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Article
Publication date: 4 July 2016

John Newell, Arthur McGivern and David Roberts

To explain SEC Division of Corporation Finance Staff Legal Bulletin No. 14H (SLB 14H), which provides interpretive advice on how the Staff will treat shareholder proposals

Abstract

Purpose

To explain SEC Division of Corporation Finance Staff Legal Bulletin No. 14H (SLB 14H), which provides interpretive advice on how the Staff will treat shareholder proposals under the “directly conflicts” and “ordinary business” exclusions under Rule 14a-8.

Design/methodology/approach

Explains Rule 14-8 concerning the inclusion of shareholder proposals in a company’s proxy materials, Rule 14a-8(i)(9) on substantive bases for exclusion of shareholder proposals, guidance from SLB 14H on shareholder proposals that do and do not directly conflict with company proposals, Staff guidance prior to SLB 14H, the “ordinary business” exclusion under Rule 14a-8(i)(7), and how SEC staff guidance differs from the majority opinion in Trinity Wall Street v. Wal-Mart Stores, Inc. on the ordinary business exclusion.

Findings

The SEC Staff’s new standard for conflicting proposals is likely to make it more difficult for companies to exclude a shareholder proposal that is different from a management proposal if the two proposals are not “mutually exclusive”. Staff guidance also states that companies may not exclude proposals focusing on a significant policy issue under the ordinary business exclusion if “the proposals would transcend the day-to-day business matters and raise policy issues so significant that it would be appropriate for a shareholder vote”.

Originality/value

Expert guidance from experienced securities and financial services lawyers.

Details

Journal of Investment Compliance, vol. 17 no. 2
Type: Research Article
ISSN: 1528-5812

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Book part
Publication date: 3 May 2018

Charles P. Cullinan, Lois S. Mahoney and Pamela B. Roush

We examine the perceived influence of externally generated firm ratings of corporate social responsibility (CSR) on voting for shareholder-sponsored CSR proposals. Using…

Abstract

We examine the perceived influence of externally generated firm ratings of corporate social responsibility (CSR) on voting for shareholder-sponsored CSR proposals. Using stakeholder and legitimacy theories, we introduce two rationales that relate shareholder voting decisions to the firm’s CSR performance: the complementary perspective where investors rely on management’s branding or image of the firm for CSR performance, and the sufficiency perspective where shareholders consider legitimacy effects of firm CSR performance. Our examination of 473 CSR shareholder-sponsored proposals during the 2013 to 2015 proxy seasons reveals a negative relationship between support for shareholder-sponsored CSR proposals and CSR strengths, particularly for social and environmental CSR strengths. We also find a positive relationship between support for shareholder-sponsored CSR proposals and CSR concerns, particular in the area of environmental CSR concerns. These results partially support the sufficiency perspective that incorporates shareholder legitimacy concerns. When companies have poor CSR performance, shareholders may view further CSR initiatives as beneficial to the firm.

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Research on Professional Responsibility and Ethics in Accounting
Type: Book
ISBN: 978-1-78754-973-9

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Book part
Publication date: 20 June 2003

Teresa A John and Gopala K Vasudevan

We examine voting outcomes on shareholder governance proposals that seek annual elections for all the directors on the corporate board. We relate these voting outcomes to…

Abstract

We examine voting outcomes on shareholder governance proposals that seek annual elections for all the directors on the corporate board. We relate these voting outcomes to different ownership structure characteristics and a series of variables that are publicly available. The pattern of support indicates that proposals are generally successful when they are supported by large activist groups and when institutions hold a significant fraction of shares outstanding. Our evidence casts some doubt on the efficacy of the Rule 14A-8 mechanism, which limits the amount of information that can be provided to shareholders as part of the proposal.

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Advances in Financial Economics
Type: Book
ISBN: 978-1-84950-214-6

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Article
Publication date: 13 April 2012

Jun Yang, Eric Zengxiang Wang and Yunbi An

The purpose of this paper is to study filer identities and voting outcomes of Canadian shareholder proposals and their impact on shareholders' wealth during the period…

Abstract

Purpose

The purpose of this paper is to study filer identities and voting outcomes of Canadian shareholder proposals and their impact on shareholders' wealth during the period from 2001 to 2008.

