February 3, 2020
February 2, 2020
Via online form at https://www.sec.gov/cgi-bin/ruling-comments
Vanessa A. Countryman
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090
Re: S7-23-19 Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8
Dear Ms. Countryman:
We at Nia Impact Capital (Nia) would like to express our concerns about the proposed rule changes introduced by the Securities and Exchange Commission (SEC) on November 5, 2019. Nia Impact Capital is a growing investment management firm, based in Oakland, California. At Nia, our core objective is to generate a competitive rate of return, while creating a positive impact for investors and for our planet.
Nia invests on behalf of clients ranging in size from high net worth individuals to retail investors just beginning to invest in the capital markets. We take very seriously our responsibility to steward their assets, as we understand that these funds allow them to save for retirement, pay for education, and care for loved ones.
In order to best serve our clients, we rely on the companies we invest in to provide clear, accurate and complete disclosures around material topics. We are concerned that the changes proposed will introduce costly communication inefficiencies, decrease corporate incentives to respond to investors, and disadvantage smaller shareholders.
Prioritized Concerns Related to S7-23-19 Procedural Requirements and Resubmission Thresholds under Exchange Act Rule 14a-8
File No. S7-23-19 states, We understand that shareholder proposals are at times used as the sole method of engaging with companies despite a companys willingness to discuss, and possibly resolve, the matter with the shareholder. We request that the SEC assess the accuracy of this statement. Our experience is in direct conflict with this depiction of corporate communication practices.
For example, in the last year, Nia sent letters to 22 companies in which it holds shares, writing to the CEO as well as the Board Chair. Only two companies responded after the first letters were sent. We sent a follow-up request to the 20 non-respondents, and only five companies responded to this second letter. After two written letters, along with emails to Investor Relations, less than one third (7/22, 32%) of companies in which we are investors responded.
Nia chose to file shareholder resolutions at nine of the non-responding companies. Of the companies that received resolutions, five of the nine have now reached out to us, a response rate of 55% For Nia, filing a shareholder resolution increased corporate responsiveness by 23%.
Three of the companies where resolutions were filed changed their governance policies in response to concerns raised by Nia in the resolutions. These changes are an indication of the pertinence and importance of the concerns raised by Nias communications. These changes would not have occurred without the executive access enabled by the shareholder resolution process.
We believe that these companies have been improved by the changes they made, and, as we are investors, that our investment portfolios have been strengthened as a result. The ability to file shareholder resolutions, with smaller share holdings, allows investment managers an important voice in managing assets for their clients.
The SEC has acknowledged that large investors already have significant influence on corporate management (referred to as direct channels on p.144 of Release No. 34-87458 File No. S7-23-19). The proposed rule change by increasing the size of ownership needed to file resolutions in a timely manner, risks compounding the already outsized influence of larger investors. We ask the SEC to review the percentage of investor correspondence companies currently respond to, if their response rate varies by investor size, and if the proposed rule changes will further reduce an already low corporate response rate to smaller investors inquiries.
Investors seeking discussions with the companies they own will, if excluded from the shareholder resolution process, be forced to use other avenues of communication. The SEC has listed some of these avenues to be public campaigns, litigation over the accuracy of proxy materials, or demands to inspect company documents. In addition, the proposal states, Much has changed since the Commission last considered amendments to Rule 14a-8, including the level and ease of engagement between companies and their shareholders. For instance, shareholders now have alternative ways, such as through social media, to communicate their preferences to companies and effect change.
The proposal implies that, in order to steward their clients capital effectively, investment managers should tweet their questions at corporate managers yet may need to be #trending before they should expect a response. This identified approach, alongside those of litigation, demands to inspect documents, and public campaigns would involve significant costs to investors and companies alike.
That the shareholder resolution process is preferred by investors over these existing alternative communication avenues is an indication of the resolutions efficiency and affordability as an investor/company communication tool. We request that the SEC make clear its expectations of how investors might utilize these communication avenues, what recourse they will have if companies are non-responsive, and the expected costs to both companies and shareholders associated with each approach.
We at Nia believe the SEC has not yet completed a full analysis of the proposed rule changes, their implications for corporate accountability and responsiveness nor the burden and costs these changes may place on smaller investors and asset managers. We ask that these steps be completed before any proposed changes are finalized.
Kristin B. Hull, PhD
Nia Impact Capital