House Panel Approves Bill to Rein in Persistent Investor Activism

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By Andrea Vittorio

Shareholder activists would have a harder time getting proposals that don’t pass placed back on a company’s ballot under a Republican-led bill approved June 7 by the House Financial Services Committee.

Proposals would have to get at least twice as much support from other investors voting at companies’ annual meetings compared to what’s currently required to get another try, according to the legislation (H.R. 5756) sponsored by Rep. Sean Duffy (R-Wis.). It cleared the committee in a 34-22 vote.

Duffy said raising these voting thresholds would prevent shareholder meetings from getting taken over by activists.

“I’m not opposed to activists pushing companies,” he said during the committee’s debate on the bill. But activists that can’t rally enough shareholder support shouldn’t force companies to reconsider what Duffy called “zombie proposals.”

His bill would require that at least 6 percent of a company’s shareholders voted in favor of a proposal the prior year for it to be resubmitted once, up from the 3 percent currently required by the Securities and Exchange Commission. The bar for the next resubmission would rise to at least 15 percent support, instead of 6 percent, and after that it would climb from 10 percent to 30 percent.

Shareholder proposals have come under fire from Republican lawmakers and business groups as BlackRock Inc., Vanguard Group, and other top investment managers have increasingly thrown their weight behind advocacy on issues such as climate change and boardroom diversity.

‘Persistent Efforts’

Financial Services Committee Chairman Rep. Jeb Hensarling (R-Tex.) wanted to effectively shut down these proposals as part of an earlier, more sweeping piece of legislation to roll back regulations on Wall Street. Hensarling’s bill passed the House but wasn’t taken up by the Senate.

The U.S. Chamber of Commerce, the National Association of Corporate Directors, and other groups have also pushed the SEC to curb shareholder proposals before. They say repetitive submissions with limited support are a distraction for company management.

Institutional investors have hit back, saying higher hurdles could knock out proposals on issues such as diversity on corporate boards that take time to gain traction.

“When shareowners first filed proposals encouraging board diversity, they initially received votes in the low single digits,” Thomas DiNapoli, who oversees the third largest public pension fund in the U.S., told Hensarling in a recent letter. “Now, because of the persistent efforts of shareowners, board diversity policies have received high votes.”

Shareholder support for proposals on board diversity averaged 27 percent in the most recent round of annual meetings, according to Proxy Pulse. A few of these proposals have gotten backing from a majority of investors, data from Institutional Shareholder Services Inc. show, while other diversity-related proposals have been adopted by companies without a vote.

An SEC spokeswoman declined to comment on Duffy’s bill.

—With assistance from Catherine Moran

To contact the reporter on this story: Andrea Vittorio in Washington at avittorio@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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