A “Shareholder Proposal” is an essential component in the tool kit of any investor activist or corporate gadfly.

Basically, a shareholder proposal is a document recommendation that a shareholder formally submits to a publicly traded company advocating the company take a specific course of action.

The process requires having more than an opinion, but being able to articulate a specific course of action for a policy change for the betterment of the company.

This is the essence of participatory, responsible shareholder activism. Your idea should be able to withstand an opposing viewpoint and flourish based on its merits. It should be practical and include a clearly defined path to implementation, and offer an innovation that can generate support in the shareholder base, which will ultimately vote on the measure. Here are more basics on the shareholder proposal:

Who Can Submit a Shareholder Proposal?

Prior to the early 1980s, anyone holding a single share in a publicly traded company could submit a proposal, even if they purchased that single share the day before the annual meeting. Not anymore.

According to the rules set forth by the US Securities & Exchange Commission (SEC), only shareholders who own more than $2,000 in stock or 1% of the company are permitted to initiate a shareholder proposal. This standard is certainly reasonable.

Once the proposal is submitted, the SEC rules require the company add the proposal to the agenda for voting the next annual shareholders meeting, unless the SEC provides special permission to exclude it from consideration.

What Should the Shareholder Propose?

A shareholder proposal should not be an ambiguous rant, but a well-conceived recommendation to take a specific course of action. Some typical uses of shareholder proposals are to address issues with management compensation, change shareholder voting rights, focus on a policy related to a social or environmental issue, or to advocate for corporate charitable contributions. However, due to the say-on-pay voting mandate where shareholders can vote against CEO compensation packages, the proposals related to corporate pay have since declined.

Therefore, the more successful proposals will address a specific company policy and provide a detailed resolution for adopting a change to that policy or company by-law.

Where Do You Send Shareholder Proposals?

The contact information for where to submit shareholder proposals is available on the company’s proxy statement from its most recent annual gathering. This will include the submission deadline, which is generally six months prior to the actual meeting. The point of contact is more than likely the corporate counsel.

Be timely. In many instances, the recommendation in a proposal is something management would prefer to ignore. Missing the deadline enable that to happen. And use a reliable shipping service that can provide a signed receipt of delivery.

Can You Campaign for Your Proposal?

Campaigning for your proposal subsequent to its filing with the company is generally considered a solicitation by the SEC and prohibited. When it comes to matters related the publicly traded companies, the SEC typically requires the full and fair disclosure of information to ensure a level playing field for all investors. Therefore, selectively campaigning the merits of your proposal after it is filed ventures into this zone of disclosure and would more than likely require you file shareholder communications or releases with the EDGAR distribution service. TheShareholderActivist.com urges you to review the rules on disclosure, available at www.SEC.gov and consult an attorney to avoid becoming ensnared in a violation.

Presenting the Proposal

You will need to attend the annual meeting to present your proposal, unless in the unlikely event management agrees to a vote without the proposing shareholder present. Carefully review the proxy statement to understand the rules of attendance and participation. It is also recommended to call ahead to overcome any potential issues or requirements for admission to the meeting.

Costs and Fees

Costs can vary. Aside from your time and effort, documentation filing and associated legal fees can run several thousand dollars.

Next Steps

Before you start to fire in shareholder proposals, carefully review your position. Ensure it is a practical resolution, one based on affecting a policy change, so you will need to research company by-laws. Consult an attorney, but do your research beforehand to make the best use of that billable time. And emotion and passion are fine for motivation, but base your decisions on sound logic and an objective perspective to ensure a shorter path to success.

To contact Craig McGuire directly, please email Craig.McGuire@TheShareholderActivist.com.