Shareholder Rights

Protecting Shareholders’ Rights and the Proposal Process 

Investors have long relied on the shareholder proposal process to engage companies in meaningful dialogue on a range of material financial issues during annual U.S. proxy seasons. Proposals enable investors and companies to address these issues themselves, thereby reducing the need for government regulation. There is nothing more natural than for a company to listen to its owners. 

While most proposals are nonbinding, they have led to the wide adoption of corporate governance practices, strategic goals, and workforce policies that are now regarded as essential for growth and long-term value creation. Examples include companies establishing independent board chairs, adopting policies to prevent online child exploitation, and improving the prudent management of business risks such as natural disasters. The practice of filing proposals has a long history, gaining prominence 80 years ago with the introduction of a U.S. Securities and Exchange Commission rule (14a-8), which investors and companies rely on to ensure a fair and balanced process. Now, legislative and regulatory actions have been introduced to dismantle this valuable approach, threatening shareholders’ freedom to engage with the companies they invest in.  

Freedom to Invest brings together investors and other stakeholders to defend and protect investors’ freedom to invest responsibly and their freedom to engage companies directly. Mainstream institutional investors, investor organizations, state financial officers, and others are speaking out in favor of the shareholder process as a reliable tool for effective financial stewardship. 

From the Council of Institutional Investors:

Shareholder proposals are an essential and cost-effective tool for expressing the collective voice of a company’s shareowners on particular matters and have made important contributions to corporate governance over the last 50 years.

From a Coalition of Investor Organizations:

The idea that the owners of public companies should have a voice in how the companies that they own are managed has long been a hallmark of the American free enterprise system.

Recent Attacks on the Shareholder Proposal Process  

In 2025, the U.S. Administration, Congress, and several states, began targeting how investors engage with the public companies they own.  Most recently, the U.S. Securities and Exchange Commission (SEC) under Chair Paul Atkins is undertaking a concerted effort to restrict shareholders' rights. The SEC Division of Corporation Finance announced that it would stop providing guidance to companies on whether they can legally exclude shareholder proposals from their proxy materials in proxy season 2025-2026, abdicating the SEC’s longstanding role as neutral arbiter of shareholder proposals. This announcement followed remarks by Chair Atkins in which he endorsed an attempt to eliminate advisory shareholder proposals. The SEC also reversed a longstanding policy on mandatory arbitration, threatening to end securities class action lawsuits, and released guidance throughout 2025 aimed at limiting not only advisory shareholder proposals, but also informal investment stewardship engagements related to environmental, social, and governance issues. 

At the state level, the House of Representatives passed two bills, HB 1057, a bill that impacts the shareholder proposal process for companies headquartered in the state by allowing companies to change their bylaws to raise the submission threshold for shareholder proposals to an aggregate of shares worth at least $1 million. This bill would not only significantly alter the way shareholders communicate with companies but also increase the need for more government regulation. 

In addition, the Texas State Senate passed SB 2337, a bill that redefines who provides a proxy advisor service to be inclusive of entities that provide research or analysis on shareholder proposals. The legislation also requires several disclosures if the entity recommended a vote that counters company management's position. One of the disclosures includes prominently placing on the homepage of the entity's website that their "recommendations are not in the best financial interest of shareholders". The implementation of this legislation is current in litigation as several groups and companies sued over the constitutionality of the law.

The Proxy Advisory Transparency Act

Eleven states have introduced copycat bills that are slightly different from the Texas Senate bill, entitled, the Proxy Advisory Transparency Act. The legislation continues to cast a broad net with the definition of who provides a proxy advisor service, and entities that simply provide research and analysis on shareholder proposals could be implicated.  

This legislation presents some major concerns. When, and only when, a “proxy advisor” either provides a “proxy advisory service” that is not accompanied by a “written financial analysis,” or merely makes a recommendation that is against management, a proxy advisor must make a series of proclamations (in many cases to their own clients) that say that their services are being provided without such a “financial” analysis. If a proxy advisor fails to do so, it can be sued by the state attorney general for deceptive trade practices and may be sued by any other “aggrieved person,” including shareholders and the companies that are the subject of the service. 

The clear intent of these laws, evident from many of their “legislative findings in many of these laws,” is to silence “proxy advisors” who make recommendations against company management or that improperly consider “nonfinancial” factors that are politically charged. Requiring proxy advisors to condemn their advice if–and only if– a proxy advisor makes a recommendation disfavored by the State is a clear violation of the First Amendment.

This proposal has a broad scope and applies to proxy advisory services rendered in connection with any proposal brought forward by company management–including governance, executive compensation, or director nominations.

Working with partners, Freedom to Invest has already pushed back against these attempts to silence shareholders’ voices. Last year, several investor organizations told SEC Chair Atkins that shareholder proposals have historically been a key part of a highly effective process that has “advanced best practices in corporate governance without infringing on board discretion or broader economic dynamism and growth.” And several state financial officers urged Chair Atkins to reconsider his proposals to undermine the shareholder engagement process because they would “suppress shareholder governance, diminish corporate transparency and accountability, and create risks to profitability and reputation for companies—further undermining the confidence that has attracted global investors to American firms and markets.”