'Fearless Girl' statue stands off with the 'Charging Bull' statue on Wall Street in New York City. (Photo: Getty Images)

There’s a little known tool that has enabled small shareholders to call corporations to account for 70 years. Now the House wants to take that tool away and hand it to the super rich.

There’s a looming threat to democracy underway in Washington.  And, for once, it has nothing to do with Russian election meddling.   Right now, you as in individual investor, and other small shareholders holding as little as $2,000 in a company’s stock, have the right to bring your concerns directly to corporate management by  filing a shareholder resolution (SEC rule 14a-8).  The goal of a shareholder resolution is to influence company decision making, thus success is measured by changes in corporate policy and actions.  The rule was instated specifically to ensure the ability of individual investors to engage in oversight and deliberation on important issues of corporate risk and governance.  But it might not be around for long.

Under current rules, shareholders with as little as $2,000 in shares in a company have the right to introduce a recommendation before a company’s board of directors.  This resolution is then voted on by all shareholders and is presented at the company’s Annual General Meeting allowing for broad-based awareness-raising.  This tool is credited with achievements including:

• Getting close to 100 companies to agree to publish Sustainability Reports for investors;
• Broadening companies’ efforts to make their boards more diverse, with many adding women and people of color as a result;
• Over 150 companies committing to disclosure and Board oversight of corporate political spending; and
• Hundreds of companies disclosing information and plans for reducing their greenhouse gas emissions.

Earlier this week, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) proposed a bill (the Financial Choice Act 2.0) that would eliminate this right for small shareholders, protecting it only for the super wealthy.  The bill would permit only investors who hold at least 1 percent of a company’s shares for three years or more to file shareholder resolutions.  Sounds reasonable enough, right?  Well, consider the example of Wells Fargo.

Wells Fargo has been a focus of activist shareholders such as Sister Nora (my personal hero) of the Sisters of St. Francis, who have called for the bank’s management to clean up its act after federal regulators revealed widespread fraud  – including the opening of 1.5 million unauthorized deposit accounts and 500,000 credit cards.  The Sisters of St. Francis of Philadelphia, long time owners of Wells Fargo, have led the charge.

Disappointed in Wells Fargo’s performance in the wake of the scandal, Sister Nora, along with other investors, filed a shareholder resolution demanding that management disclose the root causes of the scandal and report on improved controls at the bank to keep such fraud from happening again.  While resolutions themselves are non-binding, they nevertheless keep the heat on management and maintain pressure for improved performance through press attention.   In a classic quote that displays the power of the process, Sister Nora said, “They haven’t done what we would have.  Now it is biting them in the face.” Under the new rules being proposed, the Sisters would have to own $2.7 billion in Wells Fargo shares.  Bye, bye Sister Nora.

So, who would have the right to hold Wells Fargo to account?  Wellington, T Rowe Price, and JP Morgan Chase.  Beyond individual investors and faith-based organizations, even socially responsible investors like Walden Asset Management, with nearly $3 billion in assets under management, would be too small to qualify. As Tim Smith, Director of ESG Shareholder Engagement at Walden Asset Management said in an excellent recent blog on the topic “We’d have to own roughly $7 billion of Apple stock to file a resolution.”

Is this the economy we want?  One that is increasingly opaque and veiled from view for everyone other than the largest asset owners?  With the Trump administration rolling back regulations with giddy abandon, shareholder resolutions provide space for people to let the sunlight in.  And, as we know, sunlight is the best disinfectant.

Shareholder advocacy has been an extremely effective tool to move corporations toward a more progressive future.  A Harvard Business Review article that reviewed outcomes from 2,665 shareholder proposals found the following, “even though such proposals rarely receive the majority support necessary in the event of a vote, they still have had an effect on corporate management, with managers investing resources and improving performance on diversity, energy efficiency, water consumption and product safety.”  As Anne Shehhan, Director of Corporate Governance at the California State Teachers’ Retirement System (CalSTRS) said in a recent article: “It makes no sense to dramatically change a process that doesn’t need changing, seeks to undermine the fundamental right investors’ have to ensure their publicly invested dollars are being used ethically, and is in every shareholder’s and the company’s best interest.  The damage it will do to shareholder/company relations is just chilling.”

Luckily, we still live in a democracy where your freedom of speech is protected.   And As You Sow has launched a Save Shareholder Rights petition on Change.org to push back against this dangerous legislation. When you sign, your message will go directly to members of the House Financial Services Committee. We urge you to use your voice to protect our rights while we still have them.