It never rains, but it pours. This is how stewardship professionals may have responded to SEC commissioner Mark Uyeda’s warning last week that voting in line with proxy advice on some shareholder proposals may trigger reporting requirements usually reserved for activist investors.
The upcoming proxy season is already shrouded in uncertainty, given the financial watchdog’s decision last month to abandon mediation of the “no action” process this year – effectively giving firms free reign to exclude shareholder proposals.
Michael Garland, New York City’s assistant comptroller and head of corporate governance and responsible investment, tells Responsible Investor that the fund – which is an active filer – is approaching the upcoming voting season “with a degree of trepidation”.
According to its post-2025 season report, published this week, the Comptroller’s office filed proposals at 27 companies and withdrew 16 after companies agreed to take steps to implement its asks.
Looking ahead to next year, Garland says the office is “ploughing forward” with new proposals despite the challenging environment.
This is an approach that Greg Hershman, head of North America policy at the Principles for Responsible Investment (PRI), believes most filers are taking. “A lot of filers just have the attitude of saying, ‘Look, this is business as usual’ and hope that companies won’t take advantage of the situation,” he tells RI.
So far, no companies have sought to take advantage when it comes to New York City’s proposals, details of which the fund plans to start publishing in the New Year.
But one change Garland has already noticed is that some have been quicker to reach out. Under the SEC’s rules, proposal proponents must provide dates within 30 days of filing to discuss their concerns with the company.
“The truth is most companies don’t want to talk that quickly, but this year we have had some take those dates, and we’ve already had some calls”, Garland says.
This includes with one unnamed company that requested that the talks “move quickly”. “I asked if it was because of the ‘no action’ deadline, and they acknowledged it was, so they are clearly thinking about it,” Garland says.
Legal action and governance focus
But any decision to omit a shareholder proposal is not without its risks, especially with a filer like New York City.
“They can omit it, and the SEC won’t say anything, but the SEC isn’t the final arbiter – that’s a court,” Garland says.
New York City has sued companies in the past for not tabling proposals, most recently in 2018 at TransDigm – a case that was settled when the US aerospace firm dropped its challenge against the fund’s proposal.
The Office of the New York City Comptroller oversees the city’s five public pension funds, representing assets of around $308 billion. Given its size and history, Garland says companies are likely to be more “mindful that they face more legal risk with us than they might with an individual filer”.
Some have expressed concerns that under the SEC changes there is a danger that proposals will be selected based on things like the status of the filer or the disposition of the company, rather than the quality of the request.
The potential need to defend a proposal in court is partly behind New York City’s increased “leaning into governance”. “If we do find ourselves in court, it’s probably going to be easier to defend a G-based proposal than a climate one,” says Garland.
But he stresses that going to court is not a decision it would take lightly, describing it as “a big step”.
The aim of any shareholder proposal is to prompt meaningful dialogue with a company. Garland expects companies to still be willing to talk despite the changes but says they “might be less willing to negotiate reforms”.
He acknowledges that filers’ weakened position “probably will have some effect” on its threshold for withdrawing. “We’d like to hold the line, but you are always mindful of what’s going to happen if you don’t take that deal.”
Attack on stewardship
The SEC’s abandonment of the “no action” process this year is just one strand of a broader attempt to weaken investors’ arm in the US.
As Hershman notes, as a standalone the recent SEC announcement “only affects a small subset of investors who file proposals”. But when taken together with other recent changes, it forms part of a “notable shift away from enabling shareholders to fully exercise their rights as owners of capital”.
In February, the SEC published guidance which required more onerous reporting around ownership from large shareholders under Schedule 13D. At the same time, the regulator withdrew an explicit note indicating that ESG issues “would generally not” trigger a 13D filing.
Garland, who has been with New York City since 2010, describes the situation in the US as “entirely unprecedented”. He agrees that the actions over the past year are a “coordinated campaign to shut down investor rights”.
“They’re not dumb, 13D and 13G was a very clever way to shut down the asset managers having an impact on ESG engagement,” he says.
Hershman agrees that it has been effective. While a lot of day-to-day stewardship remains unchanged, he says, “some of the larger managers are doing fewer engagements or they’re waiting for a company to reach out to them first”.
Despite the current climate around stewardship, outgoing New York City comptroller Brad Lander recently took a swipe at BlackRock for what he described as its overly conservative approach to engagement with US firms.
More director votes?
If shareholders are denied the right to vote on proposals, Garland thinks there will be a shift towards more votes against directors, but questions if it will be enough to move the needle on results.
The fund itself is likely to oppose the entire board of any company that “unilaterally” omits one of its proposals, he says.
But others have warned that, given the climate in the US, there is a danger in saying anything publicly about how investors will respond, as it might prompt yet more action from the SEC.
Garland agrees that the threat to shareholder rights is profound. “The bear was poked and now there’s an attempt to shut down the whole process,” he says.