A newly announced policy by the US Securities and Exchange Commission threatens the accountability and transparency in the shareholder proposal process, Ceres CEO and President Mindy Lubber said in a statement.
The agency announced on Friday it will no longer issue written guidance on all shareholder proposals that companies elect to exclude from their ballot.
“The current shareholder proposal process is clear, transparent and efficient. While investors and companies may disagree about certain elements, they should be in agreement that the proposed new approach announced by the SEC would be bad for investors and companies,” Lubber said. “Without clear written guidance from the SEC, investors and companies will face uncertainty, increased costs, and companies could even face increased lawsuits from shareholders.
Under the current system, companies can notify the SEC when they believe a shareholder proposal is not in compliance with SEC rules. Investors can then defend their proposal in writing and receive a brief letter from SEC staff indicating whether the SEC agrees with the exclusion or recommends it be added to the shareholder ballot. The SEC makes all these documents available to the public.
“What was once a public process will now be opaque, with the SEC leaving recommendations it currently makes to the courts,” Lubber added. “Lawsuits are far more expensive for both investors and companies compared to the existing process.”
It remains to be seen how the SEC will implement this rule change. This is the latest action by the SEC over the last several years to limit shareholders’ rights to engage with the companies they own on environmental, social and corporate governance issues.