Promoting Responsible Shareholder Engagement

Modernizing the Proxy Process for Public Companies

The current U.S. proxy system, which was developed in the 1980s, is complicated and multi-faceted, involving several layers of intermediaries who are not the economic owners of the shares. This system makes efficient communication with shareholders and verification of accurate shareholder vote counts difficult. In addition, the system does not take advantage of technological advancements, such as Internet voting and blockchain technology, that could make direct communications more feasible and potentially revolutionize the entire proxy process. Further, to increase retail shareholder participation, the U.S. proxy process should be modernized to encourage active and ongoing communications with retail investors.

Shareholder Proposals

Effective communication with shareholders is a critical element of the operation of today’s public company, indicated by the increase in S&P 500 companies reporting shareholder engagement since the 2010 concept release — up from 6% in 2010 to 72% in 2017. The importance of constructive shareholder engagement drives the need for a shareholder proposal process that is robust, productive and oriented toward long-term value creation for all shareholders. While Rule 14a-8 remains an important avenue of shareholder communication, the process is outdated and in need of modernization.

Proxy Advisory Firms

Based on changes to regulations and investor composition, proxy advisory firms have come to wield enormous influence over shareholder voting at public companies. Academic studies suggest an adverse recommendation on a proposal from a proxy advisory is associated with a reduction in the favorable vote count by 10% to 30%. Despite the heavily concentrated market in which they operate and the significant influence they have, proxy advisory firms are currently subject to little oversight or accountability. Business Roundtable supports reforms that will improve the transparency and accountability of the proxy advisory process.