This may surprise some shareholder advocates, but executives appear to act in the company’s best interest when they challenge shareholder resolutions via the Securities and Exchange Commission’s no-action process.
A preliminary University of Southern California study found companies reach out to the SEC staff to exclude from their proxy statements about 31 percent of the shareholder proposals they receive. The SEC staff grants relief in about 67 percent of the resolutions it is asked to consider, agreeing that they can be omitted.
The USC study tracked market responses to the SEC’s no-action process from October 2007 to August 2016. It found that the market reacted positively in terms of stock price when the staff granted no-action relief.
The study concluded that corporate managers resist these shareholder resolutions because they could hurt the company’s bottom line, and that investors agree the proposals are “value-destroying.” The study also found that investors are especially skeptical of resolutions by so-called “gadfly” proponents, i.e., individual shareholders who submit numerous resolutions at companies.
“Among the different types of shareholders whose proposals are challenged by managers, we find that proposals from individual shareholders are the most value-destroying,” the study said.
The draft study was released in December by authors John Matsusaka, Oguzhan Ozbas and Irene Yi. Matsusaka told Bloomberg BNA that the authors are “still adding data and fine-tuning” their estimates.
The study adds to the ongoing debate about whether corporate managers are self-interested or act responsibly when they oppose shareholder resolutions. It also offers an encouraging sign that managers are indeed looking out for the company.
Going forward, will this dynamic change? The coming Trump administration has made no secret of the fact that it is aiming for less regulation. Under such circumstances, shareholder engagement likely will increase, and the shareholder proposal process will become ever more important as shareholder proponents—both individual and institutional—try to address corporate governance, social or policy concerns at individual companies.
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