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Commentary

SEC Proxy Voting Rule Changes Could Weaken Minority Shareholder Influence

The proxy process sounded an alarm on working conditions in the meatpacking industry.

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On Wednesday, Sept. 16, the SEC was scheduled to hold an open meeting to decide whether to adopt new shareholder resolution filing rules. Late on Tuesday it abruptly, and with no further explanation, postponed the final decision by a week. 

If they pass next Wednesday, these rules would eliminate two of three resolutions aimed at protecting meatpacking workers and that were supported by a majority of minority shareholders.

The SEC is not the only federal agency driving a wedge between investors and their votes. At the end of August, the Department of Labor gave notice of proposed retirement law changes that would limit how pension plans could vote on ESG risks, including worker-related risks. In other words, fiduciaries charged with protecting the financial interests of workers saving for retirement would find it harder to vote to protect workers from exploitation. 

Shareholder Votes Make the Difference in Addressing Worker Conditions at Meatpacking Plants
Meatpacking plants were early hot spots for the spread of the novel coronavirus in the United States, adding significant momentum at a critical stage in the development of the pandemic. As the virus spread through production lines, absenteeism rose, and in April states mulled closing plants down.

Earlier this year, human-rights-related shareholder resolutions were voted on at three of the largest meat processing and packaging companies in the U.S. They asked corporate boards to conduct and share the results of due-diligence assessments of poultry plant working conditions. 

The resolutions were filed in late 2019, well before the coronavirus outbreak in the U.S.

RESOLVED: Shareholders request the Board of Directors prepare a report… on Pilgrim Pride's human rights due diligence (HRDD) process to assess, identify, prevent and mitigate actual and potential adverse human rights impacts… Poultry processing workers face serious labor rights violations, including injuries from unsafe line speeds and other hazards, exposure to toxins, wage and hour violations, sexual harassment, and workplace discrimination.

-Resolution filed by Oxfam USA at Pilgrim’s Pride, March 2020

At Sanderson Farms’ (SAFM) shareholders’ meeting this past February, the resolution earned 37% support. Factoring out the minority 5.38% stake controlled by corporate insiders pushes support up to 40%. Either way, the outcome signals significant shareholder concern.

At Tyson Foods (TSN), a similar resolution received just 15% support in February. Yet, factoring the outsize voting impact of the Tyson family’s controlling interest out of the tally raises support to about 59%. At Pilgrim’s Pride (PPC), a similar resolution earned 13% support in April. Factoring out JBS Wisconsin Holdings’ controlling stake reveals that minority investor support is closer to 73% support.

The largest public pension funds disclosing 2020 votes--CalPERS, CalSTRS, New York City Pension Funds, Florida State Board of Investment, State of Wisconsin Investment Board and Texas Teachers Retirement System--all supported these resolutions, voting unanimously for increased transparency of worker-related human rights risks.

SEC May Suppress Investor Voices With New Proxy Rules
Against overwhelming objections from the investor community, the SEC has been advancing proxy rule changes that would raise thresholds for shareholder resolution eligibility to the proxy ballot. The effect of these rule changes would be to exclude two of the three 2020 resolutions that directly addressed the plight of poultry workers as well as several other shareholder ballot initiatives filed at meatpacking companies by minority shareholders. 

Shareholder resolutions are often uncannily prescient in raising material ESG concerns. That’s because the filers--state-, municipal- and union-run pension funds, foundations, faith-based investors, and responsible investment asset managers--typically spend years tracking risks specific to industries and to whole supply chains. 

Resolutions achieving 15% and 13% at Tyson and Pilgrim’s Pride, respectively, would have been eligible for resubmission next year under long-standing thresholds currently in place. However, under the proposed standards, neither will be eligible because they did not clear the 25% support threshold that would be required for all proposals that had been previously filed and voted on. With 70% and 78% of voting controlled by insiders, minority investors trying to sound the alarm on worker-related human rights risks would be muted.

Other resolutions at Tyson calling for lobbying transparency and executive pay reforms and a resolution at Pilgrim’s Pride asking the company to disclose plans to reduce water pollution from its supply chain would likewise be excludable.

Exploiting workers creates vulnerabilities across the economy. In industries like the food industry, with large imbalances between economic ownership and effective control rights exercised via proxy voting, mechanisms for giving voice to minority shareholder concerns about ESG risks take on a new level of importance. As we argued in our submission on this rule-making, participation of minority shareholders in the proxy process advances stakeholder interests and contributes to the well-being of the equities market.

Jackie Cook does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.