Shareholder resolutions are proposals initiated by shareholders that are formally included on the voting agenda at an AGM. Few, if any shareholder resolutions on social and environmental issues actually pass. However, if they garner a significant amount of support they can act as a powerful signal to the company board.
Regulations regarding shareholder resolutions, their role in corporate policy and how to submit one vary significantly from country to country. In the UK it is difficult to submit a shareholder resolution because of the requirements under UK company law to meet a high threshold of share ownership. They are therefore relatively uncommon compared to the USA and Canada.
Under UK company law, before a company is obliged to put a proposed shareholder resolution on its AGM agenda, those filing the resolution (the “requisitionists”) must either:
- Hold at least 5 per cent of the total voting rights of all members (shareholders) at the date of the resolution (“requisition”), or
- Number at least 100 holding a joint total of £10,000 paid-up share capital, i.e. an average sum of not less than £100 each.
This ownership threshold means that even large investors will usually need to make links with many others to submit a resolution. ECCR has on several occasions helped put resolution filers in touch with other shareholders.
In addition to the resolution, the requisitionists are entitled to require the company to circulate a supporting statement of up to 1,000 words to all shareholders. A copy of the resolution signed by all the co-filers and any supporting statement must be deposited at the registered office of the company concerned at least six weeks before the date of the AGM (or earlier, if stipulated in the company’s Articles of Association).
Co-filers are also required to provide a sum that will “reasonably” cover the company’s expenses in distributing the resolution to all shareholders. If the resolution is delivered to the company before it has printed its annual report and/or the AGM notice, the company may agree to include the resolution in its papers and waive payment, but this is not obligatory.
It is important to obtain legal advice regarding the wording of a shareholder resolution. A company can refuse to accept a resolution by arguing that it makes misleading, false or deceptive statements.
ECCR has initiated three UK shareholder resolutions, two of which went to the vote at Shell’s AGMs in 1997 and 2006. In ECCR’s experience, shareholder resolutions are most successful where they are preceded by a period of dialogue – particularly if that dialogue has stalled – and if a business case can be made for implementing the changes you suggest. They can help to show the company that your concerns are not isolated and that other shareholders agree that change is needed.
One of the reasons that shareholder resolutions rarely pass is that many institutional investors are reluctant to support them, preferring to express their concerns to the company in private. For the group submitting the resolution this can be frustrating, but there can be added benefits if you can work with investors so that they raise the same issue with the company in other ways.