Shareholder Setback: US SEC Ruling Heightens Proposal Problems
June 10, 2025
A federal judge has approved US Securities and Exchange Commission (SEC) rules which make it more challenging for shareholders to file proposals at companies’ AGMs.
The amendments to the 14a-8 rule, which govern the filing of shareholder proposals, introduce more stringent requirements over the amount of investment required to file and the support needed to resubmit proposals. This marks a major setback for shareholders, particularly activist investors, with the rules expected to acutely impact proposals focused on ESG matters.
Under the newly ratified rules, shareholders must have invested a minimum of U$25,000 in a company for a year to file a proposal at an AGM. This marks a significant increase in the investment requirements, with the prior regulation permitting investors to submit proposals if they owned U$2,000 or 1% of a company’s securities for at least 12 months.
While this ownership threshold will fall to U$15,000 after two years and U$2,000 after three years, it will delay smaller shareholders in filing proposals by 24 months compared to under the previous rules.
The rules also sought to raise the level of shareholder support required to resubmit a proposal which had been voted down at an AGM. The new regulation means proposals now must receive at least 5% of votes from investors to be refiled, an increase from the previous threshold of 3%.
The rules were adopted in November 2020, at the very end of the Donald Trump’s first spell as US President, and came into effect in January 2021. However, litigation over the procedure under which the rules were passed since June 2021 has seen their full implementation delayed.
In introducing the rule, the SEC argued that the change would “modernise and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders”, as well as ensuring proponents had “demonstrated a meaningful ‘economic stake or investment interest’” in a company before filing a proposal.
“The court must conclude that the Commission’s cost-benefit analysis of the cost savings to companies upon the adoption of the Final Rule was reasonable,” the opinion approving the rule read. It added that the SEC had “reasonably considered the potential benefits of shareholder proposals.”
Several investors sued to overturn the rule in June 2021, namely NGO As You Sow, shareholder engagement-focused investor membership organisation the Interfaith Center on Corporate Responsibility (ICCR), and CorpGov.net’s Founder James McRitchie. This saw the application of the SEC’s rules postponed.
The proponents argued that while the SEC had positioned the rule as a cost-savings measure, it “significantly undermine[d] shareholder rights, particularly the rights of mainstream investors”.
The same year, Minerva Analytics reported that a coalition of almost 200 US shareholder groups had launched a campaign to overthrow the SEC rules, branding them as an “attack on corporate democracy”. This coalition included the ICCR, the Shareholder Rights Group, and AFL-CIO, the US’ largest trade union.
Following the recent ruling, the organisations challenging the rule stated: “By limiting shareholders’ ability to bring important issues to companies and fellow shareholders, the amendments—and the decision upholding them—will only serve to hurt shareholders and companies alike”.
“The benefits of shareholder proposals—like improved governance, ESG disclosure, risk management, and long-term value—are indisputably relevant to any rule limiting shareholder access to the proxy”, CorpGov.net’s James McRitchie said in a separate statement. “Where the [rules] will go now is anybody’s guess.”
Shareholder rights have faced a deluge of attacks this year. Last month, electric vehicle manufacturer Tesla amended its bylaws so that shareholders must hold at least 3% of the company’s stock to sue its board or executives for breaching fiduciary duties.
While Tesla’s market cap has taken a hit amid the fallout between CEO Elon Musk and Trump, its roughly U$900 billion market cap means in practice shareholders will need to would need to hold more than U$27 billion in shares to legally challenge the company.
The SEC has also made several moves to pare back shareholder rights. In February, the commission rescinded Staff Legal Bulletin (SLB) 14L, replacing it with new guidance in SLB 14M. The new guidance reinstated prior staff guidance on micromanagement, permitting shareholder proposals to be excluded more easily by companies.
A coalition of investors, including the ICCR and the Shareholder Rights Group, sent a letter to the SEC urging the organisation not to replace SLB 14L.
As reported by Minerva Analytics in March, the SEC had allowed five companies to reject lobbying proposals from their agenda, with SLB 14M key in enabling the exclusion of these proposals.
Also in March, Minerva reported that the SEC had voted to end the agency’s legal defence of rules requiring companies to disclose climate-related risks and greenhouse gas emissions.
Beyond the SEC, US states have looked to restrict the ability of shareholders to file proposals. As reported by Minerva last month, a bill in Texas in imposing new restrictions on shareholder eligibility to submit proposals passed 45 to 5.
The bill would impose restrictions such as requiring shareholders to own U$1 million or 3% of voting stock, disqualifying those who have held shares for less than six months, and requiring the solicitation of 67% of shareholders before a proposal can appear on the proxy. This would go further than the SEC rules, entirely excluding investors that have held U$2,000 in company securities for three years.
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Last Updated: 10 June 2025