[Ed. note: This 4-part blog series is an adaptation of a blog we originally posted in January 2023.]
As we head into the 2024 proxy season, ESG professionals and CSOs find themselves in potentially unfamiliar territory – the world of proxies and shareholder proposals. Proxies are important for ESG issues because they provide a mechanism for shareholders to express views on the company’s ESG performance and to hold the company accountable for its actions in relation to these issues. Most E&S professionals come from business operations, environmental, social/DEI, procurement, HR or administration backgrounds – not securities. They face a new world of buzzwords, abbreviations and concepts.
A proxy in the context of US securities refers to a document used to vote on a company’s governance structure and management. This includes the election of directors, approval of executive compensation, and proposed changes to the company’s charter documents. Shareholders are entitled to vote on these matters, but they may not be able to attend the meeting in person. A proxy allows them to authorize another person (the proxy holder) to vote on their behalf.
While ESG professionals don’t need to be securities lawyers, they should understand fundamentals relevant to their jobs. We have a quick four-part overview of proxies and shareholder proposals for folks who are not securities lawyers.
Roles and Responsibilities
Proxies can be solicited by the company or by a shareholder/group of shareholders holding a certain percentage of shares. In the case of a company-solicited proxy, the company provides shareholders a proxy statement that contains information about the matters to be voted on, as well as recommendations from the board of directors. Shareholders can then vote by mail, online, or over the phone. In the case of a shareholder-solicited proxy, the soliciting shareholder also generally must provide a proxy statement that conforms to SEC regulations.
In order to be eligible to submit a proposal under SEC rules, a shareholder must have continuously held a specified amount of shares for specified periods. These periods vary based on the value of the shares held, but the minimum dollar value that will permit a shareholder to submit a proposal is $2,000, and that shareholder will also be required to have held those securities for three years. ESG-focused investors regularly use this process to get their proposals in front of all shareholders. By voting on ESG proposals through proxies, shareholders can hold company management and board of directors accountable for the company’s ESG performance. This can help align the company’s actions with interests of its shareholders and can also signal to the market that the company is taking ESG issues seriously.
Proxy advisors are independent firms that provide recommendations to shareholders on how to vote on proxies and shareholder proposals – ESG and otherwise. These firms evaluate company performance on ESG issues and can help shareholders make more informed decisions when voting on proposals. Typically, proxy advisory firms work with institutional investors rather than individual investors.
I’ll have Part 2 tomorrow. TheCorporateCounsel.net (membership required) has valuable detailed resources on proxies and shareholder proposals. If you aren’t a member, sign up now and take advantage of our no-risk “100-Day Promise” – during the first 100 days as an activated member, you may cancel for any reason and receive a full refund.
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