SEC wants to get rid of shareholder proposals, setting another dangerous precedent for Canada

The U.S. Securities and Exchange Commission was created to protect investors after the 1929 stock market crash. Now, the world’s most influential securities regulator is trying to muzzle them instead.

Last week, the SEC announced its intention to scrap a rule that has enabled investors to file shareholder proposals at U.S. public companies for more than 80 years.

The controversial plan is the SEC’s latest gambit to disempower investors as part of the Trump administration’s deregulation drive. If it comes to pass, it will set yet another perilous precedent for global securities regulators, including in Canada.

A shareholder proposal is a recommendation put forward by an investor that generally advocates for improved corporate governance on issues such as executive compensation, risk management, diversity and environmental policies.

Shareholder proposals are typically non-binding, even if they are put to a vote by investors at a company’s annual meeting. But they are still an important mechanism that allows a company’s shareholders to voice concerns and provide pertinent feedback to corporate directors and C-suite executives.

The SEC, once a bastion of investor protection, is now going to great lengths to stifle shareholder dissent. It is a troubling change that will also affect Canadian holders of U.S. equities and Canadian companies listed on U.S. exchanges.

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SEC chairman Paul Atkins has justified the plan to purge the shareholder-proposal rule by characterizing it as a change that will ensure the federal securities regulator does not intrude on corporate law made at the state level.

“To be clear, the proposed rescission would not eliminate the concept of shareholder proposals and is not an attempt by the Commission to silence shareholders,” Mr. Atkins said in a statement. “Rather, it is a recognition that the Commission must act within its authority.”

No one with a lick of sense is buying his mealy mouthed explanation. This is about shielding companies from scrutiny.

“Yes, shareholder proposals can be a source of embarrassment when they reveal a disconnect between shareholders’ and managers’ understandings of what matters to long-term performance; and sometimes trigger compromise before a vote takes place,” stated Glenn Davis, executive director of the Council of Institutional Investors, a Washington, D.C.-based group that counts Canadian money managers among its associate members.

“That is a feature of strong capital markets, not a basis for a government agency to swat a fly with a sledgehammer,” he added.

Andrew Behar, chief executive officer of As You Sow, a U.S. non-profit focused on shareholder advocacy, said in a statement that rescinding the rule “after more than eight decades increases risks to all shareholders by removing a critical oversight mechanism.”

The SEC’s proposal is also generating criticism from Canadian investor advocates who, let’s face it, have a keen understanding of why a patchwork of local rules, including on the issue of shareholder proposals, is a poor substitute for a uniform federal standard.

“There are CEOs that reject any level of accountability for what they do, but regulators do not have to kowtow to them,” said Kevin Thomas, CEO of the Shareholder Association for Research and Education.

“An SEC that ignores economics, experience, and good governance to reward those CEOs is an SEC that is failing the investors and well-functioning capital markets it was created to protect.”

The SEC’s proposal is open for comment until Nov. 20. So, if there was ever a time for Canadian institutional investors to take up the mantle of protecting the public interest, it is now.

According to the SEC’s own data, only 11 per cent of shareholder proposals that investors voted on received majority support in 2025.

Last month, the SEC effectively gave public companies more discretion to exclude shareholder proposals from their annual proxy statements by stating that it would “no longer respond” when businesses provided notice of such omissions.

So, why is the regulator doubling down on censoring investors?

Any move by the SEC is sure to spark a debate in Canada about whether securities regulators here should follow a similar path.

The Canadian Securities Administrators, an umbrella group for the country’s provincial and territorial market watchdogs, is already holding its own consultation on “modernizing the regulation of public companies.”

And, yes, the CSA’s consultation paper seeks input about how U.S. developments should inform its regulatory proposals.

It does not specifically mention shareholder proposals (it was published before the SEC’s announcement).

But the CSA’s paper does cite some of the Trump administration’s other pet issues, including a potential move from quarterly to semi-annual financial reporting. It also mentions disclosures regarding executive compensation, which could be loosened by regulators south of the border.

Canadian investor protections are already wanting. Now is not the time to take our cues from feckless American regulators.

The SEC’s Mr. Atkins says his agenda is “to make IPOs great again.” Silencing shareholders is a sketchy way to get the job done.