20 Jun 2016Working Paper Summaries

What Else Do Shareholders Want? Shareholder Proposals Contested by Firm Management

by Eugene F. Soltes, Suraj Srinivasan, and Rajesh Vijayaraghavan

Shareholder proposals are an important way for investors to communicate their demands to a firm’s management and board of directors. Here the authors gain insight into how such proposals can be excluded from a shareholder vote by management appealing to the Securities and Exchange Commission (SEC). Among the findings, firm managements seek to exclude almost half the proposals suggested by shareholders with nearly a quarter ultimately excluded with permission of the SEC.

Author Abstract

Shareholder proposals provide investors an opportunity to exercise their decision rights within a firm. However, not all proposals created by shareholders receive consideration. Managers can seek permission from the Securities and Exchange Commission (SEC) to exclude specific proposals from the proxy statement. From 2003-2013, we find that managers seek to exclude 40 percent of all proposals they receive, but the SEC does not permit exclusion in over a quarter of the cases. Of the proposals that managers seek to exclude but the SEC does not allow, 28 percent win shareholder support or the firm voluntarily implements prior to a vote. Our analysis of contested shareholder proposals suggests that managers often seek to avoid the implementation of legitimate shareholder interests.