The Controversy Over Shareholder Proposal Thresholds

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Sanford Lewis, Director
Khadija Foda, Associate Counsel
Shareholder Rights Group

Access to the shareholder proposal process is once again up for debate as recent developments demonstrate renewed efforts to raise the ownership thresholds for filing shareholder proposals. Ultimately, the purpose of the ownership thresholds in Rule 14a-8 is to ensure that proponents who have an ability to file proposals relevant to the companies they are invested in. Since the origin of the rule in 1942, the Securities and Exchange Commission (SEC) has consciously chosen to keep filing thresholds low and the rules written in plain English to empower smaller retail investors to file proposals and engage with their companies.

Now, a growing push to tighten eligibility criteria threatens to turn that principle on its head — restricting participation not to those with a stake, but only to those with exceptional wealth. In May 2025, Texas passed a law 1 effective as of September 1, 2025, which allows certain Texas corporations to impose extreme thresholds on shareholder proposals. Instead of a minimum of $2,000 held for three years, $15,000 held for two years, or $25,000 held for a year, as established by the SEC under Rule 14a-8, the Texas law allows corporations to revise their governance documents to impose a $1 million shareholding threshold for any investor to file a proposal.

SEC Chairman Paul Atkins noted in an October 9, 2025 speech that he would view the extreme Texas thresholds as a basis for exclusion of proposals under Rule 14a-8(i)(1), which allows for the exclusion of proposals “improper under state law”. He further stated his opinion that the Rule 14a-8 standards are merely “default” standards that apply in the absence of state laws and/or corporate arrangements to the contrary, leaving the door open for private ordering around thresholds, among other things. 2

Putting aside questions of whether such changes are legally permissible or preempted by Rule 14a-8, these developments put renewed focus on ownership thresholds. The Texas law would allow companies to raise filing thresholds to a level that would, in practical terms, eliminate access to the proxy for all but the very largest shareholders, investors who already have direct channels to management and do not rely on the proposal process. This type of private ordering risks a “race to the bottom,” in which states competing for incorporations adopt increasingly management-centric rules that work to shield boards from shareholder oversight.

This debate arises at a pivotal moment. Texas and Nevada are openly competing with Delaware to attract corporate charters and have had some success. Major companies such as Tesla, Coinbase, and Dropbox have already left Delaware. 3 It has also been rumored that firms like Meta are considering a similar move.4

There is also a real possibility that the SEC itself may revisit ownership thresholds through federal rulemaking as “Shareholder Proposal Modernization” is once again on the SEC’s rulemaking agenda.5

2020 Rulemaking

The last time the SEC considered the ownership thresholds was in 2020, when it undertook an extensive data-driven review of where to set the bar for shareholder participation in the proxy process. That rulemaking process examined inflation, market capitalization growth, cost impacts, diversification needs, and solicited extensive comments from stakeholders in the process.

The resulting amendments to Rule 14a-8 significantly raised the bar for eligibility. Previously, a shareholder could submit a proposal with $2,000 in shares held for at least one year. The 2020 amendments replaced that single standard with a tiered system: $2,000 held for at least three years; $15,000 held for at least two years; $25,000 held for at least one year.

Notably and unfortunately, the amendments also prohibited aggregation of holdings, preventing smaller shareholders from pooling their shares to qualify.

The Commission justified the threshold changes in 2020 by noting that the eligibility criteria had not been substantively updated since 1998 and that inflation and rising market valuations warranted a recalibration. At the same time, the SEC asserted that these amendments would preserve access for smaller “Main Street” investors, emphasizing that it had given careful consideration to the impacts on smaller investors and concluded that longer holding periods demonstrate meaningful commitment to a company.

Even so, the 2020 amendments were highly controversial. The cost-benefit analysis largely ignored the lost value of shareholder proposals that would be blocked by the new rules, but at least the 2020 rulemaking reflected a deliberate attempt to provide notice, consult stakeholders, and to calibrate based on evidence and market conditions.

However, whatever one’s view of the SEC’s ultimate decision, the Commission did undertake an extensive review of the record, including more than 1,000 comments from investors, issuers, and other stakeholders. 6 Suggestions that states should now consider allowing steeper thresholds overlook the significant analysis the SEC has already completed. Any debate on this topic should be anchored in the SEC’s existing evidentiary record, while acknowledging its gaps, rather than based in political momentum or assumptions that could undermine investors’ ability to collectively manage risk.

