What are company resolutions?
Understanding the basics of company resolutions.
Once a year, the shareholders of a company attend an annual general meeting (AGM) where they, among other things, vote on key company decisions.
These decisions are presented in the form of resolutions (sometimes called proposals), and are vital to the running of a company.
What are resolutions?
In essence, resolutions are questions or requests that are put forward at company shareholder meetings, such as an Annual General Meeting (AGM).
What do they talk about?
A wide range of topics. They can cover issues like electing a company’s Board of directors, approving its pay practices, the company’s climate action, its supply chain, and more.
Here are some anonymised examples of actual resolutions:
- “To re-elect [director name] as a Director of the Company”
- “Advisory vote to approve [company name]’s executive compensation (say-on-pay)”
- “ To vote on a stockholder proposal requesting an independent board chair policy”
Where can I find them?
You can find a company’s resolutions in its proxy/meeting notice.
In the US, the Securities Exchange Commission (SEC) requires companies to publish their proxy statement at least 40 days before the meeting date.
In the UK, s304 of the Companies Act 2006 requires companies to hold their meeting no later than 28 days after the meeting notice has been released.
To vote, or not to vote?
Shareholders typically have three voting options: vote “in favour”, “against”, or “withhold” (in the US it’s “abstain”) from voting on the resolution.
In most cases, a majority vote (50%) is required for resolutions to pass or fail. However, some votes are classed as “special resolutions” and have a higher pass threshold.
Who submits resolutions?
Resolutions can be posed by the company, in which case they’re called “management resolutions”, or they can be put forward by shareholders, a.k.a “shareholder resolutions”.
Management resolutions
Corporate governance regulations have strongly shaped the management resolutions that shareholders see on a yearly basis.
In the US, the Dodd-Frank Act determines much of what resolutions companies have to put forward. In the UK, the Corporate Governance Code carries out the bulk of this role, along with the Companies Act 2006.
Routine management resolutions include electing Board directors, appointing company auditors, and approving executive pay practices.
Shareholder resolutions
While a company’s management have to submit certain proposals each year, shareholders can do it when they choose to.
The more open-ended nature of shareholder resolutions means that a more varied range of topics can be put forward — although they can largely be categorised under the three ESG topics: Environmental, Social, and Governance.
We recently broke down the six shareholder proposals at Microsoft, which give a good flavour of what shareholder resolutions are like.
Binding vs advisory resolutions
While companies generally take resolution outcomes seriously, not all resolutions are the same.
Some resolutions are binding, meaning that the company will have to act according to how shareholders have voted. Votes that are binding include Board elections and UK shareholder resolutions.
On the other hand, some resolutions are only advisory, meaning that companies are not bound by how shareholders have voted. Key resolutions that fall under this category include Say on Pays and US shareholder resolutions.
However, in practice things are more fluid. For example, Twitter chose to go against the binding shareholder vote to oust director Egon Durban from its Board, as they felt that he was an important Board member. And while Say on Pays are only advisory, they have caused companies to change their pay practices on many occasions (such as at General Electric).
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