SEC is blunting investor activism over climate change, K-Cups and gay rights

In February, the SEC backed Dunkin' Brands Group, blocking a proposal that would have required assessing the environmental impact of Dunkin's use of K-Cup Pods packaging.
(Gene J. Puskar / Associated Press)

Shareholders battling corporate management over everything from greenhouse gas emissions to discrimination to wasteful packaging are finding it more difficult to put their proposed proxy resolutions to votes as a result of new guidance issued by the Securities and Exchange Commission.

The SEC has widened its definition of “micromanaging” and business relevance, and on three occasions this year it sided with companies that have refused to put proposals on shareholder proxy ballots.

Campaign groups say the guidelines, issued in response to urging from business lobbying, could undermine one way for putting pressure on companies.


In the most recent case, the agency said the oil and gas company EOG Resources could block shareholders from voting on a resolution that would establish a goal for carbon emissions, calling such a resolution micromanaging.

In a March 7 letter to the socially conscious investment firm Trillium Asset Management, sponsor of the resolution, the SEC said the proposal would micromanage “by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”

On Feb. 22, the SEC backed Dunkin’ Brands Group, blocking a proposal that would have required the board to assess the environmental impact of the company’s use of K-Cup Pods packaging.

The agency said the proposal related to operations that account for less than 5% of Dunkin’s assets or of its net earnings and gross sales. “Significance to the company’s business is not apparent on its face,” the SEC said.

The SEC’s new guidance “has the potential to reshape the playing field of shareholder proposals, with new opportunities and obligations for issuers and company boards,” wrote three partners at CamberView Partners, which advises company management teams on governance issues.

The impetus for the changes in SEC guidance came from major business groups. In July, the U.S. Chamber of Commerce sent the SEC a paper urging limits on shareholder resolutions.

“It’s time to take a fresh look at SEC rules that, regrettably, tilt the scales in favor of a small subset of activists at the expense of investors as a whole,” the business group’s Tom Quaadman said in a statement. The chamber urged the SEC to “reassert the ‘relevance rule’” for subjects affecting less than 5% of a company’s assets or earnings and urged the SEC to “prohibit the use of images, photos or graphs as part of proposals.”

In his confirmation hearing March 23, 2017, SEC Chairman Jay Clayton said that “the touchstone for stockholder information is — is materiality. What — what would a reasonable investor making an investment decision, what should they know?”

Socially conscious investment groups and environmental activists have denounced the moves by the SEC, arguing that climate change, for example, could have massive effects on a business even if it doesn’t register in current earnings or asset figures. And they argue that it is not micromanaging to prod companies into paying greater attention to climate change.

“It’s not even close to micromanaging,” said Matthew Patsky, chief executive at Trillium, which manages $2.6 billion in funds. “That would be if I went in and told them how to mitigate greenhouse emissions. We didn’t do that.”

Patsky said the language of the EOG resolution was similar to that used to challenge climate stances at other companies. “We were caught off guard and think it’s a dangerous precedent,” he said.

During this year’s annual meeting season, there have been about two dozen climate-related resolutions asking for progress reports or the adoption of goals for lowering greenhouse gas emissions, said Heidi Welsh, executive director of the Sustainable Investments Institute. There have been about 130 such resolutions since 2010, she said.

Last year, a resolution calling on ExxonMobil to disclose how it is preparing for the transition to a low-carbon future won votes from investors holding 62% of shares, including giant investment firms BlackRock and Vanguard. After ExxonMobil issued the report in February, Tom Sanzillo, who advises big pension funds on social investing, called it “defective and unresponsive” and said it did not address how actions to limit global warming would affect the marketability of ExxonMobil’s reserves.

Sanzillo, director of finance at the Institute for Energy Economics and Financial Analysis, urged shareholders to vote against one or all of the board’s directors.

Last year, shareholder resolutions opposed by management also garnered majorities at Occidental Petroleum and PPL, a utility.

The SEC has taken aim at other social issues recently. In a March 29 letter, the agency said Cato, a fashion retailer, was entitled to block a proposal that would have explicitly barred discrimination based on sexual orientation or gender identity or expression. Cato said it had “substantially implemented” that policy.

Separately, many shareholder campaigns are also being mounted on the question of racial and gender diversity on corporate boards of directors. “We are likely to vote against directors on boards that don’t make progress on diversity without a specific and credible explanation,” BlackRock said in a statement.

The SEC has not yet taken a stance on that issue.

But Trillium’s Patsky said that the change in SEC’s attitude toward shareholder resolutions was “an attack on shareholder rights. As an owner of the company, which is what a shareholder is, it is an attempt to squelch their voice and their right to express their point of view.”