New CII Report Examines Shareholder Proposal Process, Efficiencies

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By Michael Greene

Nov. 12 — Both large companies and institutional investors agree “that shareholder proposals are an important form of communication,” but they disagree on how to enhance this process, according to a Nov. 6 Council of Institutional Investors report.

The report highlighted some of the key takeaways from a July 9 CII investor-company roundtable, where representatives of large companies and institutional investors discussed ways to improve the efficiency and effectiveness of shareholder proposals.

According to the report, the two constituencies agreed “that both sides should take care throughout the shareholder proposal process to (1) ensure accuracy in any correspondence—whether by letters, dialogue or shareholder proposals; (2) be responsive; and (3) treat the other side with respect.”

The two groups, however, diverged on a range of issues related to pre-shareholder proposal communications, who should lead a company's response and when no-action requests should be made.

Who Leads?

According to the report, one key takeaway from shareholder proposal proponents is that decisionmakers on the board, such as the chairman of the committee most relevant to the proposal, “should lead a company's response and/or dialogue.” This group believes that “[i]t is the company's prerogative whether to include management in engagement discussions and in some cases management's presence enhances the quality of the engagement.”

Proponents also noted that although outside consultants may be included in the process, “they should not be the lead representative or spokesperson in an engagement.”

In contrast, the company view is that “the board should oversee the proposal process while not necessarily leading it.”

Pre-Proposal Communications

The two sides also had differing views on pre-proposal communications. According to proponents, “[c]ommunicating with companies before submitting a proposal can be beneficial. However, in some circumstances proponents may not consider pre-proposal communications practical or warranted due to a variety of factors.”

On the other side, the company view is that “[p]roponents are strongly encouraged to contact companies before filing a proposal.”

Companies found that these communications “give the board and management more time to understand and evaluate issues, to engage with shareholders and to negotiate mutually satisfactory settlements without the time and expense of the proposal process.”

No-Action Requests

Both sides agreed that “directors should play a role in decisions regarding the pursuit of no-action relief from the U.S. Securities and Exchange Commission.” The sides, however, had different views on when such relief should be pursued.

The proponents' view is that certain no-action arguments based on trivial errors or minor technicalities, “such as challenging the stock ownership of institutional investors experienced with shareholder proposals, are a waste of time and resources both for companies and proponents and detract from a meaningful engagement process.”

According to the proponents, “[c]ompany resources spent on no-action requests may be better spent engaging with proponents on the substance of the proposal or simply allowing shareholders to vote on it. If there are questions about the accuracy of a statement, it is preferable to give the proponent an opportunity to amend the proposal before going to the SEC.”

The company view is that no-action requests are “not a hostile act” and “should not be interpreted as signaling a company's unwillingness to dialogue.”

Moreover, companies believe that “[t]iming considerations may necessitate the submission of a no-action request before any engagement has commenced.”

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Ryan Tuck at

The report is available at