Paid Sick Leave Latest ESG Issue in Shareholder Proposals

As the world re-emerges from the pandemic, many employers will find themselves re-evaluating policies on everything from telecommuting to acceptable office attire. The events of the last year shined a particularly bright light on the working conditions of essential employees—the ones filling prescriptions and stocking shelves and performing other necessary tasks. Activists have floated proposals to enhance health and safety protections for these workers through shareholder proposals, but corporate disclosures indicate some companies are pushing back.

A coalition of investors in late 2020 began pressing some of the biggest names in retail and fast food on the possibility of providing paid sick leave for their employees. Their targets included CVS Health Corp., Kohl’s Corp., Kroger Co., McDonald’s Corp., Walmart Inc. and Yum! Brands Inc. In proxy season fashion, the investors didn’t demand the corporations provide paid sick leave to their employees, but instead proposed that they look into the “feasibility” of making it a standard benefit.

Meanwhile, as is customary in responding to such proposals, all recipients asked the Securities and Exchange Commission for no-action letters that would let them exclude the proposals from their proxy statements. As the rationale for exclusion, they used variations on a theme: The proposals deal with the “ordinary business operations” of the companies.

So far, the SEC appears to be buying that argument. Although the requests from Walmart and Kroger are still pending, the SEC’s Division of Corporation Finance has informed the other four companies that it will not recommend pursuing enforcement action against them for nixing the proposals from their proxy statements.

The life cycles of these particular paid sick leave proposals seem to be adhering to a familiar pattern when it comes to ESG-related proposals. In more cases than not, the process ends with the SEC on the side of the companies. But even if a proposal doesn’t produce any immediate tangible action, proponents find value in highlighting the issue in question and making their case for why it should be addressed to a broad audience.

When it comes to a matter like paid sick leave, you won’t find a better time than a pandemic to rally supporters to the cause. Activist shareholders are seizing on the moment, and will no doubt take all the attention they can get this proxy season, even if they don’t rack up any shareholder votes in their favor just yet.

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