Shareholder Proposals and the Right of Investors to Express Collective Voice on Materiality

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The U.S. securities markets are built on the principle that materiality is defined by investors. Courts and the SEC recognize that information is “material” if a reasonable investor would view it as important in deciding how to vote or invest.

The shareholder proposal process under Rule 14a-8 is a crucial tool for investors to express this judgment collectively. Proposals allow investors to identify and elevate issues they deem material and to signal through voting outcomes the significance of those issues to the company’s investor base. Protecting this right ensures that shareholders retain the ability to guide corporate board and management on the risks and opportunities that matter to their investors.

Key Takeaways

  • Collective voice defines materiality. Through voting outcomes on shareholder proposals investors indicate what issues are material to them.

  • Shareholder proposals operationalize this right. They are a structured, market-based tool for investors to communicate material concerns directly to boards and management.

  • Disclosure law reinforces this principle. Materiality under securities law is typically determined under a “reasonable investor” standard – i.e., what investors consider significant in consideration of the total mix of information.

  • Restricting this voice undermines exercise of fiduciary duty and market accountability.

Shareholder Proposals: Expressing Collective Voice

  • Structured Process: Proposals let investors raise concerns in a 500-word request included in proxy materials.

  • Voting as a Signal: Support levels communicate clearly to companies what investors deem significant.

  • Proven Accountability: Proposals have driven reforms on governance (independent chairs, majority voting), risk management (opioid oversight, predatory lending), and systemic challenges (climate resilience, online child safety).

  • Dialogue & Resolution: Many proposals are resolved through engagement, improving governance and disclosure before a vote is even needed.

Why This Right Matters

  • Fiduciary Duty and Materiality: Long-term, heavily diversified investors cannot diversify away systemic risks—such as climate disruption, public health crises, or financial instability. Shareholder proposals are the primary tool for these investors to express collectively which risks they consider material to preserving long-term portfolio value, making this right a cornerstone of fiduciary duty.

  • Material to Business, Not a Distraction: Far from being a distraction, shareholder proposals surface core issues that boards may otherwise overlook or downplay. By elevating concerns about governance, risk management, or systemic challenges, proposals make companies more resilient, responsive, and ultimately more profitable over time.

  • Forward-Looking Materiality: Shareholder proposals often highlight issues that may be uncertain today but are probabilistically material tomorrow. By surfacing such risks early, they ensure companies and investors can act before crises crystallize, consistent with the “reasonable investor” standard in securities law.

  • Consistent with judicial definition of materiality. The Supreme Court has held that a fact is “material” under securities laws if there is “a substantial likelihood that a reasonable shareholder would consider it important” or if its disclosure would have “significantly altered the ‘total mix’ of information made available.” This definition originates in TSC Industries v. Northway, 426 U.S. 438 (1976), and was expressly adopted in Basic Inc. v. Levinson, 485 U.S. 224 (1988), which added that for contingent or speculative information, materiality depends on both the probability of the event and its potential magnitude.

The right to file and vote on shareholder proposals is the collective voice of investors on materiality. It is the practical expression of the “reasonable investor” standard in securities law. Weakening this right would strip investors of a cornerstone of corporate accountability and market stability. Protecting it ensures that materiality remains defined by those who bear the risk and reward of investment: the investors themselves.

Authored by the Shareholder Rights Group.