Design/methodology/approach

In total, 762 Canadian shareholder proposals and related information on targeted firms were collected from the Shareholder Association for Research and Education (SHARE) and the System for Electronic Document Analysis and Retrieval (SEDAR) databases. Statistical analyses are carried out on the features of shareholder proposals. Regression analyses are performed on voting outcomes, and an event study is conducted to test the impact of shareholder proposals on stock prices.

Findings

The authors' analyses show that proposals submitted by institutions or coordinated shareholder groups receive stronger support than those submitted by individuals and religious groups. Targeted firms are more willing and more likely to reach agreements with institutional investors, which in turn prompts activists to withdraw their proposals. The voting behavior of the Ontario Teachers' Pension Plan (OTPP) has a significant impact on voting outcomes. The targeted firms' stock prices respond substantially to news on proposals submitted by institutional and coordinated investors and proposals on social and environmental issues.

Originality/value

In addition to in‐depth analyses (issues, filers, voting outcomes, and impacts on stock price) of Canadian shareholder proposals, this paper explores the voting behaviour and impact of a large institutional shareholder that has been passive in filing shareholder proposals. Special attention is paid to Canadian features of shareholder activism, and differences between Canadian and US shareholder proposals are highlighted and discussed. The paper thus extends shareholder activism studies from focusing on open shareholder activists to investigating passive institutional shareholders.

Details

Managerial Finance, vol. 38 no. 5
Type: Research Article
ISSN: 0307-4358

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Book part
Publication date: 21 October 2013

Hanne Søndergaard Birkmose and Therese Strand

Purpose – Institutional investors are facing increased pressure and threats of legislation from the European Union to abandon passive ownership…

Abstract

Purpose – Institutional investors are facing increased pressure and threats of legislation from the European Union to abandon passive ownership strategies. This chapter investigates the legal prerequisites for active ownership among institutional investors in two Scandinavian countries to highlight differences in the legal framework that potentially account for apparent dissimilarities in the practice of shareholder activism.

Design/methodology/approach – Data on shareholder proposals from Danish and Swedish annual general meetings from 2006 throughout 2010 suggest that institutional investors are approximately a thousand times more active in Sweden than in Denmark.

Findings – The comparative study of the legal framework for shareholder activism shows diminutive legal distance in general, however, we find that the shareholder-based nomination committee employed in Sweden constitutes an exception. This is relevant, as such a setup transfers power from the board of directors to the owners. Presumably, this reduces the impact of free-rider and collective action problems, and increases the shareholders’ inclination to make proposals, which is also what we find. Moreover, we find other differences in the legal framework that support the transfer of power to the owners.

Research implications – We contribute to literature by investigating the importance of local governance mechanisms created by the legal framework – an area where research is scarce. The chapter discusses how two classical theoretical dilemmas – free-rider problems and collective action problems among shareholders – can be reduced by the implementation of local corporate governance elements.

Originality/value – The chapter outlines the actual practice of shareholder activism, in terms of proposals, in Denmark and Sweden, and highlights divergent legal elements which theoretically transfer power to the shareholders. Thus, regulators should be aware of the impact by local governance mechanisms, and how shareholders react under different legal prerequisites.

Details

Institutional Investors’ Power to Change Corporate Behavior: International Perspectives
Type: Book
ISBN: 978-1-78190-771-9

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Article
Publication date: 3 October 2016

Charles P. Cullinan, Lois S. Mahoney and Pamela Roush

This paper examines whether shareholders consider corporate social responsibility (CSR) performance when voting on corporate governance change proposals submitted by…

Abstract

Purpose

This paper examines whether shareholders consider corporate social responsibility (CSR) performance when voting on corporate governance change proposals submitted by dissident shareholders. These proposals recommend changes to the corporate governance status quo and are made by dissident shareholders who are dissatisfied with the company’s existing governance practices.

