Shareholder Sponsored Proposal – Definition

Cite this article as:"Shareholder Sponsored Proposal – Definition," in The Business Professor, updated April 15, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/shareholder-sponsored-proposal-definition/.

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Shareholder-Sponsored Proposal Definition

A Proposal put forth to all shareholders of a company for the annual proxy voting, sponsored by one of the company’s shareholders or a group of the company’s shareholders, is called a ‘Shareholder-Sponsored Proposal’. The Security and Exchange Commission’s (SEC) Rule 14a-8, regulates the rules to monitor and exclude shareholder proposals from company proxy materials.

A Little More on What is a Shareholder Sponsored Proposal

Resolutions that require shareholders to vote on to be brought into effect are called Proposals. Proposals vary in content, ranging from appointment of new Board of Directors, to sale of specific assets, change in pay structures of senior management, and similar matters that can bring in significant changes to the corporate.

Types of Proposals

 

  • Management Proposals: Company resolutions put to vote proposed by the management.
  • Shareholder Sponsored Proposals: Company matters proposed by its shareholders and put to vote annually by being included in the company’s annual proxy materials, in keeping with rule 14a-8 of the SEC Shareholder Proposals guidelines.

 

Shareholders can forego being included in the company proxy materials and sponsor a proposal for voting by giving an advance, 120 days notice to the company and shareholders, and publishing their own proxy cards or statements. The company’s bylaws publish this advanced notice in the following proxy statement.

These proposals could deal with corporate governance issues, ecological impact of the company, social responsibilities, financial liabilities, and more.

 

Eligibility to Sponsor a Shareholder Proposal

Being in possession of at least $2000 worth of equities in the company, or 1% stake in the company, for a period of one year,  is a must to be eligible to propose a vote as a shareholder. Equities holding must continue until the Proposal goes to vote.

The Company Proxy Materials published after the Proposal to Vote, mention the company’s stance on the issue.

SEC Rules and Regulations Regarding Proposals

Company’s can take one of the following routes once a Shareholder Sponsored Proposal enters the picture.

  1. Entertain a Shareholder Sponsored Proposal by publishing its details in the next proxy materials issue. Declare their stance in favour of, or against, the proposal, and let it go to vote.
  2. Approach the shareholders to negotiate a deal to withdraw the proposal or make appropriate amendments to accommodate its demands.
  3. Submit a No-Action request to the SEC to exclude the Proposal from the next proxy materials issue. There are many clauses on the basis of which a No-Action request can be filed. Chief amongst them are:
    1. Proposed action is in breach of State Laws.
    2. Legal implications if the proposal is passed.
    3. Proposal is based on misleading data and assumptions.
    4. It doesn’t fall under SEC guidelines for Shareholder Sponsored Proposals and relates to matters that aren’t a shareholders domain.
    5. Proposed changes are negligible and already in effect.

References for Shareholder-Sponsored Proposal

https://www.shareholdereducation.com/

A Little More on What is a Shareholder-Sponsored Proposal

The wealth effects of shareholder-sponsored proposals, Forjan, J. M. (1999). The wealth effects of shareholder-sponsored proposals. Review of Financial Economics, 8(1), 61-72. This paper looks at the financial implications of Shareholder Sponsored Proposals.

Should labor be allowed to make shareholder proposals, Thomas, R. S., & Martin, K. J. (1998). Should labor be allowed to make shareholder proposals. Wash. L. Rev., 73, 41. This article examines the rules regulating the entities that can file a Shareholder Sponsored Proposal and investigates whether labour unions can be permitted to propose shareholder votes on issues affecting them.

Corporate governance and value: evidence from “close calls” on shareholder governance proposals, Cuñat, V., Gine, M., & Guadalupe, M. (2013). Corporate governance and value: evidence from “close calls” on shareholder governance proposals. Journal of Applied Corporate Finance, 25(1), 44-54. This paper presents the results of a study on the value of a firm in relation to corporate governance and Shareholder Sponsored Proposals for the same.

Shareholder Activism and Earnings Management Incentives: An Empirical Examination of Shareholder Proposals in the United States, Sun, Y., Wang, W., Wang, X., & Zhang, W. (2013). Shareholder Activism and Earnings Management Incentives: An Empirical Examination of Shareholder Proposals in the United States. Journal of International Financial Management & Accounting, 24(3), 234-260. This paper looks at empirical data from US corporates with pay-for-performance Shareholder Sponsored Proposals and examines its implications on management of earnings and incentives.

Mutual funds as monitors: Evidence from mutual fund voting, Morgan, A., Poulsen, A., Wolf, J., & Yang, T. (2011). Mutual funds as monitors: Evidence from mutual fund voting. Journal of Corporate Finance, 17(4), 914-928. This paper looks at the voting patterns in mutual funds managements to identify Shareholder Sponsored Proposals aimed at wealth increasing.

Shareholder Proposals: Trends from Recent Proxy Seasons (2007-2011), Tonello, M., & Aguilar, M. (2012). Shareholder Proposals: Trends from Recent Proxy Seasons (2007-2011). This paper analyses the Shareholder Sponsored Proposals from 2007 to 2011 to identify trends and patterns in proxy voting.

Ties that bind: How business connections affect mutual fund activism, Cvijanović, D., Dasgupta, A., & Zachariadis, K. E. (2016). Ties that bind: How business connections affect mutual fund activism. The Journal of Finance, 71(6), 2933-2966. This paper takes a look at the background dealings in proxy voting in mutual funds based on business ties with the equity firms they’re invested in.

Shareholder Proposals to Rescind Poison Pills: All Bark and No Bite?, Marquette, C., & Bizjak, J. (1996). Shareholder Proposals to Rescind Poison Pills: All Bark and No Bite?. This paper examines the underlying motivations for Shareholder Sponsored Proposals, concluding that a company with good performance usually has growth oriented Shareholder Sponsored Proposals, while one with consistently bad performance has Shareholder Sponsored Proposals to rescind poison pills.

External CSR Rating Influences on Shareholder Voting Patterns for CSR Shareholder-Sponsored Proposals, Cullinan, C. P., Mahoney, L. S., & Roush, P. B. (2018). External CSR Rating Influences on Shareholder Voting Patterns for CSR Shareholder-Sponsored Proposals. In Research on Professional Responsibility and Ethics in Accounting (pp. 83-110). Emerald Publishing Limited. This paper examines the influence of external CSR ratings on voting patterns of shareholders in Shareholder Sponsored Proposals.

Shareholder Activism, Internal Corporate Governance and the Cost of Bank Loans, Liu, Y., & Wu, X. (2017). Shareholder Activism, Internal Corporate Governance and the Cost of Bank Loans. This paper explores the relationships between cost of banking finance, corporate governance and shareholder activism.

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