Gianna McCarthy is Director of Corporate Governance and George Wong is ESG Integration Manager at the New York State Office of the Comptroller. This post is in response to a recent statement issued by New York State Comptroller Thomas P. DiNapoli and New York City Comptroller Scott Stringer. Additional posts on the CHOICE Act are available here .

A broad coalition of state fiduciaries joined New York State Comptroller Thomas P. DiNapoli and New York City Comptroller Scott Stringer [on June 6, 2017] in issuing a Joint Statement on Defending Fundamental Shareowner Rights in strong support of the use of shareholder proposals as an essential tool in maintaining corporate transparency and accountability. The Statement is in response to provisions of the Financial CHOICE Act, legislation pending in the U.S. House of Representatives, which would effectively prohibit most investors from filing shareholder proposals.

“This Act attempts to silence investors, large and small, who seek a vote on corporate action that could put our investments at risk and diminish corporate accountability,” DiNapoli said. “Publicly-owned companies are responsible to their shareholders, but this Act is trying to overturn that core principle by allowing only a select few of the largest investors to question corporate behavior.”

“There is nothing about the CHOICE Act that provides ‘choice.’ It’s a deliberate attempt to undermine shareowner rights and erode accountability at companies big and small. This legislation was written by corporate executives, for corporate executives—at the expense of the rest of us,” Stringer said.

“We’ve used shareowner proposals to protect our investments for decades by strengthening accountability, promoting diversity, and protecting human rights. But this law wouldn’t just undermine shareowners—it would also hurt everyday consumers by gutting the Consumer Finance Protection Bureau. The CHOICE Act undercuts accountability across the board. If Washington wants to make our economy less fair, this is the way to do it.”

The Statement has been sent to all 435 members of the House of Representatives. In addition to Comptrollers DiNapoli and Stringer, as well as Council of Institutional Investors Executive Director Kenneth Bertsch, signatories to the Statement include California State Controller Betty Yee, California State Treasurer John Chiang, Connecticut State Treasurer Denise Nappier, Illinois State Comptroller Susana Mendoza, Illinois State Treasurer Michael Frerichs, Maryland State Comptroller Peter Franchot, Maryland State Treasurer Nancy Kopp, Massachusetts State Treasurer Deborah Goldberg, Oregon State Treasurer Tobias Read, Pennsylvania Treasurer Joe Torsella, and Rhode Island General Treasurer Seth Magaziner. Collectively, the signatories represent in excess of $1 trillion in assets that fund retirement and other benefits for more than 5 million public employees and retirees.

Currently, the Securities and Exchange Commission permits investors holding $2,000 of company stock for at least one year to file a shareholder proposal. The Act would raise the bar for filing a proposal and require shareholders own 1% of company stock for three years before putting a proposal forward for a vote. If approved, for example, the Act would require an investor to own more than $2.6 billion in the stock of a top 10 U.S. company, more than $1.5 billion in the stock of a top 25 U.S. company, and more than $850 million in the stock of a top 50 U.S. company before being able to seek to bring a proposal to their fellow shareholders for a nonbinding vote.

Many current U.S. corporate governance practices and certain regulations reflect advancements over the last 10 to 20 years that were achieved through the shareholder proposal process. Comptrollers DiNapoli and Stringer have made use of shareholder proposals as a particularly effective tool for voicing concerns and improving corporate governance on numerous issues, including excessive executive compensation and corporate accountability and transparency.

As the Statement notes,

“U.S. corporate governance must continue to evolve and advance. Filing shareholder proposals is one particularly effective tool—provided to investors at the federal level—to voice concerns and to propose reforms, in order to protect our long-term investments and encourage sustainable, robust corporate practices at publicly-traded companies. On an ongoing basis, shareholder proposals address current and emerging issues that have the potential to impact our investments. We believe that shareholder proposals are an essential tool to maintain corporate transparency and accountability and that their administrative rules must be protected in their current form.”

The Joint Statement on Defending Fundamental Shareowner Rights is available here.