Case to Watch: SEC faces claims it hit rules that ‘silence’ retail investors

(Reuters) – A federal court in Washington, DC is poised to rule on whether the US Securities and Exchange Commission violated the law when it raised the bar on how investors can press for corporate reforms – a move critics say silences Main Street investors.

Under leadership appointed by the Trump administration, the SEC passed a rule in 2020 tightening requirements for shareholders to put proposals on corporate ballots. The rules increased the stock holdings required to participate and limited when proposals can be reintroduced, among other restrictions.

The shift to a Democratic administration in 2020 raised investor hopes that the SEC would undo company-friendly Trump-era rules. But the SEC has not revised the restrictions on shareholder proposals, even though it recently tweaked a related rule about duplicate proposals.

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Shareholder advocates including the Interfaith Center on Corporate Responsibility (ICCR), which represents religious groups and other investors, sued the SEC over the rule last year, alleging it failed to conduct an adequate cost-benefit analysis and ignored data the rule would disqualify many proposals.

The SEC has argued its analysis was appropriate and said the rule was meant to ensure the interests of those who make proposals “are appropriately aligned” with other shareholders.

Companies say the rule helps prevent niche interests from hijacking corporate ballots and wasting management time.

US District Judge Reggie Walton has said he aims to rule by mid-November.


The added consideration requirements have knocked out some proposals from this year’s round of shareholder meetings. Seattle-based investment advisor Newground Social Investment, for example, was unable to re-submit the proposal on behalf of an individual Chevron shareholder requiring the company’s chief executive to be an independent director. Nearly 30% of Chevron shareholders had voted for it in 2021.

“It’s an unreasonable curb on shareholder prerogative,” Newground Chief Executive Bruce Herbert told Reuters in an interview.

Herbert said the rules set back corporate reform efforts, the small investors have been some of the earliest to make environmental, social and governance proposals.

The rules also increase the support proposals must gain to be eligible for re-submission.

That means Cynthia Murray, a Wal-Mart Inc shareholder and employee, won’t be able to re-submit a proposal that the company create a group of Wal-Mart workers to advise its board on safety measures during pandemics.

The proposal received 12.7% of the vote this year, enough to clear the previous threshold of 6%, but short of the new threshold of 15%.

“In silencing us, it isn’t making the company any better,” she told Reuters.

The case is Interfaith Center on Corporate Responsibility et al v. SEC, US District Court, District of Columbia, No. 1:21-cv-01620.

For ICCR: Robert Kry, Sarah Newman and Eric Posner of MoloLamken

For the SEC: Dan Berkovitz, Michael Conley, Tracey Hardin and Daniel Matro

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Our Standards: The Thomson Reuters Trust Principles.

Jody Godoy

Thomson Reuters

Jody Godoy reports on banking and securities law. Reach her at


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