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Step by Step Guide to Filing a Shareowner Resolution

by Jennifer Kramer

1. What is a shareowner resolution?

As a shareowner, you are also entitled to bring issues important to the direction of the company before management and fellow shareowners. These take the form of a shareowner resolution, a legal document describing a change to company policy that needs to be implemented within the company. These resolutions are nonbinding, meaning that even if the resolution is passed by a majority of shareowners, implementation of the resolution is not required. However, management is usually responsive to shareowner desires, fearing a sell-off (or divestiture) of stock and the corresponding drop in price if they fail to respond. Therefore, shareowner resolutions are well worth their trouble and time.

2. How do I qualify to sponsor a shareowner resolution? to top

Rules surrounding shareowner resolutions are governed by the Security and Exchange Commission (SEC). The specific rule governing shareowner resolutions is called Rule 14a-8. In order to be eligible to submit a shareowner resolution, you must own the lesser of $2000 or 1% of the company's stock for at least one year prior to submitting the resolution. Furthermore, you must continue to own this amount of stock through the date of the annual meeting (remember you may need to purchase additional shares if the stock price falls).

If you are a beneficial owner, you must have proof of ownership of how many shares you own and when they were acquired. A beneficial owner is someone who owns stock through a brokerage. You should include this information when you submit your resolution to the company. If you own shares of a mutual fund, your mutual fund is the shareowner in the company, and you don't have an ability to submit a resolution based on ownership through the mutual fund.

Your resolution must be submitted on time. Generally, the exact date can be found in a document called a 14A or DEF (the shareowner proxy statement) for the previous year. You can obtain copies of this filing online. Rule 14a-8 also specifies that this date must be at least 120 days before the date the previous year's proxy statement was released to shareowners.

3. How do I write a shareowner proposal? to top

The best way to learn how to write a proposal is to look at proposals written by others. You will find certain characteristics in common:

  • The resolution itself is divided into two sections -- a resolution, and a supporting statement. The supporting statement should contain information explaining why the resolution is relevant to the company, including independent studies, scientific research, and other quantitative and qualitative data.
  • The resolution is the part explaining what the Board of Directors needs to do.
  • Rule 14a-8 limits the length of the resolution to 500 words.
  • The resolution should be written as clearly as possible, especially concerning the action you desire the company to take. Often this is written as a series of "WHEREAS" statements, followed by a "RESOLVED" statement to emphasize the action requested.
  • You can send a draft of the resolution to the company to try to determine whether they will support or oppose your resolution. This can also open a dialog with the company, perhaps even leading to a change in policy without a shareowner vote.
  • Submit your resolution with background material to support your position. While the background material is not required, it may make strengthen your case.

4. How do I file the resolution? to top

Submit the resolution to the Secretary of the company. Include a cover letter. It is recommended that you send the resolution by Certified Mail/Return Receipt Requested so that you have proof the company received the resolution, particularly if you are near the filing deadline.

Send a copy of the same set of documents to the SEC. Companies often try to exclude resolutions based on one of 13 criteria described in Rule 14a-8. Since companies often wait until the last minute to notify the SEC of a resolution exclusion, notification of the resolution ahead of time can be helpful.

5. What happens after I file? to top

You wait for the company to contact you regarding the resolution. Often the company will call and ask you to withdraw the resolution and give you a reason why it is not necessary. They may ask you to change wording or information in the resolution. The company could also choose to include your resolution as it stands without disputing it. At the other end of the spectrum, they could notify the SEC that they intend to omit (or not include) your resolution from the proxy statement. If the company omits your resolution, they must file a request with the SEC no less than 60 days before distributing their proxy statement. They will also send a copy to the resolution sponsor.

Click here for the text of Rule 14a-8(c) regarding the 13 reasons a company can omit your resolution.

At this point, if the company omits your resolution, proceed to step 8. If your resolution is accepted, proceed to step 7.

6. My resolution has been omitted. Now what? to top

Now you need to work quickly! Remember, this is only 60 days before the proxy statement is due to get distributed to shareowners.

At this point the SEC will review why the company rejected your resolution. The SEC's Office of Chief Counsel, Division of Corporation Finance is responsible for performing this duty.

