In an attempt to reduce the number of stockholder resolutions sponsored by activists at annual meetings, the Securities and Exchange Commission yesterday voted more stringent eligibility and relevancy requirements, effective Jan. 1, 1984.
The SEC feels that some activitists abuse the corporate democratic process by purchasing one share of a company in order to introduce a resolution promoting their causes. The cost of including all shareholder proposals in the proxy statement and tabulating the votes has been estimated by the American Society of Corporate Secretaries at $95,000 per company, or approximately $10,000 per issue. There were 870 resolutions proposed last year at major companies.
The commissioners voted 3 to 1 to require shareholders wishing to make proposals to have a minimum of stock holdings equal to $1,000 or one percent of the total stock outstanding, whichever is smaller. In addition the share must have been owned for one year. Commissioner Bevis Longstreth cast the sole negative vote on the grounds the new rules "tilted significantly against shareholders."
This provision would discriminate against small shareholders, but Deputy Chief Counsel William Morley said they could still make proposals by combining their holdings to meet the minimum level. He said it would not deter individual activists like the Gilbert brothers of New York or Washington's Evelyn Y. Davis, most of whom own more than the required amount of stock in target companies.
The change would focus on groups like Action on Smoking and Health (ASH) which announced last year that it was buying a single share in 25 corporations in order to get them to establish separate non-smoking facilities. Staff counsel Athena Mueller said yesterday the new levels would not hamper ASH's operations. She said the organization often receives gifts of stock from supporters and frequently in amounts of over $1,000.
Among the other restrictions adopted by the SEC is one allowing a company to leave a shareholder resolution out of the proxy statement if it deals with "substantially the same subject matter" as a proposal previously voted on and it also failed to receive at least 5 percent of the vote in the previous annual meeting. To be considered a third time, an issue would need to draw 8 percent yes votes; and 10 percent for a fourth try. The current percentages are 3, 6 and 10.
Timothy Smith, executive director of the Interfaith Center on Corporate Responsibility (ICCR) in New York, expressed displeasure with the wording. Last year, ICCR, a coalition of church investors, introduced 100 resolutions on 15 topics at 83 company meetings.
Another SEC rule specifies a financial test for relevancy. If a proposed subject has a value equal to more than 5 percent of the assets, revenues or sales of a corporation, then it must be included in the proxy statement. If it equals less than 5 percent--and the burden of proof is on the company--then the proposal can be excluded from consideration by shareholders provided the SEC staff decides it is not sufficiently related to the company's business.