What is a Shareholder Proposal?

If you invest in any Tulipshare campaigns, then around this time of year you might start to get emails from us letting you know that we’ve filed a ‘shareholder proposal’ regarding the campaigns. But what is a shareholder proposal? We’re here to explain.

The ultimate goal of a shareholder proposal is to influence company decision-making regarding its policies and actions.

Filing a shareholder proposal often leads to dialogue between a shareholder and a company, to address the concerns raised in the proposal. Sometimes the shareholder’s objectives are reached through these conversations alone, but usually the proposal is put to vote at the company’s Annual General Meeting (AGM), where other shareholders can cast their ballot.

A shareholder proposal needs to get a majority backing from other shareholders in order to pass. However, it’s worth mentioning that a successful shareholder proposal isn't necessarily one that passes - it’s one that leads to palpable changes with a company’s policies and practices. Sometimes a majority vote isn’t needed to convince a company to make a requested change. Like our Johnson & Johnson campaign seeking to remove talc from Baby Powder globally, for instance.

But, by the same token, a shareholder proposal which does pass might not be acted upon, because they are non binding. This is because under typical state corporation law, shareholders lack the power to require the board of directors to take action, on the basis that it would interfere with the board’s ability to govern the affairs of the company. However, since shareholders have the power to elect the company’s directors, shareholders can show their dissatisfaction by voting in new directors who adhere to the shareholders’ best interests.

Who has a right to submit a shareholder proposal?

A shareholder at a publicly traded U.S. company has a right to submit a proposal of up to 500 words to appear on the company’s proxy statement and be voted on at the next annual shareholder meeting, provided that the shareholder meets the eligibility requirements.

Here are the current eligibility requirements:

-The shareholder must have continuously owned a minimum of either
$25,000 in stock for at least one year
$15,000 in stock for at least two years
$2,000 in stock for at least three years

Shareholders must also own shares that have voting rights attached to them. Some companies offer different share classes, some of which do not have voting rights.

This is a good time to mention that every share you buy through Tulipshare comes with voting rights attached!

Can a company block a shareholder proposal?

In short? Yes. But ultimately it’s up to the U.S. Securities and Exchange Commission (SEC) about whether or not it’s allowed on the ballot for the AGM.

If a company wants to exclude a shareholder proposal from the AGM ballot, they need to file a “no-action challenge” with the SEC. The SEC can, however, block that exclusion attempt - meaning the company would then be required to include the proposal in the company’s next proxy statement, wherein shareholders can review the proposal and determine whether or not to vote in favour of it.

Interested in how the SEC determines which proposals to block and which ones to allow? Stay tuned for a separate article all about that. Basically it changes depending on which political party is in power, which can get very interesting!