Putting your mouth where your money is
When it comes to publicly traded companies, the U.S. Securities and Exchange Commission (SEC) offers shareholders another avenue to prompt companies to act. The agency’s 14a-8 rule allows shareholders to file a proposal that would then appear in a proxy, or vote, that is sent to all shareholders.
Anyone, or any group of investors—with $2,000 in shares held for at least three years, $15,000 for two years, or $25,000 for a year—can file a shareholder proposal. (While investments in mutual funds do not qualify, equity portfolios do.) A company can try to argue that a certain proposal doesn’t meet the SEC rules, but ultimately, the SEC decides whether a proposal qualifies for inclusion in a proxy. Public concerns outside of business norms—say, a company’s greenhouse gas emissions or its pesticide use—could, and do, qualify.
“If you care about an issue like climate change, you really should try to find a good template, a proposal that somebody else filed, that’s already gotten through the SEC,” says Sanford Lewis, an attorney who has been working with shareholders for two decades. That way, the proposal is more likely to be put on the proxy and brought to shareholders’ attention. A number of organizations also help investors navigate the proposal process, such as As You Sow, a nonprofit focused on corporate social responsibility; Ceres, a nonprofit advocacy organization; and the Interfaith Center on Corporate Responsibility, an investment company.
Sometimes, the mere suggestion that an investor may submit a proposal can lead a company to hold negotiations to address the issue before it even goes up for a vote. Otherwise, if a certain percentage of shareholders end up voting for the proxy statement, the company is then expected to act on the issue by its shareholders. Take what Microsoft investors did with a right-to-repair policy. Last year, more than 400 million people who used Microsoft’s Windows 10 on their computers weren’t able to run Windows 11 due to missing hardware features on older devices. The company wasn’t going to provide security updates for its earlier software, which would have then made all those computers obsolete. Shareholders filed a proposal and the company agreed to extend the security update for the following three years (until October 2025).
A similar situation occurred with Google’s Chromebooks, 100 million of which were headed to the landfill because they couldn’t get security updates. When investors and organizations brought attention to the issue and submitted a proposal, the company changed its policy and kept the devices in service.
And what happens if the company decides not to address the shareholders’ concerns? Even then, Lewis says, the process is still worthwhile. “The process of educating investors and possibly getting the attention of the management of companies—those are also benefits,” he says. Some companies need reminders that ignoring a majority of their shareholders on things that they care about comes at a price. “The shareholders,” Lewis continues, “might collectively decide to make some changes at the company, including running people for the board, voting against board members who are up for re-election, and voting against pay packages and other consequential actions of that ilk.”
The bottom line
Sustainability of the environment can often bring sustainability to a business. The World Economic Forum reported in 2022 that more than half of the total gross domestic product worldwide relies on nature and the ecosystem services it provides. Over the long term, it behooves any company that relies on natural materials (whether trees for toilet paper or lithium for EV batteries) to not deplete them.
Consumers are also increasingly looking for more accountability and transparency from the brands they choose. A 2020 report from the consulting company Deloitte found that more than 40 percent of respondents from six countries said that they had changed buying habits based on environmental concerns. Looking beyond self-reported preferences to actual consumer behavior, a study published last year by the consulting firm McKinsey & Company and consumer data company NielsenIQ showed that creating sustainable and socially responsible products is a solid business decision because sales of goods with those claims tended to grow 8 percent more than those without.
As logic would follow, greenwashing—a deceitful practice in which companies promote misleading or false pro-environment claims about their actions or products—could also pay off. Again, this is where consumers and investors can hold companies to account.