Officially, there is no role for the resolution sponsor in this process. The SEC maintains that they do not consider sponsor input at this point in the process. However, many sponsors respond to the SEC anyway, stating why they feel the resolution is not in violation of Rule 14a-8(c). It is recommended that you also offer to amend any factual issues in the resolution if necessary.

The SEC will rule on the resolution as to whether it is acceptable to omit the proposal or whether the grounds are not justified and the resolution must be included in the proxy statement.

If the resolution must be included, the company may write a statement of opposition to the resolution of unlimited length. This will appear in the proxy statement after the text of your resolution and supporting statement. You will receive a copy of this statement of opposition no later than 30 days before the proxy statement is filed.

7. How do I boost support for my resolution? to top

It is almost impossible to get a listing of names of individual shareowners in a company. However, it is relatively easy to find out who the large institutional shareowners of the company's stock are. Since these institutions run mutual funds and have a proportionally large vote, it is recommended that you try to meet with these fund managers to explain your resolution. Alternatively, you can send these managers information about your resolution and why they should vote in your favor.

You can also garner support through various organizations devoted to shareowner action. The Interfaith Center on Corporate Responsibility (ICCR) can put you in touch with other shareowners. The Investor Responsibility Research Center (IRRC) provides analysis on shareowner resolutions to institutional investors. This is another good organization to contact with your information.

Finally, there are several other organizations devoted to specific aspects of shareowner action. You may want to contact them to help support your cause. Finally, do not forget about the press. This can be one of the most effective methods for disseminating your message.

8. What happens at the annual meeting? to top

You, or someone acting on your behalf, must present the proposal at the shareowner meeting. Failure to appear to present your proposal will allow the corporation to bar your resolutions for the next 2 years.

Read the by-laws of the corporation before presenting your proposal. They will specify the length of your presentation. You must adhere to these guidelines or the corporation may throw out your proposal.

Make sure you remember to bring your legal proxy with you so that you can attend the meeting. If you are a beneficial owner, your name may not appear on a computerized printout of shareowners. Make sure you bring a copy of your proxy materials with you. Companies have been known to deny admission to the meeting without this material.

Your resolution will be voted on at the meeting. However, the majority of ballots will already have been cast by mail.

If your resolution does not receive enough votes, you may be barred from resubmitting it for 3 years. If this is your first time submitting the resolution, it must receive at least 3% of the votes. If this is your second year, it must receive 6% of the vote. If this is your third year, it must receive 10% of the vote.

9. The resolution received enough of the vote to be included on next year's proxy. Now what? to top

Congratulations! You have raised awareness of your issue through your fellow shareowners.

Now, if you would like to have the issue appear on the proxy again next year, follow all of the above steps again and get your filings in on time.

In the meantime, you can try to meet with the management of the company to negotiate a solution to the issues your resolution raises. Management would much rather negotiate than have a resolution on their proxy, and this is where much of the power of shareowner resolutions lie.

In the negotiation, be reasonable. You may not get everything you want the first time. If management tries to meet you halfway, this is certainly commendable, particularly if the resolution received a low percentage of votes. Remember, you can always go back at a later time and negotiate for more. After all, if management meets you halfway the second time, you're 75% of the way to a full implementation of your proposal.

Meet with the media and raise awareness of your issue. This is especially useful in a town in which the company employs many thousands of workers. In this case, the local media could be a good source for disseminating your message.

Don't forget the power of the Internet. Register a domain name for your cause, and set up a web page with links to relevant information. Make sure you submit the pages to search engines. Search engines can be powerful in bringing you many visitors. There are several sites that offer free web site hosting to "good causes". Use your web site to network with the activist community, providing links from your page to pages of information on other shareowner resolutions, and ask for a link in return.

10. The vote on my resolution was not enough to put the resolution on the proxy next year. What can I do? to top

Do the same things recommended in #9. Remember, a different shareowner could sponsor your resolution next year.

to top

Use these links to navigate this article:

  1. What is a shareowner resolution?
  2. How do I qualify to sponsor a shareowner resolution?
  3. How do I write a shareowner proposal?
  4. How do I file the resolution?
  5. What happens after I file?
  6. My resolution has been omitted. Now what?
  7. How do I boost support for my resolution?
  8. What happens at the annual meeting?
  9. The resolution received enough of the vote to be included on next year's proxy. Now what?
  10. The vote on my resolution was not enough to put the resolution on the proxy next year. What can I do?

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