Back when the SEC announced it was functionally no longer going to weigh in on whether companies may legally exclude shareholder proposals, I made a prediction in a number of spaces – except embarrassingly, I can’t remember which ones. Possibly podcasts, webinars, conferences, I swear to god, I absolutely staked out my prediction, I’m sure someone can prove it.

Which was: Companies now are in a heads-I-win, tails-you-lose position. They can exclude proposals, regardless of their legal basis for doing so. They can be confident that the SEC – which is now hostile to proposals – will not sue to force their inclusion. Very few shareholders will have the resources to sue over an improperly excluded proposal, and if any shareholder bothers, the company can simply moot the action by voluntarily agreeing to include the proposal even before filing an answer to a complaint. There is no risk to the company in simply excluding proposals, and waiting to see who sues.

And – behold!

AT&T said it would exclude a proposal offered by a variety of NYC pension funds asking for the company to disclose its EEOC-1, i.e., a form AT&T is required to submit to the federal government regarding the racial and gender makeup of its workforce. AT&T claimed that such a disclosure falls under the ordinary business exclusion of Rule 14a-8.

So, NYC pension funds – a well-heeled group of investors – filed a lawsuit, arguing that their proposal was not subject to the ordinary business exclusion. And you’ll never guess what happened. Come on, guess!

If you guessed, it only took eight days for AT&T to agree to include the proposal on its proxy rather than litigate – you were correct!

A similar situation just unfolded with Pepsico; within days of the filing of a complaint, Pepsico agreed to include a proposal rather than litigate its exclusion.

This, I fear, is our future. Wealthy investors will get their proposals included, either because companies voluntarily agree at the outset, or because they cave at the filing of a complaint; investors without those resources will be excluded. And note, this is not about the actual size of the investor’s stake; plenty of investors may have small stakes but resources to litigate, and that’s what will carry the day.

And another thing. In this week’s Shareholder Primacy podcast, Mike Levin and I talk about efforts to regulate proxy advisors at the state level. Here at Apple; here at Spotify; and here at YouTube.

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Photo of Ann Lipton Ann Lipton

Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined…

Ann M. Lipton is a Professor of Law and Laurence W. DeMuth Chair of Business Law at the University of Colorado Law School.  An experienced securities and corporate litigator who has handled class actions involving some of the world’s largest companies, she joined the Tulane Law faculty in 2015 after two years as a visiting assistant professor at Duke University School of Law.

As a scholar, Lipton explores corporate governance, the relationships between corporations and investors, and the role of corporations in society.  Read more.

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