SEC successfully dismisses lawsuit against new regulations on shareholder proposals

A federal judge recently rejected a lawsuit that contested modifications made by the U.S. Securities and Exchange Commission (SEC) to regulations that increased the requirements for shareholders to submit proposals for consideration at company meetings.

The lawsuit was filed by the Interfaith Center on Corporate Responsibility and As You Sow, advocacy organizations devoted to promoting environmental, social, and governance issues among corporations. They argued that the SEC’s rule changes infringed upon shareholders’ rights and hindered their ability to advocate for corporate accountability and responsibility.

The organizations contended that the amendments imposed unreasonable burdens on shareholders by increasing the ownership threshold required to submit proposals. Under the SEC’s new regulations, shareholders must own at least $25,000 worth of company stock for one year, $15,000 for two years, or $2,000 for three years to be eligible to propose resolutions for inclusion in corporate ballots.

This shift raised concerns among shareholder advocates as it limited the ability of smaller investors to engage with companies on critical matters such as climate change, diversity, and human rights. The plaintiffs argued that these rule changes would suppress shareholder voices and impede efforts to hold corporations accountable for their actions.

Despite the legal challenge mounted by the Interfaith Center on Corporate Responsibility and As You Sow, their lawsuit was dismissed by the federal judge on the grounds that the SEC had not violated any laws or regulations in implementing the new rules. The judge maintained that the commission has the authority to establish regulations governing shareholder proposals and that the changes made were within its jurisdiction.

In response to the dismissal of their lawsuit, the advocacy organizations expressed disappointment and vowed to continue their efforts to push for greater transparency and accountability within corporate governance. They emphasized the importance of shareholder activism in fostering responsible business practices and urged the SEC to reconsider its rule changes in light of the potential impact on investor engagement.

The SEC defended its rule amendments by asserting that they were intended to enhance the efficiency and effectiveness of the shareholder proposal process. The commission argued that the revisions were implemented to address concerns raised by companies about the rising number of frivolous or duplicative proposals being submitted for consideration at annual meetings.

While the legal battle over the SEC’s rule changes may have reached a conclusion with the dismissal of the lawsuit, the debate over shareholder rights and corporate accountability is far from over. Advocacy groups continue to advocate for greater transparency and engagement in corporate decision-making processes, emphasizing the vital role that shareholders play in promoting responsible business practices and ethical conduct.