This Proxy Season, Companies’ Success Against Activist Investors Surged

Shareholder proposals are a critical tool for activist investors fighting climate change, allowing them to formally bring up issues like emissions goals during a company’s annual meeting by submitting them to a vote. 

This opaque process largely relies on lengthy exchanges of letters between the shareholders, companies and the U.S. Securities and Exchange Commission. The proposals, often meticulously crafted and reviewed by lawyers, are frequently met with accusations of “micromanagement” from companies. 

Now, new data from the Sustainable Investing Institute and Ceres shows that in this proxy season, companies that sought to exclude investors’ input from their annual meetings had a 68 percent chance of getting the go-ahead from the SEC. 

The rate this proxy season—which typically ends in the spring—is on par with that during the Trump administration, despite a 2021 Biden administration directive to be more lenient towards shareholders seeking information on a company’s climate policies. 

Notably, major corporations like Walmart and Bank of America successfully dismissed several proposals related to the disclosure of greenhouse gas emissions. Faced with a similar proposal, ExxonMobil chose to go beyond the SEC and file a lawsuit against activist investors, possibly foreshadowing a more aggressive approach by companies.

“Of all institutions, the SEC should understand the importance of these proposals, the importance of shareholder democracy, the ability to raise issues of concern with companies and management and boards,” Danielle Fugere, president and chief counsel at As You Sow, a shareholder representative organization, said in a recent interview. 

The Role of Shareholder Activism 

At the heart of the issue is a simple fact that investors, CEOs and the SEC all agree on: Shareholders do not manage a company. This is the north star of shareholder-management relations, and it shapes what investors can have input on at annual meetings, said Andrew Shalit, a shareholder advocate at Green Century Funds, an environmentally focused family of mutual funds. “It’s not our responsibility to make day-to-day decisions or detailed management decisions,” he said. “That’s what the management of the company is there for.” 

But what constitutes a “detailed management decision” is a matter of dispute. This is why, when raising climate-related concerns this year, Green Century Funds was accused by Walmart and Tractor Supply of attempting to “micromanage” daily business operations. 

Companies aren’t supposed to simply ignore shareholder proposals. But they can—and frequently do—ask the SEC to give informal permission to set the measures aside.

Last year, companies sent 261 letters to the agency that requested such a “no-action” decision.

In recent months, Green Century Funds asked three companies in its portfolio for a breakdown of “use of sold products” emissions—emissions from customers using products like lawnmowers or leaf blowers after buying them—which typically represent a large proportion of retailers’ emissions. Lowe’s, one of the companies, agreed to disclose the information in its next sustainability report. But Tractor Supply and Walmart both wrote to the SEC asking for permission to exclude the proposal from their shareholder meetings—and received its permission.

As in many cases, the SEC review team responded after a few months: “In our view, the Proposal seeks to micromanage the Company. Accordingly, we will not recommend enforcement action to the Commission if the Company omits the Proposal from its proxy statement.” 

Sometimes, a single word makes or breaks a proposal. Last year, Green Century Funds asked Amazon to “measure and disclose scope 3 greenhouse gas emissions,” referring to emissions from Amazon’s suppliers. But Amazon was allowed to exclude the proposal.

A year later, Shalit’s team filed again, this time without mentioning the word “measure” and without a few additional definitions. This time, Amazon did not ask the SEC to exclude the proposal, the motion was presented at the 2024 annual meeting and gathered 15 percent of the votes. It’s unusual for shareholder proposals to win a majority of the vote, Shalit said, but including them at shareholder meetings is a way to let company management know what investors’ priorities are. 

It’s unclear what prompted Amazon to accept this proposal and not last year’s, but Shalit and his team theorize that simpler language might have played a role.

‘Little Bit of Political Football’

The SEC’s response to these requests fluctuates. The rate at which the agency sides with companies is higher this proxy season than it was in the last two. In 2022, the SEC agreed with companies in only 38 percent of cases, according to data gathered by Gibson, Dunn & Crutcher LLP.

Heidi Welsh, director of the Sustainable Investment Institute, notes that 2022 and 2023 were abnormally low. This season’s 68 percent is aligned with the prior administration’s average, according to the Shareholder Rights Group. 

Welsh points to the election of President Joe Biden as a potential factor. The SEC is an independent federal agency, aiming to operate outside of political considerations. Still, Welsh points out, political dynamics can influence agency staff behavior, especially in how they interpret rules. 

Under the Trump administration, the SEC issued three bulletins instructing staff on how to handle shareholder proposals and micromanagement claims. A year into Biden’s term, the agency rescinded all three bulletins, issuing a new one that aimed to clarify rules related to climate change proposals. The new bulletin stated that proposals requesting companies adopt timeframes and targets would not be excluded as long as they afford management discretion on how to achieve their climate goals. 

