In a letter to the Securities and Exchange Commission, Open MIC voiced strong opposition to proposed new rules that would severely limit the rights of shareholders to engage with corporations regarding risky social, environmental and governance practices, including shareholders’ ability to file shareholder resolutions.
For over a decade, shareholder resolutions have been the bread and butter of Open MIC’s work, serving as a key tool in the organization’s fight for corporate accountability in the media and tech sectors. Open MIC has worked with a range of individual and institutional investors — pension funds, foundations, institutional asset managers, etc. — to file shareholder resolutions addressing a range of risks, including weak cybersecurity, privacy and data concerns, the spread of disinformation and hate speech online, and inadequate corporate governance.
Those lobbying for the proposed rule changes, including the U.S. Chamber of Commerce, BlackRock and the Business Roundtable, are exaggerating the cost of the shareholder resolution process to companies in order to avoid accountability to the public interest on a range of social issues. Currently, the rules permit any shareholder owning either $2,000 or 1% of a company’s securities for one year to submit a proposal. In a capitalist system where money is power, this allows smaller and less influential shareholders to raise concerns that might not be voiced by larger, more powerful shareholding institutions. Open MIC joins a wide range of stakeholders seeking to block the SEC rule changes; for example, a group of Amazon employees recently spoke out against the proposed amendments, arguing that they would discriminate against “…employees at tech companies awarded stock as part of their compensation who wish to have a say in how a company is run and kept accountable.”
Proposed Changes to the 14a-8 Rule
The SEC’s proposed amendments would raise the threshold to $25,000 for one-year holdings, effectively silencing smaller shareholders. In addition, the proposed amendments would require that proposals receive votes of 5% (after the first year), 15% (after the second year) and 25% (after the third year) support in order to meet the threshold for resubmission — up from the current requirements of 3%, 6% and 10%. The current rule allows time for emerging issues to garner support from investors. As mentioned in our letter to the SEC, “many emerging risks in the tech sector – which can be highly technical and difficult to identify – would be raised for shareholder consideration only after significant damage has been done.”
Contrary to one of the governing assumptions of the proposed changes, a proposal’s success does not require majority shareholder voting support. Companies often adopt corporate policies and practices following votes that did not reach majority support. This is especially true at companies with “dual class” shareholding structures, which provide founders with more voting power. The SEC’s proposed changes would drastically reduce the diversity and number of shareholder proposals and would substantially undermine the effective process of shareholder participation.