PROCESS OF ELIMINATION — Biden-era changes at the U.S. Securities and Exchange Commission were expected to make it easier for activist investors to seek changes to corporate climate and social policies through the proxy process — but it hasn’t quite shaken out that way. The SEC blessed companies’ plans to keep shareholder resolutions off of corporate ballots 68 percent of the time this year, according to data gathered by the Shareholder Rights Group. That rate is on par with Trump-era levels and is significantly higher than had been seen since the agency moved in 2021 to ease the path for proposals dealing with “significant social policy.” The reasons are complicated, but the result is another sign of how both the corporate sustainability landscape has shifted and agencies like the SEC are grappling with legal pressure on their regulatory authority, your host reports. “That’s all caused the SEC to probably be a little more careful in how they choose to deal with these proposals,” said Sonia Gupta Barros, a law partner in Sidley’s capital markets group and former chief corporate governance counsel in the agency’s Division of Corporation Finance. Companies have long been able to seek “no-action letters” in which the SEC provides assurance that it won’t take enforcement action against them for excluding shareholder resolutions that are irrelevant, micromanaging or related to “ordinary business operations.” The number of requests for exclusions spiked this year, and companies may have gotten more strategic in figuring out which ones are most likely to be successful after the SEC recalibrated following the 2021 guidance. And the percentage of exclusions that the agency sustained isn’t outside the historical norm. “It’s what you would expect after there’s a better understanding from companies of what the parameters are,” Barros said. But the higher rate of approvals for company requests this year is causing concern in the shareholder activist community, given that it comes as proponents filed a record number of proposals. Top companies like Wells Fargo, Amazon, Walmart and Goldman Sachs were cleared by the SEC to exclude proposals aimed at climate action and “living wages,” for example, which were viewed as efforts to micromanage — a rationale that increased this year. The agency declined to comment. “The SEC is aware of the decline in support and maybe they think the pendulum swung too far in one direction,” said Marc Goldstein, head of U.S. research at the proxy advisory firm Institutional Shareholder Services. Proxy proposals related to climate and social issues rarely receive majority support, and they’re nonbinding even when they do. But the process is seen as an important way for investors to raise issues and provide a check on corporate leadership. Companies and advocates have long had gripes over the process, and tensions flared this year when Exxon sued activist investors to make a point about the “flawed” system. That case was dismissed, but other litigation related to the proxy process remains active. Goldstein said to expect ESG proponents to adjust to the SEC’s shift, just as companies adapted to the 2021 changes. “Proponents are getting more sophisticated and will adjust, too,” Goldstein said. “They’ll continue to have conversations with companies and the big asset managers and pension funds. Even with the trends of declining support, it’s not that investors completely stopped supporting all of these proposals. I think a lot of proponents are willing to negotiate to address the underlying issues.”
| 
