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Companies Fight Back Activist Shareholders

Companies are finally getting a chance to tell activist shareholders to leave the boardroom—and the NAM is playing a leading role in the effort (The Wall Street Journal, subscription).

What’s going on: “After a change in SEC policy eased the path for shareholders to bring forward certain proposals, investors of all political stripes have increasingly pressed companies on hot-button issues such as climate, abortion, guns and diversity, filing hundreds of proposals each year”—but pending litigation aims to put a stop to the practice, in which issues that frequently have nothing to do with a firm’s business are brought up for a vote at publicly traded companies’ annual proxy meetings.

  • In November 2021, the SEC issued new guidance—strongly opposed by the NAM—requiring companies to allow votes on any proposal raising a policy issue with “broad societal impact,” whether the issue is relevant to the company’s business or not.
  • In a “suit now before a federal appeals court in New Orleans, the National Association of Manufacturers … is arguing that the SEC has overstepped its bounds and shouldn’t be involved in deciding which proposals make it through.”
  • Individual companies are taking the issue to court as well, with Exxon Mobil “su[ing] two shareholder proponents, arguing that they were activists pursuing a ‘Trojan horse’ strategy to gain a platform to deliberately hurt its business despite only holding a tiny amount of shares.”

Why it’s important: Corporate proxy meetings are not the appropriate venue for policy decisions that are irrelevant to a business’s operations—and forcing divisive issues onto the proxy ballot invites unnecessary controversy and diverts time and resources away from business growth and shareholder value creation, the NAM told the House Financial Services Committee last summer.

  • Since the SEC’s new policy took effect, activist proposals have skyrocketed. This year, activist shareholders have forced a record 739 proposals onto company proxy statements.
  • “Shareholders with as little as $2,000 in company stock for at least three years are eligible to put forward proposals under the SEC’s rule.”

The final say: “The NAM is fighting to ensure that manufacturers can focus on the needs of long-term shareholders: Main Street investors and manufacturing workers saving for a new home, a child’s education or a secure retirement,” said NAM Vice President of Domestic Policy Charles Crain. “Activists, empowered by the SEC, distract from these goals in pursuit of narrow political agendas—threatening manufacturing growth and job creation.”

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