Annual meetings for 2015 have largely wrapped up by now. One proxy solicitor reports that shareholders proposed over 1,000 resolutions, including over 100 on proxy access. Those proxy access proposals did well, with over half winning approval from shareholders.

Among all these proposals, almost all took the form of a non-binding (precatory) resolution. Only a handful of shareholders proposed a binding bylaw amendment on various subjects, none on proxy access.

We wonder why activist investors do this. A few years ago, after the initial action on proxy access, we  considered the same question. Here, we analyze non-binding resolutions and binding bylaw amendments more generally, and use proxy access to illustrate. As investors think about corp gov changes at portfolio companies in the coming months, we come down on the side of bylaw amendments.

Resolutions: Cheap and Easy

A resolution expresses the sentiment of the voters, and also can ask the BoD to take some action. For proxy access, the New York City Comptroller proposed the same resolution at 75 US companies, requesting these companies “adopt a ‘proxy access’ bylaw.”

It’s not always completely clear what it means when shareholders “approve” a resolution. Most companies consider a resolution approved if a majority of the shares in attendance at a shareholder meeting vote in favor. We know many BoDs that ignored corp gov proposals that won a majority of shareholders voting, say because  that level represents less than a majority of shares outstanding.

Approval can lead to the BoD taking the requested action, doing nothing, or doing something in-between. A BoD does nothing only at the risk of facing heightened opposition from shareholders at a BoD election. Then, shareholders can do nothing else.

The BoD can take some in-between action. In the case of proxy access, shareholders can request one structure, say allow access for 3% of the outstanding shares. A BoD can do something different, say allow access for 5%. Again, shareholders can only threaten an opposing vote at the next BoD election.

Shareholders like resolutions because they can apply more universally. The NYC Comptroller used the exact same resolution at 75 different companies, and gained significant publicity and support for its efforts.

Amendments: Better, Not Quite as Easy

Very few shareholders propose bylaw amendments. In the past five years, shareholders proposed proxy access almost 150 times. Only eight were binding bylaw amendments. Norges Bank, the Norwegian sovereign fund, proposed four in 2012, with two individual investors proposing the others in 2012 and 2013. The proposal (p. 36-39) at Advanced Photonix shows how a bylaw amendment looks.

Shareholders don’t like bylaw amendments for a few reasons, none compelling:

1. •Required vote: some companies require a supermajority of shareholders to approve a bylaw amendment, as much as 80% of the outstanding shares. Yet, over 2,000 (out of around 6,000) US public companies require only a simple majority of the voting shares at a shareholder meeting.
   

2. •Tailored terms: a bylaw amendment requires research into a company’s existing bylaws, and careful drafting for consistency. As the Advanced Photonix proposal shows, this is not difficult.
   

3. •Specific proposal: a bylaw amendment requires a shareholder to commit to specific terms, and ask other shareholders to agree with those terms. For example, the Advanced Photonix proposal allows proxy access for 1% of the outstanding shares. If other investors disagree on those specifics, the proposer risks losing that support. Shareholders have experienced similar opposition to non-binding resolutions, too.
   

We like them for other reasons:

1. •Binding! With a sufficient vote, the BoD must go along. They can’t ignore it, or implement a different idea. The company can change the bylaw later, as Bank of America did recently with a separation of the BoD chair and CEO roles. That’s like ignoring a winning non-binding resolution, but with even worse risk of opposition at the next BoD election.
   

2. •Literally, proxy access: A company can’t really exclude a bylaw amendment from the proxy materials in the same way that they can exclude non-binding resolutions. Most of the grounds for excluding resolutions, like “ordinary business” or “substantially implemented” don’t apply as easily.
   

3. •Nothing to implement: No waiting for the BoD to research and deliberate. No debate over what the shareholder vote really means. The bylaw amendment applies immediately.
   

A bylaw amendment doesn’t work in every situation. A few companies don’t allow shareholders even to propose bylaw amendments. A number of others have onerous supermajority vote thresholds. And, it takes more work than merely lobbing the same resolution in to the company. We think it’s worth it.