Design/methodology/approach

Using 195 governance change proposals voted on during 2013, the paper examines the relationship between CSR performance (obtained from the MSCI database) and the level of voting support for these proposals.

Findings

This study finds that shareholder support for corporate governance change proposals submitted by dissident shareholders is positively related to firms’ CSR concerns, especially environmental concerns.

Research limitations/implications

The findings suggest that shareholders may be concerned with the potentially adverse effects of weak CSR performance, especially poor environmental performance, and may support changes to corporate governance structures when a company’s CSR and environmental performance is weaker.

Originality/value

As the first research to examine the relationship between CSR and proposed changes to corporate governance, this study provides unique insights into shareholder perceptions of the value of CSR based on shareholders’ support (or lack thereof) for governance changes proposed by dissident shareholders.

Details

Social Responsibility Journal, vol. 12 no. 4
Type: Research Article
ISSN: 1747-1117

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Article
Publication date: 3 August 2015

Maggie Foley, Richard Cebula, Chulhee Jun and Robert Boylan

– This study aims to analyze withdrawn shareholder proposals to gain insight into the role of shareholder proposals in the governance of public corporations.

Abstract

Purpose

This study aims to analyze withdrawn shareholder proposals to gain insight into the role of shareholder proposals in the governance of public corporations.

Design/methodology/approach

A cursory look at the data suggests that unions are the most likely group to withdraw proposals. The authors focus on the behavior of unions and find that unions often resubmit a shareholder proposal which had garnered significant support in the previous year, only to withdraw the proposal in the second year.

Findings

The contention is that the proposals were withdrawn in Year 2 because the issue was settled in a manner agreeable to the union. Furthermore, this research suggests that unions are more likely to withdraw proposals when the prior years’ appeal is higher, when firms have a record of poor performance, lower insider ownership or relatively independent boards. This phenomenon suggests that unions submit and withdraw shareholder proposals strategically. The authors contend that unions use shareholder proposals and the withdrawal of proposals to improve conditions for union workers at the expense of shareholder value.

Practical implications

This study suggests that unions submit and withdraw shareholder proposals strategically. The authors contend that unions use shareholder proposals and the withdrawal of proposals to improve conditions for union workers at the expense of shareholder value.

Details

Corporate Governance, vol. 15 no. 4
Type: Research Article
ISSN: 1472-0701

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Article
Publication date: 14 May 2019

Ting Li, Xinlei Zhao and Aiwu Zhao

Motivated by managers’ intentions to pursue private interests by engaging in earnings management, this paper aims to investigate whether voting with hands (shareholders

Abstract

Purpose

Motivated by managers’ intentions to pursue private interests by engaging in earnings management, this paper aims to investigate whether voting with hands (shareholders cast votes on shareholder proposals) by shareholders acts as an external disciplining mechanism over earnings management relative to corporate governance. Also, as corporate governance can scrutinize managers’ behavior, this study also examines whether there is a substitutive relation between shareholder proposals and corporate governance mechanism.

Design/methodology/approach

First, this paper uses ordinary least squares (OLS) regressions of discrepancy accruals on the percentage of “For” votes for shareholder proposals to test the incremental effect of shareholder proposals on earnings management. Second, firms receiving shareholder proposals are matched with those not receiving proposals by propensity scores, and the levels of earnings management and corporate governance between these two groups are compared by univariate analysis and OLS regressions. In addition, six portfolios are created based on whether firms receive shareholder proposals, as well as on the levels of corporate governance, to assess whether external control from shareholder proposals can substitute internal control for corporate governance in disciplining earnings management. Regressions of earnings management on corporate governance (shareholder proposals) are conducted in the sub-samples formed on shareholder proposals (corporate governance) to further explore the above substitution effects.

