Can Anyone File a Shareholder Proposal?

The Shareholder Activist - Can Anyone File a Shareholder Proposal?Shareholder advocacy is a participatory sport.

One of the essential tools in the toolkit of any corporate gadfly is the shareholder proposal, also known as the shareholder resolution. This is a formal proposal submitted by a shareholder or a group of investors in a publicly traded company to compel management to take a specific action.

In most instances, proposals are opposed by management (otherwise, they would sponsor these changes themselves). That is not surprising, as resolutions usually address corporate governance issues including executive compensation or corporate social responsibility (e.g. investments in countries with questionable labor practices, green policies).

Still, though you may have an opinion does not mean you are entitled to try and impose that opinion.

Minimum Threshold for Filing

Corporate chieftains bristle at the notion of outside interference.

So a shareholder must be on the inside, at least for the purposes of submitting a shareholder resolution, must own more than $2,000 in stock or 1% of the company (the 1% figure can be valued at less than $2,000) to submit a proposal.

The shareholder must own this minimum stake for no less than a full calendar year prior to the date the proposal is submitted, and then continue to hold them through the date of the annual meeting, when proposals may be brought for a vote (and not just the record date).

This waiting period was imposed in the 1980s by the US Securities and Exchange Commission (SEC), which governs the process for submitting proposals. Prior to this, in order to submit, a shareholder had only to purchase a single share the day before the deadline for proposal submissions.

The SEC sought to strike a balance between safeguarding the resolution process and addressing corporate outcry over the burden of addressing proposals not necessarily focused on improving the state of their company.

Today some investor activists will submit similar proposals to multiple companies to advance a larger agenda.

Voting Shares and Share Price Depreciation

In order to be eligible to submit a resolution, the shareholder must meet the requirements of share ownership, but those must be shares with voting rights. Several publicly held companies issue multiple classes of shares. Considering the waiting period, if you intend on submitting a proposal, make sure your shares are imbued with voting privileges, or you will have to purchase new shares and wait an entire year.

Furthermore, make sure and monitor the share price to make sure it does not depreciate within the period you need to hit the $2,000 minimum threshold.

Specifically, within 60 days before you submit your resolution, the average of the bid and ask price as recorded on the primary exchange where the company’s shares are traded, must be enough to value your shares at $2,000.

If this information is not available, you can calculate the value of your shares based on the highest selling price recorded for the period of one year prior to your submission.

Make Sure Ownership is Documented

To avoid any confusion and the potential for your submission to be rejected, it is recommended that you exceed the minimum thresholds, to the point where you will not be concerned. Also, secure documentation ensuring you meet minimum thresholds, so you have it later when you may need it.

To prevent any last-minute issues with submission, make sure you are listed as the “registered holder of shares,” which your company should be able to confirm easily.

If your shares were purchased by a broker, you would need to secure a formal letter confirming you are, in fact, the record holder of the amount of shares required to meet the threshold.

Again, this is another formality, but one that can trip as the deadline for submission approaches, if you do not to address it early. That letter of confirmation should be submitted along with your actual proposal. But make sure the dates of both match, to avoid having your proposal questioned, as management could claim the potential that you sold your shares or did not hold them continuously between the dates.

Additionally, brokerage letters and other reporting usually do not meet the standards for documentation to establish continual ownership. Your broker should be familiar with the requirements, but know that you are ultimately responsible for eligibility.

Eligible Does Not Equal Viable

This blog is for information purposes only, and not intended to be the definitive eligibility guidelines for your proposal. Hopefully, it helps you prepare effectively, but you should consult a professional to avoid any frustration.

If a shareholder, or group of shareholders, meets these requirements, they are likely eligible to submit, with the intention of being brought up for a vote at the company’s annual meeting.

However, depending upon the temperament of the board, the substance of the proposal, the support among fellow shareholders, SEC regulations and many other factors, the resolution may not even make it to the floor for a vote.

We will cover these topics in future blogs.

Still, though the SEC has tightened requirements and there are many obstacles a board’s management can throw in your path, especially if your submission is not buttoned up properly, the company is required to provide a letter detailing what measures you need to take to revise your submission.

To contact Craig McGuire directly, please email

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Posted in Craig McGuire, Shareholder Activism Spotlight, Shareholder Policies & Investor Regulations, Shareholder Proposals, Tools for Shareholder Activists | Comments Off on Can Anyone File a Shareholder Proposal?

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