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In a recent survey report published by the University of Delaware’s Weinberg Center for Corporate Governance and supported by the NAM, public companies—including many NAM members—voiced concern about the politicization of the shareholder proposal process.

• They also exppessed support for updating the Securities and Exchange Commission’s rules to tighten minimum ownership requirements and the support thresholds for resubmitted proposals.

The findings: Overall, company representatives indicated dissatisfaction with the misuse of the proposal process, with 79% of respondents agreeing that proposals are primarily used to promote activists’ political and social views.

• Public companies reported that they incur significant costs, primarily on outside counsel fees, in responding to shareholder proposals.
• A majority of corporate respondents said they spend more than $100,000 each year, about 25% said they spend at least $500,000, and 11% reported that they spend more than $1 million.

The fixes: Sixty-one percent of respondents supported replacing the current $2,000 minimum ownership threshold for long-term investors with a percentage requirement (such as 1% or more of a company’s outstanding shares), while 41% called for increasing the minimum dollar stake to $1 million or more.

• Almost 86% of company representatives favored increasing the minimum support levels required for shareholders to resubmit the same proposal in subsequent years. Respondents supported requirements of 10% (after year one), 20% (after year two) and 40% (after year three). The current thresholds are 5%, 15% and 25%, respectively.

Why it’s important: The SEC is considering proposing new rules to govern the shareholder proposal process. The NAM has submitted recommendations to the SEC to address the politicization of the proposal process and to reduce costs for manufacturers.

• “The responses to the Weinberg Center survey indicate that reforms are needed to improve the proposal process, which has been hijacked by professional shareholder proponents that seek to force companies to act according to their own narrow interests rather than to promote long-term investor returns,” said NAM Senior Director of Corporate Finance Policy Ted Allen.