What Explains a Negotiated Outcome for Social Policy Shareholder Resolutions

ABSTRACTThis article analyzes the outcome of social policy shareholder resolutions. It does so by focusing on many types of resolution withdrawals sponsored by various types of filers. The paper shows that some characteristics of the resolutions themselves as well as those of the targeted firms play a role in the likelihood of a negotiated settlement between filer and management. Some issues, such as board diversity or equal employment, seem more conducive to a negotiated settlement of the resolutions filed. Others, such as energy and environment, against our expectations, do not seem to tilt the negotiation in favour of filers. The percentage of votes received by the resolution the year before also increases the probability of a favourable settlement for filers. Moreover, when introduced into the regressions, this variable overrides many other variables' influence in the outcome.Keywords: Outcomes of shareholder resolutions, firm ownership, corporate social responsibility, filer of shareholder resolutionsINTRODUCTIONThe so-called Rule 14 a-8, enacted in 1942 by the United States' Securities and Exchange Commission (SEC), entitles investors of US public firms to use the proxy machinery to file shareholder resolutions calling, among other things, for a better relationship with the different societal groups which are affected by the firms' business activities. (Ryan 1988). For instance, shareholders use Rule 14 a-8 to request that firms increase minority and gender diversity on their boards or to implement measures intended to reduce the environmental impact of corporation operations or products.There are three possible outcomes when the firm receives a shareholder proposal that has been submitted. A first possibility is that the firm publishes and distributes the proposal to shareholders, along with the proponent's statement of support and management's statement of opposition. A second potential outcome is that management negotiates with the resolution's sponsors to have them withdraw the proposal, removing it from the consideration of shareholders. A third possibility is that the firm requests that the SEC omit the resolution from the proxy materials to be distributed to shareholders (Proffitt and Spicer 2006). If the SEC concurs with the corporation officials, the resolution cannot be placed in the proxy materials. There are thirteen grounds for exclusion of a proposal.These outcomes are not indifferent for filers. If the resolution is omitted, it comes to a dead end, showing, in fact, a very limited possibility of shaping corporate policy in any meaningful way. Chidambaran and Woidtke (1999) argued that the initiation of a shareholder proposal is part of an ongoing process of negotiations between shareholders and management. Only if an agreement cannot be reached by the parties is the proposal put to vote. We reason that withdrawals should be preferred by filers if Chidambaran and Woidtke's view is correct. First, they would prefer a negotiation of any sort (including maintaining dialogue with management) to a halt in exchanges and discussions on the disputed issue. Secondly, if the social resolution is put to a vote and gathers a very small percentage of votes, the filers may not be able to re-submit it again for five years, limiting further actions of the filer and entailing the risk of a clear signal from other owners of the firm of the rejection and detraction from the issue presented in the resolution.In accordance to the view that withdrawals signal a negotiation between filers and management, in this article, we examine whether some characteristics of the firm, identity of the filers or characteristics of the resolutions themselves (such as the type of issue they deal with) increase the likelihood of a withdrawal.The rest of our article continues as follows. The next section presents the results from previous literature and states the hypotheses of the study. A third section presents data sources and methodology. …