“It’s not broken, don’t ‘fix’ it.” 

The Investor Rights Forum contains extensive evidence that the existing shareholder proposal rule is not broken, and does not merit consideration of changes to the rule’s thresholds:

SHAREHOLDER SUPPORT

Shareholders at numerous companies are increasingly voting in favor of the proposals, demonstrating that the shareholders want the opportunity to weigh in on the issues raised in proposals by both small and large investors.

THE RULES WORK

The rules already screen out proposals that are not significant to the company or that reflect a personal grievance.  It is rare that an “idiosyncratic” proposal that is of no interest to other investors makes it to the proxy. In those cases, shareholders reject the proposal and prevent its resubmission.

VALUE TO COMPANIES AND SHAREHOLDERS

The proposal process provides significant input to the governance of companies. It encourages investors to put their resources to promote foresight and accountability. Shareholder proposals fulfill multiple, valuable services: risk assessment, communication channels, investor polling and honing of governance mechanisms.

LOW COST

The cost of printing a shareholder proposal on the company’s proxy statement is minimal. Even the costs associated with legally challenging a proposal can be minimal. 

RIGHTS, CONTRACTS AND RELATIONSHIPS

The right to file proposals is part of the bundle of rights and expectations associated with share ownership. Investing strategies, contracts, fiduciary duties and contractual commitments have been constructed around the right of investors, especially smaller retail investors, to be able to file proposals as part of an active investing strategy. Rulemaking by the SEC must not dilute these rights or disrupt these relationships.   

Investor Rights are at Risk

Threats to the Shareholder Proposal Process

Shareholder proposals indicate to a company the material concerns of its investor base. Corporate disclosure and decision-making are driven by the concept of materiality. Information is ‘material’ “if there is a substantial likelihood that a reasonable investor would consider it important in deciding how to vote, or to buy or sell a stock, or would view it as significantly altering the ‘total mix’ of information made available.” The level of investor support demonstrates for the company, board and management what the “reasonable investor” would view as material information for disclosure and action.

Shareholder proposals are one of the few opportunities that investors, including individual Americans saving for retirement or other needs, have to allow them to influence major policies at the companies that they own. Critics are working to take even this limited right away through actions such as:

  • In the 118th Congress, the House of Representatives is considering legislation that would, among other things:

    • Bar the filing of ESG proposals, preventing shareholders from raising environmental, social, and governance concerns

    • Block proposals addressing long-term or systemic risks, including climate change and other market-wide threats

    • Eliminate the significant policy exception to the ordinary business rule, allowing companies to exclude proposals even on major public interest issues

    • Bar the SEC from requiring inclusion of any shareholder proposals, limiting regulatory oversight.

    • Cap the number of shareholder proposals a company must include on its proxy and raise resubmission thresholds, restricting investor influence

  • In the 119th Congress, the House is considering Legislation that would:

    • Require that only shareholder proposals that are “financially material” be included in proxy statements, excluding non-pecuniary issues such as ESG, social, or governance concerns, as well as proposals related to systemic risks or long-term uncertainties that are not directly tied to financial performance

    • Cap the number of shareholder proposals based on company size and allow companies to determine which proposals to include

    • Limit the SEC’s authority to compel inclusion of shareholder proposals, leaving final discretion with issuers.

  • A lawsuit brought by Exxon against its own shareholders to stop them from proposing a climate vote at a shareholder meeting

  • New staff interpretations of longstanding SEC regulation Rule 14a-8 making it harder for investors to ask for other investors to vote for proposals addressing material risks to the sustainable value of companies.

  • A letter written by 18 state attorneys general insinuating that major asset managers and banks were violating fiduciary duties and other legal obligations simply by considering climate and other social issues when voting proxies on behalf of clients.

  • A speech from a SEC Commissioner arguing for new rules that will disenfranchise smaller investors from accessing the shareholder proposal proces