What is Shareholder Resolution?

Legal Definition
With respect to public companies in the United States, Shareholder resolutions are proposals submitted by shareholders for a vote at the company's annual meeting. Typically, resolutions are opposed by the corporation's management, hence the insistence for a vote. For publicly held corporations in the United States, the submission and handling of resolutions is regulated by the Securities and Exchange Commission (SEC).

Shareholders submit resolutions dealing primarily with corporate governance, such as executive compensation, or corporate social responsibility issues, such as global warming, labor relations, tobacco smoking, human rights, and animal welfare.

Virtually all shareholder resolutions are non-binding (or "precatory," to use the legal term of art). In this sense the voting on these resolutions more closely resembles a poll than it does a (binding) referendum or plebiscite. Still, media coverage of voting on shareholder resolutions tends to focus on whether the proposal received a majority of votes, which occurs in a very small but increasing proportion of cases. According to SEC rules, defeated resolutions may be resubmitted only if they pass certain election hurdles (percentage of affirmative votes).

Shareholder resolutions have been an important part of activist campaigns in several cases. For example, resolutions were effective at raising public awareness and thereby pressuring corporate management about investments in apartheid South Africa, nuclear power, and labor disputes. Given these results, resolutions have been spearheaded by several coordinating groups, including the AFL-CIO and the Interfaith Center on Corporate Responsibility. Governmental and labor union pension funds also have become involved in supporting and submitting shareholder resolutions.

A shareholder resolution to protest napalm manufacturer Dow Chemical resulted in a U.S. Supreme Court case called SEC v. MEDICAL COMMITTEE FOR HUMAN RIGHTS, 404 U.S. 403 (1972). The court decided that the case was moot due to Dow's agreeing to include the resolution on its proxy statement. The dissent argument by Justice Douglas encourages the SEC to facilitate more shareholder resolutions. "The philosophy of our times, I think, requires that such [404 U.S. 403, 410] enterprises be held to a higher standard than that of the "morals of the marketplace" which exalts a single-minded, myopic determination to maximize profits as the traditional be-all and end-all of corporate concern." [
-- Wikipedia