Shareholders Unite: The Financial Choice Actâs Threat to Shareholder Activism
To file a shareholder resolution pressuring corporations to be more socially responsible, you need to own just $2,000 of stock in the company. Imagine, however, if you suddenly needed to own $2 billion â or even more. Shareholder activism would nearly grind to a halt. It might even get wiped out altogether.
Thatâs the scenario we face if the Financial Choice Act of 2017 passes Congress. Section 844(b) would get rid of the $2,000 threshold. Instead, investors would have to hold at least 1% of the issuerâs voting securities over a three-year period.
What does that mean in laypersonâs terms? To file a resolution with Apple, for instance, youâd need $7.4 billion worth of stock. Filing with Wells Fargo ($2.7 billion) and AT&T ($2.5 billion) wouldnât be chump change, either.

âItâs saying that only billionaires have good ideas,â feels Andy Behar, CEO of As You Sow, which promotes environmental and social corporate responsibility through shareholder advocacy. âAll of the work [by] these small shareholders that has actually improved companies over the last seventy years — itâs saying that hasnât been working, when it actually is incredibly well-working. The win-win scenarios that shareholders have brought to companies…thereâs too many to even list. To have that suddenly become excluded would be a disservice.
âItâs really taking away our democratic rights and our rights to the property that we own,â he adds. âThere are inherent rights to the property of owning a stock. And we donât even know that itâs constitutional to take that away.â
Why are organizations like Business Roundtable, a lobbying group of nearly two hundred CEOs, so determined to strip these rights away? âI think theyâre frightened,â observes Behar. âIn the last few years, proxy access is now allowing shareholders to run board candidates. Last week Occidental Petroleum got a 67% vote on [a resolution calling for] two-degree climate scenario planningââa landslide in a movement where getting 10-20% of the vote is often considered a major success (more details at https://www.bloomberg.com/news/articles/2017-05-12/blackrock-to-back-climate-shareholder-proposal-at-occidental). âMore and more shareholders are paying attention and voting.
âThe people on the board feel threatened. And what theyâre threatened by is actually doing their jobs, which is to serve the shareholders in the company, who want the company to go in a different direction. They want the company to become sustainable. Companies are looking at this and going, âOh, the people who weâre supposed to be working for actually care. So letâs throttle back their rights.ââ

The section of the Financial Choice Act affecting shareholder rights is just a small part of the legislation. It would also roll back provisions of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The Consumer Financial Protection Bureau that Senator Elizabeth Warren established would be removed, to cite just one of its alarm bells.
Nonetheless, it was passed by the House Committee on Financial Services in early May by a 34-26 vote along strict party lines. The House isnât expected to vote on it until after Memorial Day, after which it moves on to the Senate, where activists such as Andy Behar think itâs likely to get debated.
According to Holly Testa, director of shareowner engagement at First Affirmative Financial Network, âConsensus is that this bill has no chance in the Senate, but that it will be broken into pieces to get some of it passed into law.â But even if the changes to shareholder resolution thresholds are removed from the legislation, that doesnât mean those thresholds are protected. As Testa points out, âIf Section 844 is not legislated, proponents at the Securities and Exchange Commission are likely to try to achieve its intentions through the rulemaking process.â
If the bill does reach the Senate, one next step for those opposed to the measure is approaching members of the Senate Banking Committee. First Affirmative is urging affiliated financial advisors, clients, and other contacts who have connections with those senators (listed in the box below) to get in touch to assist with outreach:
As it happens, a few of the minority members (Sherrod Brown, Elizabeth Warren, and Mark Warner) have been among the names tossed around as possible Democratic candidates in the next presidential election. Theyâll have a lot of on their plate if they run, but it wonât hurt to make them aware of the issueâs importance now.
What can citizens do to make their voice heard, whether or not they have such connections? Aside from stressing your concerns to representatives in Congress (and especially the Senate), the links below offer some other resources. True, many Effective Assets clients are Bay Area-based and represented by officials likely to already be in opposition to the Financial Choice Act. So itâs important to note that if you do business in one or more Republican states or districts, your voice is likely to be heard on the issue even if you donât live there.
As You Sowâs Choice Act: Step-By-Step Action Guide (http://www.asyousow.org/about-us/choice-act-step-by-step-action-guide) has specific info, and links to other sites, for using social media, making calls, attending town hall meetings, and joining the Indivisible group to make your feelings known about the implications of the Financial Choice Act.
A good easy first step is signing As You Sowâs petition âProtect Shareholders. Strike the Financial Choice Act 2.0,â at www.change.org/p/don-t-eliminate-my-rights-as-a-shareholder-strike-the-financial-choice-act-2-0.
5Calls has a script for callers who want their representatives to âDefend Dodd-Frank Banking Regulationsâ at 5calls.org/issue/recIY5BMUytUixNbV.
The Indivisible Explainer on the Financial Choice Act (www.indivisibleguide.com/resource/financial-choice-act-hr-10) also has more details on the legislation, as well as sample town hall questions about the act to ask your representatives. Indivisible also has a call script (www.indivisibleguide.com/resource/financial-choice-act-hr-10) if you contact their offices by phone.
This letter from our colleagues at Newground Social Investment provides more detail on the threat to shareholder ownership and governance rightsin the proposed legislation.
Do shareholder resolutions make a difference? Check page 3 of the Newground Social Investment letter for several examples. Shareholder resolutions were instrumental in Starbucks introducing Fair Trade coffee, for example, and DuPont making the largest land conservation gift in history. Theyâre crucial to making a difference, and itâs crucial to make sure they can be made by many stockholders, not just an elite few. â Richie Unterberger