Which Retail Investors Can File Currently?

Recent data indicates that access to the shareholder-proposal process is already far narrower than many assume. 7 According to the Federal Reserve’s 2022 Survey of Consumer Finances, only about 21% of U.S. families directly own individual stocks, and the median portfolio for those households is roughly $15,000 spread across multiple companies. Realistically, only a small subset holds even $2,000 in a single issuer, which is the minimum required under Rule 14a-8’s lowest eligibility tier. When portfolio concentration and turnover are taken into account, fewer than 1% of U.S. households are estimated to qualify under the $2,000-for-three-years standard, and the higher $15,000 and $25,000 standards are effectively limited to the wealthiest 1–3% of households. The financial and holding-period requirements thus make eligibility a privilege of a very thin, already affluent segment of the investing public — far from a wide-open channel easily exploited by casual filers.

At the same time, retail interest in exercising shareholder voice is growing. Proxy-voting tools offered through platforms like Robinhood now enable small investors to vote and raise questions with unprecedented ease, and several major index managers are rolling out “pass-through” voting programs that allow underlying fund investors to direct how their shares are cast. Yet these innovations only matter if there are meaningful choices on the ballot. Raising ownership thresholds further would concentrate filing rights even more tightly among ultra-wealthy individuals and a handful of institutions.

In short, the existing thresholds already constrain participation to a narrow and exceptionally well-resourced group. Any tightening from here would not modernize the process; it would effectively eliminate proposal filing rights for ordinary investors.

Why Small Shareholders Matter: The Policy Stakes

The shareholder proposal process serves as a core accountability mechanism in U.S. corporate governance. It allows investors to elevate potentially material issues to the full shareholder base, which can prompt boards and management to evaluate and address risks before they escalate. This is not an administrative burden to be reduced, but a vital check on managerial blind spots and a driver of long-term value creation. Without access to the proposal process, smaller shareholders have no practical mechanism to compel board attention—management can simply choose to disregard and ignore their concerns.

Efforts to raise ownership thresholds overlook this essential function. Today, the largest shareholders are asset managers, such as BlackRock, State Street, and Vanguard, who manage trillions of dollars almost entirely through low-fee passive funds. These asset managers compete on cost and typically lack strong economic incentives to pursue intensive engagement at individual portfolio companies. Academic research shows that their stewardship is frequently “low-cost, largely symbolic,” relying heavily on generalized proxy guidelines and automated voting practices rather than company-specific analysis.8

Smaller, active shareholders fill that gap. For instance, for decades, shareholders like John Chevedden and James McRitchie have submitted proposals that consistently garner high levels of support, including frequent majority approval. Mr. Chevedden’s long-running efforts to promote majority voting standards for directors have succeeded across the market, contributing to widespread adoption of majority voting among S&P 500 companies. Likewise, Mr. McRitchie’s proposals advancing proxy access have regularly received significant backing, with many companies negotiating reforms in response to proposals that earned 40%–50% support or more. These individual proponents, working with minimal resources, have driven significant improvements in corporate accountability and transparency. Yet, if ownership thresholds were increased, shareholders like Chevedden and McRitchie would likely be barred from submitting proposals altogether despite their remarkable track records.

These contributions are not limited to governance reforms. Small shareholders have also played a central role in surfacing environmental and social risks that affect financial performance. Issues such as climate transition, human capital management, supply chain resilience, and community impacts are not simply matters of political preference. They can shape brand value, regulatory exposure, and long-term enterprise risk. Investors raise these risks as part of sensible risk management and oversight in fulfillment of fiduciary duties. Companies themselves acknowledge this reality by producing sustainability reports and setting emissions targets, among other things. Investors filing proposals are responding to those same market signals.

Advisory proposals on environmental and social issues also continue to have significant backing. Morningstar reports pro-ESG proposals averaged 20% support this year, a level which represents a significant portion of a company’s investor base. 20–30% support for a shareholder proposal represents an extraordinary level of investor concern, especially because the baseline is overwhelming support for management. The largest asset managers typically vote with management, and proxy advisory firms recommend in favor of management the vast majority of the time. When dissent rises to this level despite those structural headwinds, it signals serious, material concerns among a diverse range of investors.

