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Commentary By James R. Copland

Bernie Goes to Bentonville

Economics Finance

On Wednesday, Walmart held its annual shareholder meeting at the John Q. Hammons Center in Rogers, Ark., a short drive from the retail giant’s corporate headquarters in Bentonville. It had an unusual attendee: Vermont Sen. Bernie Sanders, a 2020 presidential hopeful. Sanders spoke for three minutes on behalf of a company employee. He introduced a proposal urging the company to increase its minimum wage and put workers on the company’s board of directors.

Although companies do not usually see politicians at their annual meetings, shareholder resolutions of the sort proposed by Sen. Sanders are commonplace. Usually, however, the proponents do not show up in person to introduce them. Since 1942, the federal Securities and Exchange Commission (SEC) has required companies to place shareholder proposals on their proxy statements, if they meet certain guidelines.

Those guidelines are lax. The SEC generally requires a company to place a proposal on the ballot if its sponsor owns just $2,000 of the company’s stock. Supporters of this rule argue that it’s a way to make corporate leadership more democratic; to give the “little guy” a voice. But for a company the size of Walmart, with a $300 billion market capitalization, the SEC’s rule is the equivalent of giving you and one of your friends or neighbors the power to force a national referendum vote on an issue of your choosing—with only your two signatures. Since 2006, America’s 250 largest companies have held shareholder votes on more than 4,000 such proposals, according to the Manhattan Institute’s Proxy Monitor database.

Many of these proposals are about social or policy concerns, with an attenuated if any connection to the company’s business. Some of them, like the proposal introduced by Sen. Sanders, are actually inimical to the company’s profitability. In recent years, between 43% and 56% of all shareholder proposals on corporate proxy ballots have involved environmental or social issues. The more than 60 shareholder proposals on Walmart’s proxy ballots over the last 15 years have included issues like sustainability, greenhouse gases, and climate change; the company’s political spending, lobbying, and charitable contributions; sexual harassment; universal health care; and how the company sources its chickens.

The chicken proposal was sponsored by the People for the Ethical Treatment of Animals (PETA), which remains a player in the shareholder-proposal game. This March, the organization announced it was acquiring shares in Levi Strauss in order to propose shareholder resolutions involving the manufacturer’s use of leather patches. The jeans manufacturer had filed the paperwork to become a publicly traded corporation only one month before. PETA said it would acquire only the minimum number of shares required to reach the SEC’s $2,000 threshold to file a proposal.

It’s a free country, and policy activists have every right to protest corporate policies with which they disagree. Putting nonbinding shareholder resolutions on company proxy ballots is much less harmful than imposing bad policies nationwide—as the “Fight for $15” crowd proposes to do with the minimum wage, or as Sanders’s rival presidential aspirant Sen. Elizabeth Warren seeks to do for all large companies’ corporate governance in her Accountable Capitalism Act.

And most shareholders reject proposals like the one introduced by Sen. Sanders. His proposal, which was introduced at the meeting but not on the proxy ballot, received the support of only 0.01% of shareholders. Most of the other aforementioned social- and policy-related proposals introduced at Walmart were rejected by more than 97% of shareholders.

But if just 3% of shareholders vote “yes,” the SEC requires companies to place the same proposal on the ballot if introduced the subsequent year. If just 10% of shareholders vote “yes,” the proposal can be placed on the company’s ballot indefinitely. And many do—in part because proxy advisory firms that execute shareholder votes for institutional investors are much more likely to support social causes than the average investor. There are only two major advisors. Our empirical research suggests that the larger of these, Institutional Shareholder Services (ISS), effectively controls 15% of all shareholder voting on proposals at large businesses.

The SEC shouldn’t be forcing companies to turn their annual-meeting process into a political circus. Let Sen. Sanders make his case to the American people. But until he does, an unelected federal agency charged with statutory goals of promoting efficient markets and facilitating capital formation shouldn’t be coopting corporate governance structures to have companies agitate against their own interests.

Had Levi Strauss not listed its shares on a public stock exchange—the area of the SEC’s purview—it wouldn’t have had to deal with PETA’s proposal. The number of corporations listed on public stock exchanges has fallen in half over the last two decades. That’s a trend the SEC should seek to reverse.

Hopefully, it will. In November, the SEC held a “proxy process” roundtable. Among the issues on the table were the shareholder-proposal process and the role of proxy advisory firms.

James R. Copland is a senior fellow with and director of legal policy for the Manhattan Institute. He oversees the Institute’s website, which catalogues shareholder proposals at America’s 250 largest publicly traded corporations.

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