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"It is truly enough said that a corporation has no conscience; but a corporation of conscientious men [sic] is a corporation with a conscience." - Henry David Thoreau (1854)

What Is A Shareholder Resolution?


Q. What is a Shareholder Resolution?
As a shareholder you are a partial owner (percentage of the outstanding stocks) of the corporation. You are entitled to bring resolutions (which are, however, nonbinding) to a vote of the shareholders as part of the company's annual meeting process. According to The Social Investment Almanac, Kinder, Peter, et al., (Henry Holt, 1992, p. 108), in 1971 the Episcopal Church filed the first church sponsored shareholder resolution with General Motors concerning their operations in South Africa. Twenty years later, 350 shareholder resolutions were sponsored in 1991.

A shareholder may bring a resolution (limit of one per year) on a wide variety of topics. The Domini Social Equity Fund has published a Proxy Voting Guide that provides a long list of Shareholder concerns: Community, Diversity, Environment, Overseas Operations, and Tobacco. This Northwest Corporate Accountability Website provides examples of resolutions filed on social, environmental, and human rights issues.

Q. What are the regulations that govern Shareholder Resolutions?
The Securities and Exchange Commission (SEC) has developed procedural requirements for shareholder resolutions (or proposals) called Rule 14a-8 ( 17 Code of Federal Regulations (CFR) Ch. II, Sec. 240.14a-8). The SEC's Rule 14a-8 appears to do more to protect corporations from shareholders, than to protect shareholders, employees, human rights, or the environment from corporations. The SEC allows corporations thirteen circumstances under which a corporation can "omit" (i.e. ignore) your resolution. Generally speaking it is difficult and time consuming to deal with the SEC. It is possible to negotiate directly with a corporation concerning resolution items, including length. As long as the corporation consents to the resolution content, the SEC will normally go along.

Q. What are the basic Shareholder Resolution steps?
1. Review a copy of Rule 14a-8. The basic requirements are:

Eligibility: A shareholder (sponsor) must have owned at least $2,000 (or 1%, whichever is less) of the company's stock for at least one year prior to submitting a resolution and must maintain this threshold level through the date of the annual meeting. If the sponsor is a beneficial owner (i.e., you own the stocks through a brokerage) you must obtain a proof of ownership from the broker stating how many shares the sponsor holds and the dates when they were acquired. This must be sent to the Corporation along with the resolution.

Timing: According to Rule 14a-8, a resolution must be submitted to the company at least 120 days before the date on which the company released its previous year's proxy statement to shareholders. Corporations must file proxy documents (also called 14a's or DEF's) with the SEC and these can be found using the SEC's EDGAR database. NOTE: Some banking corporations do not file reports with the SEC. They file reports with the FDIC. ] The dates for Washington Corporations and resolution filing deadlines are already available in the Washington Corporation Profiles.

2. Writing the Proposal: A shareholder may submit only one proposal per annual meeting. Under Rule 14a-8, the resolution and any supporting statement can be no longer than 500 words. Many sponsors write the supporting statement as a series of WHEREAS' in order to explain the concerns and then use a "RESOLVED that. . ." to highlight what the Board of Directors should be doing. The resolution should be clearly written. Review examples of other shareholder resolutions . Remember it is possible to negotiate directly with the corporation. Send them a copy of your proposed draft and try and determine whether they will oppose part or all of your resolution.

In order to make the strongest case for inclusion, the resolution should be accompanied by background material which documents the need for the action request of the corporation.

3. Filing the Resolution: The resolution should be submitted with a cover letter to the executive office of the corporation. The Secretary of the corporation is the official responsible for handling shareholder resolutions. If you are pushing near the filing deadline, send the resolution by Certified Mail-Return Receipt Requested. However, it is much better to file the resolution far in advance of the filing deadline to provide opportunity to negotiate with the corporation and to prepare for the annual meeting.

A copy, including background documentation, should also be sent to the SEC, since there is a strong likelihood that the corporation will notify the SEC that it intends to omit the resolution under one of the 13 grounds for exclusion of a shareholder proposal and giving the SEC a heads up is always useful.

4. Waiting for a Response: The corporation can respond in a number of ways. You may receive a call from the corporation asking you to withdraw the resolution. They may have objections to particular portions of the resolution (including factual changes) that could result in amended language. The corporation could decide to include the resolution as submitted, or it could strongly object to the proposal and contact SEC stating that the corporation intents to "omit" the resolution from its proxy statement.

If the corporation decides to "omit" the resolution is must file a request with the SEC at least 60 days prior to issuance of the proxy statement and send a copy to the sponsor.

The grounds for omitting a shareholder resolution are:

Sec. 240.14a-8(c) The registrant may omit a proposal and any statement in support thereof from its proxy statement and form of proxy under any of the following circumstances:

(1) If the proposal is, under the laws of the registrant's domicile, not a proper subject for action by security holders.

