S.E.C. Official Criticizes Proxy Proposals on Social Issues

By MICHAEL J. DE LA MERCED  MARCH 27, 2014
 
NEW ORLEANS — Much of the Tulane Corporate Law Institute this year has focused on outspoken hedge fund managers like Carl C. Icahn and Daniel S. Loeb. But one of the Securities and Exchange Commission’s top officials took aim at a different sort of shareholder activism.

Daniel M. Gallagher, who was appointed as a commissioner three years ago, argued Thursday that the commission must clamp down on the filing of shareholder proposals unrelated to the long-term interests of corporations, such as those relating to climate change or sustainability.


His half-hour speech amounted to a call for overhauling the rules governing proxy access, which some companies argue has been overrun by ideologues putting forth proposals that have no chance of passing and merely make statements about various social or political causes. Such proposals, these companies contend, waste time and ultimately shareholder money.

Mr. Gallagher went so far as to argue that activists’ misuse of the proxy proposal system amounted to a “hijacking” of the corporate governance system. (He noted that he was speaking only for himself and not the whole commission.)


He argued that those most likely to use corporate votes as political platforms were union pension funds, religious institutions and others with potentially nonfinancial motivations. Activist investors like Mr. Icahn and Mr. Loeb generally have avoided using the proxy proposal system to push their causes.

Mike D. of the Beastie Boys had pushed for a vote by AT&T shareholders on net neutrality.
Christopher Berkey for The New York Times
Mike D. of the Beastie Boys had pushed for a vote by AT&T shareholders on net neutrality.
“The low level of hedge fund activism here suggests that their concerns are being addressed by avenues other than shareholder proposals,” Mr. Gallagher said.

Among his targets were proposals that call for greater disclosure of political campaign donations and those that demand more information relating to conflict minerals or greenhouse gas emissions.

Mr. Gallagher recounted how Michael Diamond — better known as Mike D. of the Beastie Boys — successfully pushed for a vote by AT&T shareholders on net neutrality. The proposal failed.

All the same, under the current system, Mr. Diamond, as the commissioner slyly noted, had the right to fight for a vote.