In June of 20167, the House of Representatives passed the Financial CHOICE Act, which sought to reverse many of the aspects of Dodd-Frank. Of special importance, the Financial CHOICE Act would make it difficult for all but the largest investors to file shareholder proposals by implementing requirements that investors must hold at least one percent of the outstanding shares of the company for at least three years before filing a shareholder proposal.

As discussed at the Harvard Forum on Corporate Governance and Financial Regulation here, there are three important aspects of shareholder proposals that the Financial CHOICE Act would negatively impact, namely:

Shareholder resolutions typically relate to important topics looking to improve corporate performance.
Shareholder proposals are not burdensome under current SEC rules, and in any event are (in the majority of cases), not even binding.
Allowing shareholders to have a voice is valuable to both the company and the investor.

First, shareholder resolutions are intended to help them perform better, not be an annoyance. Many resolutions tend to get votes in their favor anywhere from 30 to 50%, which is evidence that other shareholders see these resolutions as being financially favorable. Additionally, in a review of more than 200 Business Roundtable members, the majority publicly embrace the resolution process, actively and effectively engaging in that process on a wide variety of issues.

Second, "the ability of shareholders to communicate with boards, who are elected to represent them, is one of the fundamental rights that shareholders have, in exchange for providing capital to corporations." To frame this right as a burden, in an effort to stifle the voice of the shareholders, would go against 75 years of tradition which has had a huge impact upon environmental, governance, and social issues...all while growing the economy and creating jobs. As Harvard stated, "[i]t cannot - and should not - be dismissed as a process driven by shareholders with nonfinancial bees in their bonnets."

Finally, businesses should find value in considering alternative points of view. A Scientific American study noted that "people with different backgrounds bring new information [and] interacting with individuals who are different forces group members to prepare better, to anticipate alternative viewpoints and to expect that reaching consensus will take effort." In other words, listening to shareholders' ideas may make companies more apt to avoid "groupthink" and become better informed prior to taking actions, resulting in better decision making.

If you have business questions, or are considering the impact of these proposals on your business, please contact The Law Offices of Kent Petry today!