Executive Summary

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As of February 16, 2018 proponents have filed at least 429 shareholder resolutions on environmental, social and sustainability issues for the 2018 proxy season, with at least 335 pending for votes as of February 16. Securities and Exchange Commission (SEC) staff have allowed omission of 27 proposals so far in the face of company challenges but have yet to decide on company objections to another 65. So far there have been 62 withdrawals. At this time last year, there were 430 filings, but by year’s end the overall tally reached 494; 237 went to votes in 2017, 173 were withdrawn and companies omitted 77, the highest number of the decade. (Bar Chart)

Climate change, corporate political activity and sustainability account for a little more than half of the resolutions in 2018, as they did last year. Roughly another third divide into fairly even slices about human rights, board diversity, decent work and workplace diversity. Resolutions on health issues, board oversight, proposals from conservatives and a few miscellaneous subjects account for the final 16 percent. (Pie Chart)

Key Developments for 2018

Mutual Funds:
A central outstanding question for the upcoming proxy season is what the impact will be of proxy voting by huge mutual funds that last year were responsible for unusually high shareholder majorities, including votes of 67 percent at Occidental Petroleum and 62 percent at ExxonMobil in favor of more climate disclosure.

SEC Challenges:
Still unknown as of this writing is the impact of SEC Staff Legal Bulletin 14I, released November 1; it has the potential to upset longstanding interpretations of the shareholder proposal rule and exclusions based on the “ordinary business” and “significantly related” portions of the rule. At the same time, the bulletin encouraged companies to explain more about their boards’ assessments of the issues at stake in challenges, and correspondence to the commission that invokes the bulletin’s guidance shows that boards are discussing these issues, even if they seem to be mostly rubber-stamping management and legal department recommendations. If proponents are able to prompt more robust discussion by boards of environmental, social and sustainability issues, they may be on their way to winning the long game. Alternatively, this could also end up being another way for companies to exclude proposals.

Company challenges to proposals are at a three-year high (table, right). The figures for 2018 are incomplete as yet, of course, given where we are in the year, and more challenges still are likely to surface. But of note is the big jump last year in the proportion of resolution challenges accepted by the commission, which suggests proponents are right to be wary of outcomes this year.


Climate change:
The main question for this issue in proxy season is how votes on the climate change scenario analysis proposals will fare, given what seems to be increasing investor fervor for this type of disclosure. Amidst the usual complement of resolutions seeking reports on carbon asset risks reports and goals for reducing greenhouse gas emissions and increasing renewable energy, a new proposal asks auto companies about how they will transition to a decarbonized vehicle market.

Environmental management: 
Fulfilling a long-sought goal of shareholder proponents, McDonald’s agreed to eliminate its use of polystyrene by the end of the year and As You Sow withdrew.

Gender pay and employment equity: 
As the #MeToo movement picks up steam, a few dozen financial sector companies face resolutions demanding action and disclosure on fair pay and workplace diversity. A new resolution on family leave is before three companies.

The brand-new Investors for Opioid Accountability coalition, boasting backers with $2.2 trillion in assets, wants more disclosure and accountability from opioid makers, distributors and treatment medicine providers. It is starting with two resolutions this year on opioid distribution directly, with a number of others on corporate governance procedures. A report request at AmerisourceBergen earned 41.2 percent on March 1.

Human rights:
Two companies—Costco Wholesale and TJX—are on the spot about goods made with domestic prison labor. Investors asked Chubb about the insurance it underwrites for gun owners’ self-defense shootings and resolutions about gun safety were filed at weapons makers and sellers. In the wake of the Parkland, Florida massacre, Chubb said it would end its shooters' insurance and Dick's Sporting Goods-which faced a resolution-announced it will stop selling assault weapons.

Media and cybersecurity:
The big-three social media companies—Alphabet, Facebook and Twitter—all face new questions about how their content management may carry business risks, in a subject that made it on the agenda at the World Economic Forum at Davos.

Board diversity:
Nearly three-dozen resolutions seeking more diverse boards have been filed, continuing a long-term campaign that generally produces a high percentage of company promises for action. A new wrinkle this year is a proposal from the New York City funds asking that board nominees' and board members' gender, race and ethnicity be disclosed.

Sustainability disclosure and management:
The number of requests for sustainability reporting is again on the rise and got significant affirmation from a 49.8 percent vote early in the year at Acuity Brands. These proposals are bolstered by 18 resolutions seeking links between a wide range of issues and executive compensation, in an expansion of efforts looking to link sustainability and pay.

Expert Insight: Will New Sec Bulletin Stifle Shareholder Proposals?