Definition
A shareholder resolution is a proposal submitted by shareholders for a vote at the company’s annual meeting. These resolutions can propose changes to corporate governance rules, company policies, or business operations. The majority of shareholder resolutions are advisory, meaning they’re not legally binding, although they can influence management’s decisions.
Key Takeaways
- A Shareholder Resolution is a proposal submitted by shareholders for a vote at the company’s annual meeting. They can relate to a wide range of issues, from corporate policy changes to requests for the company to disclose more information on certain topics.
- Shareholder resolutions are non-binding in nature. This means that even if a majority of shareholders vote in favour of the resolution, the company’s management is not legally obligated to implement it.
- The process of filing a shareholder resolution involves submitting a formal written statement to the company outlining the proposal, which is then included in the company’s proxy materials. It serves as a tool for shareholders to express their concerns and influence corporate strategies, fostering corporate democracy.
Importance
Shareholder Resolution is a significant financial term as it represents a proposal submitted by shareholders for a vote at the company’s annual general meeting or special meeting.
This resolution can influence various aspects of the business, including corporate policy changes, adjustments in business operations, or decisions related to the company’s governance.
Therefore, the importance of shareholder resolution lies in its ability to allow shareholders, especially minority shareholders, to voice their opinions, exercise their rights, impact the direction of the company, and hold management accountable.
This fosters transparency, democracy, and engagement within the corporation, enhancing its sustainability and long-term growth potential.
Explanation
A shareholder resolution is central to offering a platform for stakeholders in a corporate setting to express their opinions, grievances, or suggestions. Its primary purpose is for improving corporate policies, practices, and decision-making processes.
These resolutions provide shareholders a voice and an opportunity to influence the corporation’s direction and activities. By presenting issues that concern the shareholders or those that can impact the value of their investment, they can push for changes in business operations, practices related to social and environmental issues, or the governance of the company.
Furthermore, shareholder resolutions can act as a mechanism for creating transparency within the corporation, serving to hold management accountable for their actions. It brings up critical issues to the board of directors and the management, making sure that they consider the interests of the shareholders, which promotes better management practices.
It allows shareholders, especially the minority ones, to prompt changes without needing to alter the board or initiate legislative changes. In essence, shareholder resolutions are an essential tool for corporate democracy, reinforcing responsible corporate practices and good governance.
Examples of Shareholder Resolution
Climate Change: In 2017, a group of shareholders at Exxon Mobil Corporation pushed for a resolution requiring the company to disclose more information about how climate change and related regulations could impact its operations. The resolution was backed by investors who together owned about 62% of the company’s shares, showing significant support.
Diversity and Inclusion: In 2020, Nasdaq proposed a new rule requiring listed companies to disclose their board diversity. If companies do not meet Nasdaq’s criteria, they would have to explain why. A shareholder resolution was brought forth by Trillium Asset Management to extend this rule, thus promoting more inclusivity.
Gun Safety: In 2018, following the school shooting in Parkland, Florida, BlackRock Inc., one of the world’s largest asset managers, urged firearms manufacturers and retailers in its portfolios to take steps toward gun safety. Shareholders of a firearms manufacturer, Sturm Ruger, approved a resolution calling on the company to create a report on the financial and reputational risks associated with its business. This was another clear example of shareholder resolutions impacting the direction of a company.
FAQs about Shareholder Resolution
What is a Shareholder Resolution?
A shareholder resolution is a proposal submitted by shareholders for a vote at the company’s annual meeting. Typically, resolutions are about issues like corporate governance, business policy or issues related to social responsibility.
Who can file a Shareholder Resolution?
In most cases, any shareholder owning at least $2,000 or 1% of a company’s securities for at least one year can file a resolution.
What are the types of Shareholder Resolutions?
There are mainly two types of shareholder resolutions. Advisory resolutions, which are non-binding and are often about general business policies. The other type is binding resolutions, which are less common and need to meet more legal obligations.
What happens once a Shareholder Resolution is passed?
Once a shareholder resolution is passed, the board of the company is obligated to take action. However, the board can also decide not to act on the resolution if it’s not legally binding.
Can a Shareholder Resolution be opposed?
Yes, management often opposes shareholder resolutions but they are obligated to include them in the proxy materials so that all shareholders have an opportunity to vote on them.
How can a Shareholder Resolution influence corporate policy?
Even though many shareholder resolutions are non-binding, they can still influence corporate policy by bringing public attention to an issue and putting pressure on the management.
Related Entrepreneurship Terms
- Proxy Vote: This is the mode by which shareholders exercise their rights to vote when they are unable to attend a company’s general meeting.
- Proxy Statement: A document provided to shareholders, containing information they need in order to make informed decisions during shareholder meetings.
- Corporate Governance: Refers to the systems of rules, practices, and processes by which a company is directed and controlled.
- Minority Shareholders’ Rights: The protections and entitlements given to shareholders who do not control the company with a majority of voting shares.
- Shareholder Meeting: An official gathering of the shareholders and directors of a company to discuss and make decisions on important company issues.
Sources for More Information
- Investopedia: A comprehensive financial resource that offers detailed definitions and articles on a wide range of financial topics including Shareholder Resolutions.
- Corporate Governance: An online platform that provides information about corporate governance, shareholder rights, and shareholder resolutions among other topics.
- U.S. Securities and Exchange Commission (SEC): The SEC provides regulatory information on all matters concerning securities, including shareholder resolutions.
- International Corporate Governance Network (ICGN): A global network focused on corporate governance, they provide resources and information about shareholder resolutions from an international perspective.
