Small investors fear US SEC will drive corporate gadflies to extinction

Federal regulators are looking at new rules that could rein in shareholders who hold as little as $2,000 in stock to get their proposals on proxy ballots. Business groups are pressing for higher ownership thresholds like the one adopted last year in Texas, where investors are now required to own at least $1 million in stock or a 3% stake to file a proposal with companies incorporated there.

Governance watchdogs warn the most extreme options under consideration stand to muzzle small shareholders, including individual holders, networks of climate activists and faith-based groups on either side of the political spectrum.

“There’s certainly a chilling effect,” said Sister Ann Scholz, a nun who has filed environmental and socially minded shareholder proposals on behalf of the School Sisters of Notre Dame Collective Investment Fund in St Louis. “And you do wonder how much of this is designed to intimidate, and how much of it is real and has lasting impact on how shareholders and companies interact.”’

The power of small investors is largely predicated on their ability to get proposals on the corporate ballot. That’s typically an uphill battle. Companies can reject any proposal that isn’t focused on a proper business question, arrives too late or otherwise fails to meet standards for inclusion on the proxy. (The definition of a proper business question is another area that could get more restrictive, with US Securities and Exchange Commission Chair Paul Atkins having argued the current scope is overly broad.)

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Once an investor proposal is cleared for a formal vote, it’s still difficult for small shareholders to effect change. Usually they fail to win enough support from fellow shareholders to form a majority. And when they win, the non-binding nature of their resolutions means companies don’t have to meet their demands. But gadflies can pressure companies into adopting stronger governance measures. In recent years, gadfly campaigns led FedEx Corp. to review its policies for executive severance packages and helped persuade Netflix Inc. to force its directors to stand for re-election annually.
‘Out of Control’
This proxy season, the gadflies face an extra obstacle: the SEC won’t weigh in on which proposals should be allowed to reach a full shareholder vote. Typically, companies receiving shareholder proposals submit any objections to the SEC, which then has a choice. Either it issues a so-called no-action letter in which it sides with the company and the proposal doesn’t go forward — which happened about half the time in the 2023, 2024 and 2025 proxy seasons — or it disagrees with the corporate objection, in which case the opinion of the agency is almost always honored.

In November, citing a backlog created by the record US government shutdown, the SEC said it would stop evaluating company objections in the 2026 proxy season. Instead, the agency is simply acknowledging when it has received a communication from a company that intends to excluse a proposal from the ballot, without taking a position on the decision.

Small shareholders said the move effectively allows corporations to exclude resolutions unilaterally. Their concerns about proxy access were compounded in December, when President Donald Trump signed an executive order directing federal scrutiny of firms that advise on shareholder voting, particularly those that have recommended yes votes meant to further environmental, social or governance aims that the White House opposes.

Meanwhile, the Business Roundtable, National Association of Manufacturers and US Chamber of Commerce all have called for restricting access to proxy ballots by raising ownership thresholds or limiting the allowable topics of shareholder proposals, among other measures, and the manufacturers group backed a lawsuit that questioned whether the SEC should have an arbitrating role at all.

“I see it as an orchestrated attempt to dismantle capitalism,” said Andrew Behar of As You Sow, one of the shareholder activist groups that regularly brings forward resolutions representing small investors. “Capitalism requires that shareholders hold conversations with each other to help determine what is best for the companies in their portfolios.”

Companies and their lobbyists, however, say that not all shareholder conversations are worth having. Many investor resolutions fail to get even 10% support when put to a broader shareholder vote, said Elizabeth Bieber, a lawyer at Freshfields, one of the largest corporate law firms. For companies fielding multiple proposals each year, each of which takes up staff time and money, the process has “gotten out of control,” she said.

In the 2025 proxy season, from January to June, companies submitted 363 requests for no-action letters from the SEC, and the SEC agreed with about 194 of those requests, according to data from Freshfields.

This year the agency has received more than 150 letters so far. That includes seven from Amazon.com Inc., which said it’s rejecting a wide range of proposals from both conservative and liberal shareholder activists.

“In most cases, we believe the costs of implementing the proposals significantly outweigh the benefits, and that the proposals do not enhance or create shareholder value, or we disagree with how a proposal seeks to dictate how we approach or report on the issue in prescriptive or unrealistic detail,” Amazon spokesperson Angie Quennell said.

Amazon is one of the companies most frequently targeted by small investors seeking proxy-ballot access. It received 40 proposals in the 2023 to 2025 proxy seasons, the most of any company, according to Bloomberg Intelligence. Google parent Alphabet Inc. received 39.

The resolutions Amazon has rejected so far this year involved requests for disclosures relating to transgender care for employees, the impact of plastic packaging, protection of human rights, AI due diligence, immigration and the online sale of the abortion pill. In its letters to the SEC, the company said some proposals were attempting to micromanage the business, while others were not significant to its business operations or were too similar to proposals already rejected repeatedly by shareholders.