Note: Whether a proposal is a proper subject for action by security holders will depend on the applicable state law. Under certain states' laws, a proposal that mandates certain action by the registrant's board of directors may not be a proper subject matter for shareholder action, while a proposal recommending or requesting such action of the board may be proper under such state law.

(2) If the proposal, if implemented, would require the registrant to violate any state law or federal law of the United States, or any law of any foreign jurisdiction to which the registrant is subject, except that this provision shall not apply with respect to any foreign law compliance with which would be violative of any state or federal law of the United States.

(3) If the proposal or the supporting statement is contrary to any of the Commission's proxy rules and regulations, including Rule 14a-9, which prohibits false or misleading statements in proxy soliciting materials;

(4) If the proposal relates to the redress of a personal claim or grievance against the registrant or any other person, or if it is designed to result in a benefit to the proponent or to further a personal interest, which benefit or interest is not shared with the other security holders at large;

(5) If the proposal relates to operations which account for less than 5 percent of the registrant's total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the registrant's business;

(6) If the proposal deals with a matter beyond the registrant's power to effectuate;

(7) If the proposal deals with a matter relating to the conduct of the ordinary business operations of the registrant;

(8) If the proposal relates to an election to office;

(9) If the proposal is counter to a proposal to be submitted by the registrant at the meeting;

(10) If the proposal has been rendered moot;

(11) If the proposal is substantially duplicative of a proposal previously submitted to the registrant by another proponent, which proposal will be included in the registrant's proxy material for the meeting;

(12) If the proposal deals with substantially the same subject matter as a prior proposal submitted to security holders in the registrant's proxy statement and form of proxy relating to any annual or special meeting of security holders held within the preceding five calendar years, it may be omitted from the registrant's proxy materials relating to any meeting of security holders held within three calendar years after the latest such previous submission:

Provided, That

(i) If the proposal was submitted at only one meeting during such preceding period, it received less than three percent of the total number of votes cast in regard thereto; or

(ii) If the proposal was submitted at only two meetings during such preceding period, it received at the time of its second submission less than six percent of the total number of votes cast in regard thereto; or

(iii) If the prior proposal was submitted at three or more meetings during such preceding period, it received at the time of its latest submission less than 10 percent of the total number of votes cast in regard thereto; or

(13) If the proposal relates to specific amounts of cash or stock dividends.

5. Relying to a Corporation's Objections: Because a corporation can wait up until 60 days before it would send out the proxy statement for the annual meeting to notify the SEC of its decision to omit a resolution, a sponsor must be prepared to act quickly.

In general, what is occurring here is that the corporation is notifying SEC that it intends to omit a shareholder resolution based on one of the 13 exclusion areas. The SEC's Office of Chief Counsel, Division of Corporation Finance reviews the resolution and the corporation's decision to omit and gives an opinion on whether SEC believes that the corporation can rely on Rule 14a-8 exclusions to omit the proposal from its proxy material.

There is no formal process in Rule 14a-8 for a rebuttal by the sponsor to a corporation's notification to SEC that it intends to omit a resolution. And the SEC maintains that it does not official consider sponsor input, however, sponsors generally provide a response to SEC anyway, pointing out where the corporation is in error and offering to correct or amend any factual statements that the corporation strongly objects to.

The SEC will then issue a letter to the corporation stating either that the corporation has valid grounds for omitting the resolution, or that the corporation can not rely on Rule 14a-8(c) to omit the resolution.

If the resolution is not omitted, the corporation is allowed to write a statement in opposition to the resolution (with no length limit) which will appear in the proxy statement. However, a copy no later than 30 days prior to the date the proxy statement is filed, must be sent to the sponsor.

Again, there is a very short time deadline involved here. If the resolution sponsor finds that the corporation's statement in opposition contains "materially false or misleading statements within the meaning of Rule 14a-9, the sponsor can "promptly" send to SEC staff a copy of the corporation's statement in opposition and a letter setting forth the reasons for this view, with a copy to the corporation.

6. Soliciting Proxies: "Proxies" mean the votes that shareholders cast at annual meetings on the business of the corporation.

As part of each annual meeting of the corporation, shareholders are sent ballots that can be returned by mail or voted on in person at the annual meeting. Each share of stock you own counts as one vote (i.e. 10,000 shares = 10,000 votes). Shareholders normally vote on board of directors, the outsider auditor for the coming year, resolutions brought to the shareholders by the Board of Directors, and resolutions brought to the shareholders by other shareholders. However, many shareholders turn over their vote (by proxy) to the Board of Directors by signing the proxy card without checking any of the voting boxes. In addition, if shareholders do not return their proxy cards, the Board of Directors may vote these shares within limits designated by the SEC. This allows the corporation to control a majority of the votes.

