SEC Makes Shareholder “Democracy” Just for the Big Boys

Ideas and Issues

Little Rock      Corporate chieftains’ claims that there is even such a thing as shareholder democracy has always been akin to an edict pronounced at a North Korean military parade to the assembled masses.  The notion that the little shareholder has a voice in corporate governance is simply an archaic corporate conceit more suitable to a new Hollywood version of Mr. Smith goes to Silicon Valley or Wall Street, than anything in the real world any of us will experience.

Nonetheless, against overwhelming odds, citizens organizations, environmentalists, and even religious groups, especially those led by feisty, committed groups of nuns, have employed the tactic of introducing stockholder resolutions to challenge publicly-held companies, large and small.  Even losing, which is the fate of most of these efforts, reforms have sometimes been won by repeated efforts, and certainly they have frequently gotten the attention of the bosses and the public that something isn’t kosher with the company.

The Securities Exchange Commission or SEC regulates all of this, and by goodness with the Trump team controlling the majority they want to put the kibosh to as many of these resolutions as they can, essentially painting them as nuisances, rather than internal voices for change.  In a partisan 3-2 vote on a final rule, they are laying out new rules to take a flyswatter to these trifling corporate annoyances and democratic pretense.

The Wall Street Journal gives a good capsule explanation of the new rule saying,

…a final rule requiring shareholders to hold $25,000 of stock for a year, up from $2,000 currently, in order to submit such proposals. That threshold will fall to $15,000 after two years of ownership and to $2,000 after three years, setting a sliding scale that gives priority to longer-term shareholders. The new rule also raised the percentage of votes that proposals must receive to be resubmitted—and prohibits multiple shareholders who don’t individually meet the minimum thresholds from joining together to submit a proposal.

The story adds that SEC economists estimate that this will get rid of between 50 and 75% of the resolutions.  Not that they are all that successful with a big law firm report thus far in 2020 finding that

…15 of 303 shareholder proposals related to environmental, social or political issues submitted were approved … including four on climate, three on workplace diversity and five on political spending.

As I said, this is a tactic, not a strategy per se

But who does this really stymie?  Certainly not the big retirement funds like CALPERS in California or the New York City Employees’ Retirement System, that alone has submitted over 1000 resolutions in the last 35 years.   Big funds hardly buy a team dinner for less than $25,000, much less stock in a company.  When they buy, it’s a check for millions.

In effect, the SEC, as a servant of Wall Street and its ilk, not the little investors, is clear that if you write a big check, then no problem, you have a big stick and a bullhorn.  If not, shut up and get out of the way.

You know on second thought, maybe I’m being too hard on the SEC and the corporate definitions and pretense of shareholder democracy?  They actually may think they are simply creating a system modeled on the current practice of American democracy, where it is also true that the bigger the check, the louder the voice, and citizens, just like shareholders, need to shut up, get out of the way, and do what the big boys want.