Further, voting outcomes confirm that shareholders can distinguish between proposals that add value and those that do not. For example, proposals seeking to eliminate corporate sustainability or diversity programs routinely received 2 percent support or less this year. In contrast, proposals that sought practical transparency received strong engagement. Requests for disclosure of EEO workforce diversity data averaged 33% support. The EEO data is already supplied to the government, so making the reports public improves information to the market at little cost. More resource intensive requests, asking for racial equity audits, received meaningful support around 18% on average.

All of this reflects a straightforward reality: investors vote in support of environmental and social proposals that improve disclosure and accountability on issues that affect corporate performance. Indeed, many proposals never reach a vote at all because proponents frequently agree to withdraw proposals after negotiating commitments on disclosure or oversight. That outcome reflects the board’s fiduciary judgment that the requested measures are relevant to the company and worth addressing.

Nor are proposals on social and environmental issues only of concern to a niche group of investors. Roughly one third of U.S. assets under management, representing tens of trillions of dollars, integrate ESG or sustainability in investment strategies and these investments are expected to grow, not shrink. This is not a narrow constituency and a substantial share of the market is likely to consider some environmental and social shareholder proposals to address material enterprise or systemic risks, even if relevance varies by investor.

Arguing that these proposals are merely political, which detractors often do in support of arguments to raise thresholds, is akin to saying that in buying a house, considering whether it sits in a flood zone or in a neighborhood where crime has been rising. Those are real risks that affect the value of the house, just as environmental and social risks affect the value of a company. Doing so also ignores their track record of identifying material concerns that boards initially failed to address.

For example, shareholder proposals urging banks and real estate companies to evaluate fair-lending practices and exposure to predatory financing helped surface systemic risk in the housing market well ahead of the 2008 crash. Shareholders used the proposal process to raise concerns that proved profoundly material to companies, investors, and the broader economy.

The proposals of small shareholders have strengthened director accountability, improved transparency, and pushed companies to address critical workforce, operational, and sustainability risks. These contributions illustrate that meaningful oversight is not correlated with the size of a shareholder’s position, but with whether the investor is willing and able to act.

Maintaining reasonable and accessible filing requirements is therefore essential to preserving the integrity of the proxy process. Rule 14a-8 is a valuable engagement tool and communication channel because it enables participation from a wide range of shareholders with diverse perspectives and incentives.

Troubling Signals from Delaware

The Texas law authorizing extreme ownership thresholds, Chairman Atkins’ invitation for issuers to challenge the federal framework under Rule 14a-8(i)(1) as improper under Delaware law, and the SEC’s suspension of substantive no-action review for the 2026 season collectively signal a growing risk that access to the proxy will be narrowed through state law, private ordering, or future rulemaking.

As rulemakers and policymakers revisit these questions, the focus should remain on sustaining a shareholder-proposal system that supports early risk detection, protects investor confidence, and strengthens long-term corporate performance. These objectives are incompatible with threshold increases that silence the voice of smaller shareholders, destabilizing a governance framework that has served capital markets for more than eight decades.

Footnotes

  1. Texas SB1057 (2025)
  2. Chairman Atkins’ statements were part of his larger speech under which he endorsed an outlier theory that advisory proposals are improper under Delaware law. He further laid out a roadmap for issuers to advance this argument before the Division of Corporation Finance and expressed “high confidence” that the staff would honor this position. For a more detailed discussion of these issues, please see our post here. The recent suspension of the SEC’s no-action process for the 2026 proxy season, except for exclusions under Rule 14a-8(i)(1), signals a significant shift in the Commission’s role and an openness to Chairman Atkins’ theory that private ordering at the state and bylaw level could govern access to the shareholder-proposal process.
  3. https://www.businessinsider.com/list-corporations-leaving-delaware-elon-musk-spacex-tesla-dropbox-roblox-2025-7#coinbase-8
  4. Business Insider – Corporations leaving Delaware
  5. Reuters – Meta considers leaving Delaware
  6. SEC – Shareholder Proposal Modernization rulemaking agenda
  7. Analysis by James McRitchie submitted to SEC Investor Advisory Committee on December 4, 2025.
  8. Lucian Bebchuk & Scott Hirst, Index Funds and the Future of Corporate Governance: Theory, Evidence, and Policy, 119 Colum. L. Rev. 2029, 2031–35 (2019); See Morningstar, Passive Fund Managers and Proxy Voting: 2022 Update (August 2022), showing high levels of reliance on proxy advisors and limited individualized engagement.