Reuters) – U.S. corporations are fighting harder this year to keep activist shareholder proposals off the ballot at their annual meetings, partly because of a proliferation of investor demands for racial justice reforms.
The trend shows the high stakes for the acting head of the U.S. Securities and Exchange Commission, who in a pair of speeches this week outlined reviews of the shareholder proposal process and voting disclosures.
Last year, Trump administration appointees on the SEC raised the bar for shareholders to bring matters to a vote, even as investors poured money into the hands of fund managers using sustainability criteria to pick stocks and often backing resolutions on environmental, social or corporate governance issues.
At the same time 2020’s Black Lives Matter protests catalyzed a new wave of investor proposals focused on issues like diverse workforces and better working conditions for employees whose jobs put them at risk during the pandemic. Companies have asked to skip many of those votes. “While companies talk a good game on this, the proponents are pressing them for substance, and it’s a really touchy subject,” said Heidi Welsh, executive director of the Sustainable Investments Institute, which tracks the area.
This year companies have asked the SEC for permission to skip votes on 33% of the 437 shareholder resolutions at their annual meetings as of Monday, up from 27% last year and 26% in 2017, according to a review by Welsh for Reuters News.
Companies commonly seek SEC permission to skip votes and manage to do so about half the time, arguing for instance that proposals deal with ordinary business or have already been implemented. Even when reform proposals make the proxy ballot, management usually recommends investors vote “no.”
This week, Lee said the SEC will review rules on proxy voting and perhaps change how companies ask to skip votes. The SEC could revise guidance on when resolutions on significant policy issues eclipse ordinary business concerns, attorneys said. Some companies have signaled receptivity to striking deals with proponents at least on climate-related subjects. But companies have also moved to block votes, especially on the new resolutions.
This season Citigroup Inc (NYSE:) and others sought to exclude shareholder proposals calling for “racial equity” audits of the impact of their business on nonwhite stakeholders and communities of color.
Citigroup argued it had already “substantially implemented” internal and external initiatives promoting racial equity in finance. The SEC rejected that argument, and the proposal is going before shareholders next month.
In its March 17 proxy statement, Citi urged shareholders to vote no, saying it has “clearly demonstrated” initiatives to address racial inequity. A spokeswoman said it has committed over $1 billion to efforts like expanding access to credit.
In another case, Amazon.com Inc (NASDAQ:) argued to the SEC it should be allowed to skip a resolution filed by New York City pension leaders calling for it to review its efforts “to reduce or mitigate health and safety risks from the coronavirus pandemic” that affect its workforce.
Amazon told the SEC it already has published details of its response and that it has “growing confidence that our employees are safe at work,” and awaits a decision from the agency. A spokesperson cited other details in the request including that it spent over $10 billion on Covid-related efforts last year to keep employees safe and to get products to customers.
Activists hope Lee’s efforts will make it easier to file proposals, and that the SEC staff under Democratic leadership will allow more votes.
But Lee also said she hopes to “bring greater clarity” and reduce the number of unnecessary submissions. Alston & Bird attorney Dave Brown, who represents corporations, said they would object less if the SEC could “incentivize shareholder proposal proponents to not waste everyone’s time.”