Citizens Funds said this week that it supports Securities and Exchange Commission chairman Harvey Pitt’s call to eliminate a regulation that allows corporations to overrule shareholder resolutions.

The provision, known as the "Ordinary Business" rule, is part of the Securities and Exchange Act of 1934 and allows companies to mow down shareholder resolutions if the results are deemed to interfere with a firm’s operations, Citizens said.

The firm, which offers so-called "socially responsible" mutual funds, said that the Ordinary Business rule has been used by more than a dozen companies this year to exclude shareholder resolutions. Some of the blocked resolutions called for shareholder approval of corporate stock option plans and for corporate stock options to be expensed, Citizens said.

"This rule has led to the exclusion of many important shareholder resolutions on social and corporate governance issues," Diane South, Citizens’ director of social research, said in a statement. "One of the main problems with the rule is that it is subjective. From the company’s point of view, what isn’t ordinary business?"

Citizens said that the SEC’s Division of Corporate Finance is currently reviewing Pitt’s proposal. As a result, the rule could be eliminated. The SEC may also take less drastic measures and simply alter the way it interprets the provision, Citizens said.

Companies can overrule shareholder resolutions based on 13 criteria, South said, but the Ordinary Business rule is most commonly used by companies "to quiet shareholders."

"Going forward, we want the ability to raise important business issues that concern both companies and their shareholders," South said. "This sharing of information is critical in the ongoing push for transparency and for changes in corporate governance."

Subscribe Now

Access to premium content including in-depth coverage of mutual funds, hedge funds, 401(K)s, 529 plans, and more.

3-Week Free Trial

Insight and analysis into the management, marketing, operations and technology of the asset management industry.