Shareholder activism is a way that shareholders can claim their power as company owners to influence a corporation's behavior. Shareholder activism consists of both dialogue and formal shareholder proposals, also known as shareholder resolutions.

A shareholder dialogue is a discussion or negotiation initiated by a shareholder (or a group of shareholders) with company management to effect change on a particular issue of concern. Examples of such issues include: how the company is run, environmental performance, sweatshops, or investment in Burma. Dialogues often occur over the course of months, or even years. If shareholder dialogues prove unfruitful, shareholders often turn to a formal resolution or proposal process.  

A shareholder proposal is a shareholder's (or group of shareholders') recommendation or request that a company and/or its Board of Directors take a particular action relevant to company policy. In the United States, securities laws govern a process by which a shareholder has a right to introduce formal proposals, have the proposal circulated to all of the company's shareholders, vote upon the resolution, and present it in person at company annual meetings. Shareholder rights and the ability of shareholders to offer proposals differ from country to country.  

Historically, the shareholder activism process is an attempt by investors to get information out of a firm and points of view into a firm that otherwise wouldn’t be there. Through shareholder activity, investors are constantly demanding more information from companies, and building on past efforts to gain greater transparency, democracy, and responsibility in Corporate America.  

A Brief History  

• The birth of shareholder rights: Investors and policy makers believed the infamous stock market crash of the late '20s was caused in significant part by companies' lack of transparency. As a result, the Securities and Exchange Commission (SEC) was formed through The Securities Act of 1933 and 1934 to create public disclosure and enforcement mechanisms to protect investors and promote the dissemination of reliable corporate information to the marketplace. The SEC is the agency that regulates and promulgates rules governing shareholder resolutions.
• Socially-oriented shareholder activism: In the 1970s, religious investors formed a shareholder coalition called the Interfaith Center for Corporate Responsibility, and started using the shareholder proposal process as a way of working for peace and social justice. They began organizing and filing resolutions on South African Apartheid, community economic development and global finance, environment, equality, international issues, health and militarism. Today, shareholder resolutions cover a similar range of issues and are used by public interest-minded shareholders and their allies to affect social change on a company-level. This handbook is designed particularly for socially-oriented shareholder activity.
• Corporate governance activism: One of the more common issues addressed through shareholder activism is the topic of corporate governance, or how a company structures and compensates its leadership, particularly vis-à-vis shareholders' rights (more information can be found at corpgov.net). In 1985, The Council for Institutional Investors (CII) was formed to protect the financial interests of its member investors and pension funds. The CII and its member groups are actively involved in studying and promoting good corporate governance.
• An investor-environmental alliance: In 1989, in the wake of the Exxon Valdez disaster, investors and environmentalists banded together to form the Coalition for Environmentally Responsible Economies (CERES), which was built around elements of environmental disclosure. This investor-environmentalist alliance used the power of share ownership to persuade companies to adopt a set of environmental principles and produce public standardized annual environmental reports.
• A rise in shareholder activism: Today, shareholder resolutions are used more than ever as a way of influencing corporate behavior. In 1997, the Social Investment Forum reported that three-quarters of a trillion dollars are controlled by investors who play an active role in shareholder advocacy. That same year, the shareholder activist community successfully fought proposed SEC rules that would have severely limited the ability of shareholders to introduce social resolutions.

To The Impact of Shareholder Activism