What are the Real Costs for Submitting a Shareholder Proposal?

The Shareholder Activist - What are the Real Costs for Submitting a Shareholder Proposal?No one said shareholder activism was easy…or cheap.

A shareholder proposal is one action a shareholder, or group of shareholders, can take to attempt to affect change. 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, usually related to corporate governance.

There is no actual fee for filing a shareholder proposal. However, before you head down this path, it helps to know the indirect costs you will incur for your activism.

Initial Stake in Company

There is an initial entrance fee just to get in the game.

In order to even be eligible to formally submit a shareholder resolution, an investor must own more than $2,000 in stock (with voting privileges) 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).

However, to avoid any issues with eligibility related to dips in share price that may drive down the value of your stake below the $2k threshold, I suggest you purchase more than the minimum.

If the share price does drop, you would have to produce documentation that 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, was value at $2,000 or more. But why bother with the hassle?

Click Here for More Information on Eligibility Requirements.

The Cost of Community Building

Shareholder proposals are almost never favorably viewed by the powers that be in publicly traded companies. It may be a fantastic idea they just haven’t thought of. But more likely, it is a measure they are likely to oppose; otherwise it would have been implemented already.

A lone voice of dissension in the harsh wilderness of corporate activism is never as effective as a band of hearty shareholders.

This site provides campaign development and communication tactics to help you form a groundswell to create your alliance of like-minded shareholders. A proposal submitted by a group, especially deciding on collective share ownership of the group, will have a greater impression on the board.

Remember, few shareholder resolutions actually pass, even when brought up for a vote. But shareholder activism should not be about showdowns and victories, but rather the responsible, determined effort to influence change that will reinforce the long-term viability of the company.

Building a coalition that can support a prolonged campaign, perhaps requiring you re-submit the proposal over the cost of several years. A shareholder proposal may never garner enough votes to be adopted, but may influence change.

When you are in it for the long haul, it helps to have other shoulders to help carry the load. To be most effective and keep the momentum gradually building requires regular communications, research and community building.

Click Here to Download “Sounding the Call, Communications Tactics for Shareholder Activists.”

Primary Costs Will Be Legal Fees

If you are going to invest the time and effort to mount a shareholder proposal campaign, you need to enlist the aid of a legal professional that specializes in this area of corporate law.

Make sure and research extensively—e.g. the submission process, the company, the issue, the industry) —to minimize legal fees. However, you will need legal counsel to assist with the process, especially if interaction with the company ensues.

Expect to spend upwards of several thousand dollars.

Again, this is another reason why it is best to band together and form a coalition to share the burden.

Furthermore, if you proposal address a social or environmental issue, there may be a non-profit organization you can align with for support, which may even be active in promoting corporate change in this same area.

This is a very specific area of the law, so make sure and seek multiple opinions before selecting the firm that fits your needs.

The Emotional Expenses

In many instances, the financial costs associated with filing a shareholder proposal are dwarfed in comparison to the emotional toll.

This can be a lengthy, frustrating, agonizingly complex process with minimal chances of success, especially if you do not possess a massive stake in the company or are aligned with major stakeholders.

From the outset, make sure you clearly define your motivations and objectives while you envision the obstacles you will face.

You will need this clarity for the long road ahead.

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

Thank you for reading this shareholder activism blog. Please contact Info@TheShareholderActivist.com to request advice and recommendations on services and solutions to support corporate sustainability and your investor activism. We also encourage you to submit your comments so that we can share your experiences with our growing community of shareholder activists.
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