Investor John Chevedden, who according to Bloomberg data has filed more than 1,100 shareholder proposals since 2015, said the SEC’s decision to stay on the sidelines this year is “the worst attack ever” on small investors.

The reality has been more mixed. On a website the SEC set up for this proxy season to track proposals that are denied a full shareholder vote, the regulator has posted around 150 letters acknowledging company decisions to exclude proposals from their ballots. At the same time, there are more than 30 communications in which companies including McDonald’s Corp., Starbucks Corp. and Apple Inc. either reversed a decision to exclude a proposal or said the investor had opted to withdraw it.

In February, Bloomberg Law reported that AT&T Inc. agreed to include a shareholder proposal to disclose employee demographic data in order to resolve a lawsuit brought by New York City retirement plans. As You Sow’s Behar said his group sued to get a shareholder proposal on the ballot at insurance company Chubb Ltd and predicted that without the SEC’s explicit blessing of proxy exclusions, more activists will use lawsuits to test company decisions to reject proposals.

Long Tradition
The prototype for the modern gadflies were Manhattan brothers John and Lewis Gilbert, whose boardroom activism in the 1930s and 1940s is credited with ensuring that companies had to allow for shareholder proposal votes.

Successive shareholder activists such as Wilma Soss and Evelyn Y. Davis kept pressure on corporations over the decades, whether demanding changes to boardroom bylaws or boycotts in apartheid South Africa. They were known mainly for being loud, and larger than life, but in many cases these colorful characters achieved small wins that were cumulative toward modifying corporate behavior, according to business historian Brian Sarginger, who also works as a research analyst at proxy advisory firm Institutional Shareholder Services Inc.

“The gadfly is a rare breed,” Sarginger said. “It’s a difficult job. It’s not so much about winning this one fight. It is about continually being in the room, continually being a nuisance of yourself, continually talking to management. And oftentimes, after years of resolutions, after negotiations, after being in these annual meetings and having communications back and forth, oftentimes, you know, boards would change their mind.”

Boards sometimes push back hard. Exxon Mobil Corp. in 2024 sued shareholders to block their climate proposals from going to vote, arguing that the investors sought to interfere with the normal course of business, and that their repeated filings exploited weaknesses in the proxy-voting process. The claims were dismissed after the shareholders withdrew their resolutions and said they wouldn’t file similar ones again.

Last week Exxon asked shareholders to back a plan to shift its legal home to Texas after being incorporated in New Jersey for 144 years. Chief Executive Officer Darren Woods said in a recent interview about the move that some interest groups have “weaponized” the proxy-voting shareholder system, pursing agendas not focused on shareholder value.

Playing Politics
In Trump’s second term, the battle for proxy access has become more overtly political. The president’s December executive order targeting the big proxy advisors accused them of using their influence “to advance and prioritize radical politically-motivated agendas — like ‘diversity, equity, and inclusion’ and ‘environmental, social, and governance’ — even though investor returns should be the only priority.”

If the impetus from the White House is to limit the influence of progressive activists, the effort is ill-timed, said Stefan Padfield, a senior legal fellow at the conservative Heritage Foundation and principal at the Free Enterprise Initiative.

“If we go back to a Democratic president, and you’ve taken away the proposal system as it’s currently constituted, where we now have a real vibrant and effective conservative voice, where is that pressure going to come from if you get rid of the shareholder proponents?” Padfield said.

He predicts that if small investors are prevented from getting their proposals included on proxies, they will likely signal their dissatisfaction, for instance by voting against the re-election of board members.

Jerry Bowyer, who advises conservative, faith-based investors on stockholder proposals, said companies are by and large showing restraint this year in rejecting proposals. (Amazon, for one, said it sought to exclude more proposals last year, when the SEC was still reviewing decisions to keep resolutions off the ballot, than it has this year.)

Among companies in the Russell 3000 Index that have already filed their proxy statements for the upcoming season, more than 71% of the proposals submitted are being put on the ballot, up from 59% in the 2025 proxy season, according to data from ISS-Corporate.

Still, Bowyer is worried that attempts to silence small investors will weaken the influence of conservative activists just as they are gaining traction with boards.

“There are so many unintended consequences going on with the attempt to fix proxy voting, it’s unbelievable,” he said. “I think there’s gonna be a little bit of a MAGA civil war over this, the populists versus the more corporate-aligned people.”

The battle has made for rare alignment between right- and left-leaning activist shareholders, who are united in their opposition to efforts to limit proxy-ballot access.

“Honestly, I stand shoulder to shoulder with Jerry,” said As You Sow’s Behar, whose progressive views normally put him at odds with Bowyer and other conservative activists.