I’m not referring to the kind of proposal at the right; rather, I’m referring to shareholder proposals – one of the topics of a recent Executive Order signed by our fearless leader. (Yes, that is a reference to Rocky and Bullwinkle).

I’ve already commented on the possible impact of the Executive Order on proxy advisory firms, including my concern that it might result in draconian action against such firms.  When it comes to shareholder proposals, however, I believe that draconian action may be in order. 

Here goes.

I am a fervent advocate of shareholder engagement.  In my experience, serious, meaningful engagement gives shareholders and companies a wonderful opportunity to learn from each other, to see the folks on the other side as human beings, and to establish relationships, even when engagement doesn’t yield the results desired by either side.  The problem is that shareholder proposals rarely yield any of these benefits. Instead, they often result in a predictable ritual of procedural and/or substantive objections to proposals, the submission of no-action requests to an overburdened SEC staff, resulting in responses that are as cryptic as the pronouncements of the Oracle at Delphi, canned opposition statements that companies put in their proxy statements, and shareholder votes that are inconclusive.  Moreover, they usually generate legal fees for services that really don’t add value to anyone (other than the attorneys, of course).  (As an attorney, I staunchly support legal fees, but I’d much prefer to collect them for doing constructive work, like raising capital needed to grow a client’s business, than for dealing with the nuances of Rule 14a-8.)

At the same time, I believe that some investors ought to be able to solicit the views of other shareholders on matters of importance to their companies. 

So where does this lead?  Again, here goes:

• When I say “some” investors, I refer to investors with a meaningful stake in the company.  The current eligibility thresholds for shareholder proposals are absurdly low and almost encourage proposals by unserious people who want nothing other than to have their names appear in the proxy statement. 

• The current resubmission thresholds need to be substantially increased.  It’s not all that unusual for a company to have to include the same proposal in its proxy statement for several years running, even though the proposal has never generated anything close to a majority vote. 

• The SEC should get out of the business of mediating disputes between companies and shareholders as to what is or is not a legitimate subject for a proposal.  I believe that increasing the eligibility and resubmission criteria would help a lot in this respect, in part by reducing the number of proposals to consider.  Another thing that might help a great deal would be to tighten up the exclusions under Rule 14a-8 so that they don’t leave a lot of wiggle room for debate.  Some examples might be excluding proposals that relate to social or political matters.  (I know I’m going to be criticized for that example, but there are other ways of achieving social or political goals at corporations.)

I’ll stop there in the interest of brevity.  However, as I was drafting this post, I did some checking and realized that I’d covered the same territory nine years ago.  That leads me to make one more suggestion: companies and shareholders alike need to behave like adults and drop the melodrama – sometimes approaching hysteria – surrounding shareholder proposals.  For example, the last time the SEC proposed increases in eligibility and resubmission thresholds, many in the investor community acted as though the increases would lead to the end of the world as we know it; that’s just not the case.  For their part, companies need to stop screeching about how disruptive and costly shareholder proposals are.  I’ll admit that they can be frustrating and wasteful, but In many cases no more than some things companies happily endorse and pay for. 

A very dear friend of mine who held a senior position in an investor organization once said to me that if companies and investors talked to each other more, instead of talking across each other or screaming at each other, they’d find that they agree on far more things than they think they disagree on.  Let’s give it a try.