One of the biggest hurdles is that institutional investors such as TIAA-CREF, or the pension funds of States and cities own more than 45% of all stock and can own more than 50% of a Fortune 500 Corporation. Large blocks of stock are owned by large investment firms, such as T. Rowe Price, or Vanguard. They may hold corporation stock as part of their mutual funds and vote proxies directly. You can contact such firms and ask for a copy of their proxy voting guidelines and mail them information on supporting your proposal. There are companies and organizations that can assist with locating lists of other shareholders to contact, such as the Interfaith Center on Corporate Responsibility, 475 Riverside Drive, Room 556, New York, NY 10115.

Many institution investors (pension funds, teacher retirement funds, etc.) may have thousands of stocks in their portfolios. They often rely on investor services to provide analysis on shareholder resolutions, such as The Investor Responsibility Research Center, 1319 F Street N.W., Suite 900, WA D.C. 20004 (202) 939-6500.

You can also use the press to help publicize your resolution. This will alert other stockholders and the general public about your issues.

7. Annual Meeting - Presenting the Proposal: The sponsor, or a designee, must present the proposal. This is very important since according to the SEC rules, failure to appear allows the corporation to bar any resolutions from the sponsor for the next two years.

The actual format of the annual meeting are governed by the by-laws of the corporations. Some corporations are extremely rigid in their rules:

". . . each stockholder will be limited to no more than one minute in which to speak, and the comment period will be limited to a total of five minutes. . .The Chairman reserves the right to interrupt and terminate any comments or discussions that are repetitious or inappropriate." Freeport McMoRan, Inc. Rules of Order, 29 April 1997

In order to attend the annual meeting in person, you must check this box on the proxy form and send it back (after making a copy). A legal proxy to attend the meeting will then be issued. The corporation will then check the legal proxy against their computer list of stockholders.

If you do not own stock but would still like to attend the annual meeting, you can contact another shareholder and request that they make you the legal proxy and authorize you to represent them at the annual meeting. However, because in the case of beneficial owners, the stock is held by the brokage firm, an individual's name may not appear on the computer list. It is important to bring the copy of the proxy material with you. Some corporations, such as Freeport McMoRan have denied access to representatives of stockholders with legal proxies, because the original stockholder's name did not appear on the corporations computer lists.

A brief presentation is made at the annual meeting to emphasize the key elements of the resolution. Since most of the proxies have already been submitted by mail, the results are normally already known by the company.

If a resolution receives less than 3% of the votes, or less than 6% in its second year, or less than 10% during the past five year period, the resolution it is barred from future annual meetings for three years, otherwise it can be resubmitted.

[NOTE: The preceding material was summarized from a brochure entitled "The Seven Steps of a Shareholder Proposal" which included a reference to USA, a shareholder proposal service. However, neither the phone number nor the address for USA's office is current.]

But WAIT, there is more. . . .


The Interfaith Center on Corporate Responsibility has prepared a "Shareholder Proposals for Proxy Statements - Checklist of SEC Requirements":

Eligibility (SEC Rule 14a-8(a)(1))

1) be a record or beneficial owner of at least $2,000 in market value of the common stock of the company you're filing with; and

2) have held the company's common stock for at least one year.

Documentary Support of Beneficial Ownership (SEC Rule 14a-8(a)(1))

The company can request documentary support of your claim of beneficial ownership within 14 days of receipt of the resolution.

(1) a written statement by the record owner or by an independent third party (such as your broker, if your shares are held in street name), accompanied by your written statement that you intend to continue ownership of such shares through the date of the annual meeting; or

(2) a declaration or affirmation that you have been the beneficial owner of such shares throughout the required one year period and

(3) the written statement that you intend to continue ownership of such shares through the date of the annual meeting.

Notice (SEC Rule 14a-8(a)(2))

At the time you submit your resolution, you must provide the company with the following:

1) your name

2) your address

3) the number of shares of common stock you hold of record or beneficially,

4) documentary support for a claim of beneficial ownership

Attendance at Meeting (SEC Rule 14a-8(a)(2))

A Resolution, if included in the proxy statement, may be presented at the meeting either by the shareholder or by a representative who is deputized to present the proposal on your behalf. If you fail to present the proposal at the meeting, without good cause, the company can omit any proposal from you for the next two years.

Timeliness (SEC Rule 14a-8(a)(3))

Proposals for the Proxy Statement must be received on or before the date listed in the previous year's proxy statement.

Number of Proposals (SEC Rule 14a-8(a)(4))

You may submit no more than one proposal in a given year for inclusion in the Proxy Statement.

Supporting Statement (SEC Rule 14a-8(b)(1))

Your proposal and supporting statement must not exceed 500 words. The supporting statement must be furnished at the time you submit your proposal.

Identification of Sponsor (SEC Rule 14a- 8(b)(2))

This rule allows corporations not to list the identity of the shareholder sponsor. However, the corporation must then note that this information is available upon request.

[Note: This memo builds on guidelines created by Bank of America in 1990.]

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