A brief guide on shareholder resolutions
Taking a closer look at shareholder resolutions as a tool for the engaged investor.
The number of shareholder resolutions that were submitted at Russell 3000 companies rose to 555 in 2022 — a record high.
And with topical resolutions, such as the ones on Apple’s civil rights audit and Sainsbury’s Living Wage policy regularly making headlines, interest — and questions — on how resolutions work is becoming increasingly relevant.
This article pulls together everything you may want to know about this engagement tool.
What are shareholder resolutions?
Shareholder resolutions (sometimes called proposals) are questions or requests submitted by one or a group of company shareholder to an annual general meeting (AGM).
Who submits them?
The winning answer: shareholders. But not all shareholders exercise this right:
- Which shareholders can submit resolutions?
In the US, shareholders intending to “file” a resolution must have held a certain amount of company shares for a specific period of time. For example: shareholders owning $25,000 worth of a company’s stock must have held it continuously for at least 1 year before being able to submit a resolution.
In the UK, shareholders intending to submit a resolution have two routes to choose from: they can either hold a certain amount of company shares, or form a group with at least 100 other shareholders.
Shareholders also face rules on what issues can be submitted as a resolution, and what cannot. For example, in the UK resolutions must not be ineffective if passed, defamatory of any person, or frivolous or vexatious.
ICCR’s guide is instructive for submitting resolutions in the US, while ShareAction’s guide will be useful for shareholders in the UK.
- Do many shareholders submit resolutions?
According to a Sullivan & Cromwell report, the majority of shareholder resolutions submitted in the US in 2022 can be traced to just 10 shareholders. They collectively submitted 508 proposals last year.
This is partly because most shareholders can’t spare the time and resources to submit a “winnable” resolution. Therefore, the heavy lifting is typically done by activist investors — individuals/organisations who specialise in engaging companies on topics that matter to them.
In the US, the top five most active resolution submitters in 2022 were John Chevedden, As You Sow, James McRitchie/ Myra Young, Kenneth Steiner, and Mercy Investment Services.
How do they work?
While all properly submitted resolutions go to a vote at the AGM, resolutions work differently in different jurisdictions.
In the US, a 50% passing threshold applies to shareholder resolutions. So if a proposal fails to gain a simple majority at the AGM, it will be considered rejected. Shareholder resolutions are also only advisory, meaning that companies do not have to act based on the outcome.
At UK-listed companies, shareholder resolutions akin to those in the US are considered special resolutions, and face a higher 75% pass threshold. But contrary to their American counterparts, shareholder resolutions in the UK are binding, meaning that successful resolutions must be implemented by companies.
A piece in the engagement puzzle
A key focus in the corporate and investment-management spheres, shareholder engagement refers to a wide range of tactics which company Boards and shareholders use to influence each other. Most shareholder engagement happens discreetly, through methods such as face-to-face or telephone dialogues, and roundtable meetings.
If dialogue fails, then investors may choose to file a shareholder resolution to escalate the engagement process. But even after a resolution has been submitted, investors will continue to engage with the company in the lead up to the AGM. In fact, it is common for resolutions to be withdrawn if an agreement with management is reached.
To see how shareholder resolutions compare to management resolutions, see our explainer piece.
