Corporate America Should Regain Control of Shareholder Proposals

The upcoming proxy season in corporate America is likely to be dominated by another barrage of politically divisive shareholder proposals.

In recent years, left-leaning organizations have targeted companies with environmental, social, and governance proposals focused on progressive priorities such as climate change; LGBTQ rights; diversity, equity, and inclusion; and gun safety. Meanwhile, right-leaning groups have submitted competing proposals urging a focus on corporate profits rather than ESG initiatives.

America’s public companies are caught in the crossfire. Corporate leaders complain these divisive proposals are costly distractions that consume valuable board time, invite unwanted media attention, and drive up legal fees. Average investors seem to agree. The vast majority of both ESG and anti-ESG proposals fail to garner majority shareholder support, and with each proxy season those already low levels of support are further eroding.

But the lack of shareholder support hasn’t stopped activists from peppering companies with proposals in record numbers. During the first half of 2024, activists submitted 858 proposals to S&P 1500 companies, up 17% from the same period in 2021.

Rather than addressing corporate governance or shareholder value, most of these proposals concern contentious environmental, social, or political issues. For example, in 2024 Amazon’s shareholders faced 14 separate proposals, addressing topics spanning climate change, plastic waste, labor rights, and viewpoint discrimination, many of them repeats from the previous year, when the company’s shareholders were asked to vote on 18 proposals. During this two-year period, Amazon’s shareholders rejected all 32 proposals.

The recent surge in shareholder proposals is no accident. Ahead of the 2022 proxy season, the SEC reinterpreted its longstanding proxy rules, rescinding earlier guidance that allowed companies to exclude proposals that lacked a “sufficient nexus” to their business. Under the Biden-era policy, shareholder proposals concerning any topic that has “broad societal impact” are permitted. Consequently, a single shareholder, owning as little as $2,000 of shares in a company, may now force a corporate referendum on whatever hot-button issue they wish to spotlight. The result: Corporate democracy has come to increasingly resemble our national democracy—ideological, fractious, and divisive.

While the Trump administration may reverse this policy, corporate leaders need not wait for help from Washington. Public companies already possess the tools to reassert control over shareholder proposals. Under Delaware law, which governs two-thirds of the Fortune 500, a company’s charter and bylaws are a binding contract between a company and its shareholders.

This legal framework affords companies substantial flexibility to regulate shareholder rights, including the right to make or vote upon proposals. A carefully crafted bylaw provision could impose higher shareholder ownership thresholds to make a proposal, limit repetitive or irrelevant proposals, or simply restore earlier SEC guidance barring proposals that lack a clear connection to the company’s business.

Importantly, such measures would be fully consistent with federal law. The Securities and Exchange Commission’s proxy rules enable a shareholder to make a proposal for inclusion in a company’s proxy materials, but only if the shareholder’s proposal is proper under the laws of the state in which the company is incorporated. If a shareholder’s right to make a proposal is validly restricted under Delaware law, then the SEC defers to state law on the issue.

By adopting bylaw provisions limiting shareholder proposals, companies can avoid being dragged into contentious political debates and refocus the annual proxy season on the governance priorities that matter most to shareholders. The ability to adjudicate disputes about the propriety of any proposals before the sophisticated and politically insulated Delaware courts, rather than through the SEC’s unpredictable no-action process, only adds to the appeal.

Some US corporate leaders might worry that restricting shareholder proposals through private ordering could stifle shareholder engagement or invite political backlash. But the data tell a different story. While activists on both sides flood corporate proxies with partisan proposals, investors have shown little appetite for them.

Average shareholder support for environmental, social, and political proposals peaked in 2021 at 33% and has since dwindled to just 16% in 2024. During the most recent proxy season, only three such proposals—out of over 300 voted on—received majority shareholder support. Notably, support is even weaker among retail investors, who vote against such proposals at much higher rates than their institutional counterparts. Shareholders of all kinds are fatigued, not energized, by the rising volume of these partisan initiatives.

Shareholder democracy was never meant to mirror our national politics. The recent flood of activist-driven proposals has needlessly dragged corporate America into too many contentious partisan issues. Rather than hope for help from Washington, corporate boards can reassert control over shareholder proposals.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Mohsen Manesh is professor at the University of Oregon School of Law.

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