This policy change could explain the brief drop in SEC no-action decisions in 2022. “When Biden came in, it became somewhat easier to overcome corporate objections,” Welsh explained. “It bounces back and forth. It’s a little bit of political football.” 

At this April’s SEC Speaks, an annual update about the agency’s operations, Michael Seaman, chief counsel of the Division of Corporation Finance at the SEC, described the SEC’s review process as purely procedural and not political. Whether a proposal goes through or not often depends on how the arguments are presented by the company, he said. “The conclusion should not be that the staff is being inconsistent or flip-flopping,” he added. “It makes it seem as though the staff has taken a position that it has not.”

Kirsten Spalding, vice president of the investor network at Ceres, a nonprofit advocacy organization, said the numbers back up the SEC’s claim. While there has been some ebb and flow, the 2024 return to the previous administration’s track record indicates that the process is not overly political. “It really comes down to the merit of the proposals,” Spalding said. “I would not say the SEC gives any blanket yeses and nos, but they look at the specifics of the proposal.” 

The line of what the SEC considers micromanagement is not static, Spalding said. When she started working in the field, climate proposals were in their early stages and used as tools for investors to ask companies for sustainability reports at large. Today, proposals have to be much more focused on metrics, progress and plans. 

“Investors want to see exactly what the company’s strategy is and how they’re implementing it,” she said. “Today, forward-looking plans, backward-looking assessments of risks and being able to see not only what the company says they’re doing but whether they’re actually doing it, these are all within the realm of appropriate topics for shareholder resolutions.”  

In some cases, proponents feel their proposals are within the bounds of what has been done before, yet are shocked when the SEC agrees with a company’s challenge.

“I think shareholders generally understand that you don’t want to micromanage companies. But you should be able to get critical information. The SEC needs to meet us all in the middle.”

In 2024, As You Sow, a shareholder representative organization, filed shareholder resolutions for greater disclosure of transition plans at several U.S. banks. The proposals asked Wells Fargo, Bank of America, Goldman Sachs and CitiBank to release their findings from an assessment they had already done of their clients’ progress toward transition goals. Ultimately, the proposal claimed that the banks’ net-zero goals would be affected by their clients’ progress, especially in sectors like oil and gas, steel or aviation.  

“If Wells fails to meet its targets, it faces the possibility of reputational harm, litigation risk (including greenwashing), and financial costs,” As You Sow’s proposal for Wells Fargo read. “Failure to meet targets also contributes to systemic climate risk that harms Wells’ and investors’ portfolios.” 

“This was a pure disclosure proposal, and this was a disclosure that is highly pertinent to investors’ understanding of where the banks are and whether they’re likely to meet their target,” said Fugere, the nonprofit’s president. 

All the companies, except CitiBank, filed for a no-action decision with the SEC. All three challenges were granted. “I was highly surprised that the SEC decided that this was micromanaging a company,” Fugere said. “Recent micromanagement decisions have not necessarily been aligned with prior decisions and the understanding of what micromanagement is.”

“I think shareholders generally understand that you don’t want to micromanage companies,” she added. “But you should be able to get critical information. The SEC needs to meet us all in the middle.” 

A More Aggressive Approach

A notable event of this proxy season was ExxonMobil’s lawsuit against activist investors over a climate proposal. In January, the oil major sued Arjuna Capital and Follow This for submitting a proposal asking for greenhouse gas emissions targets. 

Exxon, taking a direct aim at activist investors, said it filed the lawsuit to get clarification on shareholder proposals following the 2021 staff bulletin. In the lawsuit, Exxon said that the new staff bulletin modified rules for no-action requests in a way that aligned closely with the requests and interests of activist investors. 

“We support the rights of shareholders to submit proposals,” the company wrote in a statement. “But these rights are increasingly being infringed by activists masquerading as shareholders.”

While the lawsuit was thrown out by a court last week, it highlighted a more aggressive approach that companies may choose to take rather than simply asking the SEC for permission to ignore shareholder proposals. 

The SEC does not adjudicate, and its responses to no-action letters are merely informal and advisory. The process is typically enough to settle management-shareholder disputes over proposals, but companies like Exxon can go to court in order to receive a legal ruling. 

“I think there is a real pushback against the idea of investor voice, and Exxon was certainly part of that in its suit against Arjuna,” Welsh said. And while the lawsuit is not moving ahead, Welsh added, the movement it represents could be in its early stages. “I don’t think that means that the issue is settled,” she said. “It’s settled for Arjuna and Exxon, it’s certainly not settled in general.”