January 31, 2020
In a 12-page comment dated Jan. 31, CPA formally opposed rule changes under consideration by the U.S. Securities and Exchange Commission that would cripple small investors’ ability to seek policy changes from American companies and undermine their First Amendment rights.
Using data and analysis, the comment concluded that successful disclosure agreements CPA has championed at such leading companies as Alphabet, Goldman Sachs, JPMorgan Chase and Boeing would have been blocked if the proposed rules had been in place. In addition, the commentary said corporations have realized strong dividends through the SEC’s existing shareholder proposal process.
“The process provides an early warning system for management, alerting them to problems or issues that may have evaded their radar. It serves as a pressure release valve, allowing investors to push for incremental change without the burden and costs of newly imposed regulation. The proxy process also allows companies to engage with shareholders on specific issues, helping to avert unhealthy escalation of conflict,” CPA wrote.
“The proposed rule changes would disproportionately hit small investors and their ability to wage multiyear campaigns for improved disclosure and policy changes. Specifically, the increased resubmission thresholds, as well as the new ‘momentum’ requirement, would severely impair the capacity for investors to raise new issues, spread awareness, and build sufficient support to force management to take action.”
“Indeed, an analysis hypothetically applying the currently proposed resubmission thresholds to all past proposals based on the Center’s model political disclosure resolution reveals both that successful efforts to bring disclosure and transparency to company political spending would have been blocked before reaching a critical mass of support and that a number of efforts already receiving significant shareholder backing would have been excluded due to random year-to-year fluctuation in shareholder votes.”
CPA has been in the forefront of opposition to the SEC proposal since the Financial Times published in November the Center’s op-ed urging against its adoption. The rules would raise ownership thresholds for filing a shareholder proposal; bar share aggregation; set new thresholds for resubmission of a proposal; and impact proxy advisors.
“Thanks in part to the proxy proposal process, voluntary corporate political disclosures are becoming a corporate governance norm and are a positive example of campaign finance reform achieved through private, not public, channels,” CPA told the SEC in its comment.
“Ironically, the SEC’s move comes at a time when more shareholders are engaging with companies, and many board members have become more responsive to investor perspectives. It would be harmful to companies to undercut a long-held shareholder right when it has provided companies the benefit of lower risks and better investor relations. Further, the proposal would undermine Justice Anthony and the Supreme Court’s expressed faith in the ‘procedures of corporate democracy’ to protect all shareholders,” CPA said in a reference to the Supreme Court’s Citizens United decision a decade ago.
“Those ‘procedures of corporate democracy’ were sufficient in the Court’s view to ‘protect []dissenting shareholders from being compelled to fund corporate political speech.’ But the extent to which the SEC’s proposed rules undermine the protections of all shareholders – particularly individuals and small shareholders – calls into question whether dissenting shareholders will be sufficiently protected from being compelled to fund corporate political speech.”
CPA also authored this month a critique of the SEC rules in a post published by the blog of the Harvard Law School Forum on Corporate Governance and Financial Regulation.
A separate critique by Eleanor Bloxham, a CPA ally and founder of the Value Alliance Co. and the Corporate Governance Alliance, recently appeared in Barron’s. It was headlined, “The SEC’s New Rules Will Move Companies Backward.”