A Guide to Filing Resolutions

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So you want to challenge a company's corporate governance policies?

The two most common options are submitting a nonbinding shareholder resolution or proposing a candidate for the company's board. If you're feeling very radical, you can submit a binding resolution, which proposes a change to the company's bylaws. Even shareholder attorneys shy away from these, since they have yet to be tested in court.

You'd be wise to do the same.

The easiest method to reshape corporate governance is a shareholder resolution. The SEC includes a question-and-answer guide about making such filings on its Web site (about halfway down the document). The environmental group Friends of the Earth also offers details on submitting a resolution in a guide to shareholder activism.

To submit a nonbinding proposal, which can be no more than 500 words, a shareholder must meet a few requirements. They generally include owning a minimum of $2,000 worth of stock in a company for more than a year before the filing deadline, and being present at the company's annual meeting to move the proposal. (A representative also can present on your behalf.)

The deadline for submitting a resolution is announced by the company in its Schedule 14A filing with the Securities and Exchange Commission.

Companies can omit a resolution from their proxy ballots for several reasons (also listed on the SEC site). One of the most common arguments used by companies -- one that requires a petition to the SEC -- is that the proposal deals with a matter relating to a company's ordinary business operations. As a result, shareholders should study previous proposals that have survived challenges, advises the Equality Project in its online guide to shareholder proposals.

Because such decisions by the SEC set legal precedent, Michelle Chan-Fishel, coordinator of the green investments program at Friends of the Earth, advises shareholders consult an attorney to create a well-drafted resolution. (The organization's online guide includes links to lawyers and consultants.) In addition, Chan-Fishel noted that if two shareholders submit proposals on the same topic, a company can kick whichever one it wants off. For that reason, she recommends that novice activists make sure they are not in conflict with other shareholder efforts by checking in with activist groups.

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