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Typically, shareholder proposals fall roughly into two main groups:
- corporate social responsibility proposals, which includes proposals relating to product safety, employemt discrimination, affirmative action, environmental pollution, nuclear power, and so on. Other social responsibility proposals have been more typical: for example, tobacco and anti-smoking, (non) participation in the Arab boycott of Isreal, cessation of operation in South Africa during teh apartheid era, and divestment from Northern Ireland.
- corporate governance proposals - the proposal related to traditional issues such as cumulative voting, selection of auditors, location of shareholder meetings, requirements that corporations issue report of annual meeting proceedings, and executive compensation.
Eligibility and Procedure[]
Pursuant to SEC regulation, the proponent of a proposal to be printed and circulated in a corporate management's proxy statement must have been a record or beneficial owner of shares for at least one year. The market value of shares owned by the proponent must exceed $2,000 or, if less, must equal at least one percent of the shares entiteld to vote on the proposal. THe proponent must continue ownership of thsoe shares through the date upon which teh shareholders' meeting is held. She must represent that she, or her representative, will attend the meeting in order to present the
Background on the Nature of the Proposals[]
While SEC Rule 14a-8 facilitates communication among shareholders, state corporation law defines a shareholder's right to propound proposal in the first place. Under state statutes, shareholder have power only with respect to a very limited range of matters: amendment of article of incorpoation, mergers, sales of all or substantially all of the corporation's assets, dissolution, and election and removal of directors. Shareholder have still less power of initiative. Shareholders may only initiate removal of directors and nomination and election of directors. All other evolutions (merger, amendment of article and so on) begin with an initiative by directors. Shareholder power is only the power to react to what the board of directors has done or proposes to do.
How, then, are sharehodler enabled to submit propsoal regarding Joe Camel advertising, affirmative action, etc? The answer is provided by Auer v. Dressel , which held that shareholders could propound and vote upon resolutions which, even if adopted, would be purely advisory.
Auer v. Dressel is an important case and one which the SEC seems to assume, without ever directly stating so, to be the correct model of the corporation under sate law. The Auer v. Dressel view seems subsumed in the fabric of teh SEC shareholder proposal rule which permits shareholders to propound and vote upon resolutions which, even if adopted, are purely advisory in a technical sense. One other implication if the model is that, when shareholder propound a resolution as to a matter in which they have not pwoer of initiative, they oridianrly must phrase the resolution as a request or recommendation to the repository of direct power in the matter, namely, the board of directors.
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Episodes involving employment practices at Cracker Barrel Old Country Store, Inc., and Wal-Mart Stores, Inc., illustrate both the process and the standard of judicial review applicable to it. The cases are New York City Employees' Retirement System v. Securities and Exchange Commission (Cracker Barrel) and Amalgamated Clothing and Textile Workers Union v. Wal-Mart Stores, Inc. (Wal-Mart).
The 14a-8, Question 9(7) Ordinary Business Operations Exclusion[]
There are administrative and procedural ... in which corporations attempt to exclude shareholder proposals.
- The proposal relates to the "ordinary business operations " of the issuer - most frequently invoked ground for exclusion.
- examples: (1) Medical Committee for Human Rights v. SEC; and (2) Lovenheim v. Iroquois Brands, Inc.
- If the proposal relates to "an election to office;" SEC Rule 14a-8, Question 9(8)