From Public Policy to Materiality: Non-Financial Reporting, Shareholder Engagement, and Rule 14a-8’s Ordinary Business Exception
This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.
In 2017, shareholder proposals urging corporate boards to report on their climate-related risk made headlines when they earned majority support from investors at ExxonMobil, Occidental Petroleum, and PPL. The key to this historic vote was the support of Blackrock, State Street, and Vanguard, which broke with management and cast their votes behind the proposals. The 2018 proxy season saw several more climate-related proposals earn majority support, and in 2018 and 2019 record numbers of proposals were withdrawn after the companies agreed to respond to shareholders’ requests.
The highly visible 2017 proposal illustrates a number of key aspects of shareholder activism today. The first is the mainstreaming of shareholder activism from its origins in the civil rights and socially responsible investment movements to a point where the largest institutional investors are integrating “environmental, social, and governance” (ESG) or “non-financial” factors into their voting and investment policies. Second, the proposal shows how the focus of shareholder activism around ESG matters has broadened beyond the civil rights, labor, and human rights issues that were its major target throughout much of the twentieth century. Climate change risk and corporate environmental impacts are now among the top subjects of shareholder proposals today. Third, as explained below, mainstream investors like Blackrock and Vanguard are supporting ESG-oriented activism for economic reasons, not only or even necessarily because of commitments to a particular ethical or political position. And finally, this proposal is one of many ESG proposals (about 20 percent of all environmental and social proposals in 2018) that seek greater corporate transparency about non-financial risks and impacts, either to better inform investor decision-making or to prompt changes in corporate practice.
This Article focuses on the challenge of achieving corporate transparency for investment purposes and considers whether shareholder activism is the best way to achieve it. Many in the business community appear to think so. For example, in 2016, many corporations and law firms offered comments to the Securities and Exchange Commission (SEC) on the question of whether the agency should develop new ESG-related disclosure rules. Nearly all took the position that shareholder engagement and other forms of shareholder activism were the best way to improve ESG disclosure and that the SEC should leave well enough alone.
Recommended CitationVirginia Harper Ho, From Public Policy to Materiality: Non-Financial Reporting, Shareholder Engagement, and Rule 14a-8’s Ordinary Business Exception, 76 Wash. & Lee L. Rev. 1231 (2019).
Available at: https://scholarlycommons.law.wlu.edu/wlulr/vol76/iss3/5