SEC Tells Shareholders They Can’t “Micromanage” Boards On LGBT Rights, Climate Change, Diversity

"It's a dangerous precedent," says one socially conscious investment firm.

New guidelines from the Securities and Exchange Commission limit how much shareholders can press corporate management on issues like LGBT rights and climate change.

Last month, the SEC ruled that fashion retailer Cato could shut down a shareholder proposal that would explicitly add a ban on discrimination based on sexual orientation and gender identity to the company’s HR policies. Cato maintained it “substantially implemented” that policy without expressly adding the language.

Boards maintain that such initiatives are tantamount to shareholder micromanaging, something the SEC generally frowns upon, and have little relevance to profits.

In another case, the SEC said EOG Resources, an oil and gas company, could block a shareholder ballot calling for goals for carbon emissions. In March, the agency claimed the proposal would micromanage “by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment.”

In February, the agency backed the board of Dunkin’ Donuts, which wanted to block a ballot initiative requiring an environmental study of the company’s K-Cup Pods. “Significance to the company’s business is not apparent on its face,” the SEC said, citing that operations associated with the pods account for less than 5% of Dunkin’s business.

But progressives argue that issues like climate change and workplace discrimination can have a huge impact on profits in the long run.

“It’s not even close to micromanaging,” Matthew Patsky of Trillium Asset Management, which sponsored the EOG Resources resolution, told The Washington Post. “That would be if I went in and told them how to mitigate greenhouse emissions. We didn’t do that.”

He calls the change in policy “an attack on shareholder rights [and] an attempt to squelch their voice and their right to express their point of view.”

Bill Clark/CQ Roll Call

The new guidelines could prevent shareholders from pressing management, for example, to cover PrEP and trans-inclusive healthcare, or to improve the company’s gender and racial makeup. The rulings come after the Republican-leaning U.S. Chamber of Commerce, the country’s oldest and largest trade association, urged the SEC to impose limits on shareholder ballots.

“It’s time to take a fresh look at SEC rules that, regrettably, tilt the scales in favor of a small subset of activists at the expense of investors as a whole,” Chamber of Commerce vice president Tom Quaadman said in a statement.

Quaadman also urged the SEC to prohibit the use of photographs, illustrations and graphs in shareholder proposals.

Dan Avery is a writer-editor who focuses on culture, breaking news and LGBT rights. His work has appeared in Newsweek, The New York Times, Time Out New York, The Advocate and elsewhere.