When we think of “shareholder activism,” we often envision investors like Carl Icahn, seeking out undervalued companies and taking control positions in companies to effect change. But of late, a new type of investor activism has emerged that has a very different character, in the form of shareholder proposals introduced on public companies’ annual proxy ballots under the Securities and Exchange Commission’s Rule 14a8. While certain investors, such as religious orders of nuns, “socially responsible” mutual funds and a handful of individual activists have long introduced shareholder proposals, of late, such proposals have started to pass: the percentage of such proposals to receive majority-shareholder backing among the Fortune 150 companies increased from 6 percent to 12 percent from 2008 to 2009, before declining slightly in each of the last two years.
James R. Copland
Before delving into the substance of such proposals, it is worthy asking just who is sponsoring them. Scholars and directors have long understood that the cohort of shareholders backing such proposals is relatively small and narrow, but little hard data could establish just how much—until now. In a new empirical study drawn from the Manhattan Institute’s ProxyMonitor.org database, I examine who is behind shareholder-proposal activity in some detail.
Strikingly, hedge funds and mutual funds, exempting those of the social-investing variety, have backed only 2 percent of all shareholder proposals submitted to the Fortune 150 since 2008. Individual investors sponsored 40 percent of proposals—but two-thirds of those came from just four individuals and their relatives: Evelyn Davis and members of the Chevedden, Steiner, and Rossi families. The remainder of shareholder proposals were split roughly evenly between private- and public-sector labor-affiliated investors (including most prominently pension funds linked to the AFL-CIO, AFSCME, and the New York City pension funds) and social-investing funds or funds otherwise linked to religious or public-policy groups (including Trillium Asset Management and various religious orders such as the Sisters of Charity of St. Elizabeth).
In sum, shareholder proposals were almost never sponsored by sophisticated institutional investors without a political or policy program distinct from share-price maximization (such as the social-investing funds) or an interest potentially in competition with the ordinary diversified investor (such as the labor-affiliated funds). Such data suggests that the 14a8 process, as currently used, may be more about facilitating interest-group influence over public corporations than about improving shareholder returns.
Those interested in exploring further who is driving shareholder-proposal activism can do their own analysis using the ProxyMonitor.org database.
James R. Copland is the director of the Center for Legal Policy at the Manhattan Institute and the author of a new report, Proxy Monitor 2011: A Report on Corporate Governance and Shareholder Activism, available at www.ProxyMonitor.org.
You’re got to get below the top 150 companies to get to most of my proposals. They’re aimed at a special interest-group… entrenched boards.