Findings

Based on a sample of 2,041 firm-year observations from 2001 to 2010, this paper finds that the “For” votes received from the shareholder proposals have a significant negative relationship with the practice of earnings management, even when corporate governance is controlled. The negative relationship between shareholder proposal and magnitude of earnings management is also found to be stronger when firms have weak corporate governance. The overall evidence suggests that the external control from “voting-with-hand” shareholders has a significant impact on earnings management. In addition, shareholder proposals can substitute the monitoring mechanism for corporate governance in constraining managers’ myopic behavior.

Originality/value

This paper contributes to the extant literature by using the percentage of “For” votes for shareholder proposals as a proxy for shareholder pressure and concerns. This study contributes to the earnings management literature by showing the disciplinary effect of outside shareholders on managers’ reporting behavior. Also, it contributes to the corporate governance research by presenting that shareholder proposals can substitute for the internal control of corporate governance in decreasing earnings management. This paper should be of interest to investors and standard setters.

Details

Review of Accounting and Finance, vol. 18 no. 2
Type: Research Article
ISSN: 1475-7702

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Article
Publication date: 8 May 2018

Richard J. Parrino, Alan Dye and Alex Bahn

This paper examines a legal bulletin issued by the staff of the Securities and Exchange Commission (SEC) in November 2017 that provides significant new guidance to…

Abstract

Purpose

This paper examines a legal bulletin issued by the staff of the Securities and Exchange Commission (SEC) in November 2017 that provides significant new guidance to SEC-reporting companies on the application of the “ordinary business” and “economic relevance” exceptions in Rule 14a-8 under the Securities Exchange Act of 1934. Rule 14a-8 governs an SEC-reporting company’s obligation to include shareholder proposals in its proxy materials for a shareholder meeting.

Design/methodology/approach

This paper provides in-depth analysis of the new interpretive guidance against the background of continuing controversy between companies and shareholder-proponents over the bases on which companies should be permitted to exclude from their proxy materials proposals that proponents believe raise social, ethical or other policy issues that are appropriate for shareholder action.

Findings

In acting on a company’s request to exclude a proposal, the SEC staff must make difficult judgments regarding the connection between policy issues reflected in the proposal and the company’s business operations, which the company’s directors and officers seek to conduct free of inappropriate shareholder oversight. In the new guidance, the staff calls for assistance in making these judgments by soliciting greater board-level involvement in the exclusion determination and encouraging the company in its no-action submission to discuss the board’s analysis and decision-making process. Greater board participation should encourage a more probing assessment of the considerations weighed in these determinations.

Originality/value

This paper provides expert guidance on a major new SEC disclosure requirement from experienced securities lawyers.

Details

Journal of Investment Compliance, vol. 19 no. 1
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 19 April 2011

Aiwu Zhao and Alexander J. Brehm

The purpose of this paper is to investigate whether cumulative voting can help ease the conflicts between board of directors and minority shareholders.

Abstract

Purpose

The purpose of this paper is to investigate whether cumulative voting can help ease the conflicts between board of directors and minority shareholders.

Design/methodology/approach

The authors use voting result of shareholder proposals as an indicator of the level of conflicts between board and minority shareholders. OLS regression and non‐parametric Kruskal‐Wallis tests have been applied in the analysis.

Findings

It was found that cumulative voting can help ease the conflicts between board of directors and minority shareholders. Also, the tension between board and minority shareholders is affected by both corporate governance factors and a company's stock performance.

Research limitations/implications

In general, the research result indicates that cumulative voting is still an effective mechanism that can lower investors' costs on monitoring boards of directors.

Practical implications

Considering the huge amount of resources used in shareholder campaigns, the research result indicates that cumulative voting can be an efficient choice to alleviate the confrontation between dissenting shareholders and board of directors.

Social implications

With the change of minority shareholder structure, it is necessary to examine whether the corporate world needs to reconsider the adoption of cumulative voting.

Originality/value

The authors use a novel proxy, voting results of investor proposals, to measure the conflicts between board of directors and minority shareholders. This is also one of the few papers focusing on the monitoring cost side of the agency cost problem in corporate governance literature.

Details

Managerial Finance, vol. 37 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

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