Shareholder advocacy groups have taken the SEC to court over changes to rules that govern the exclusion of shareholder proposals. Democracy Forward, an organisation that has legally challenged the previous Trump administration on several occasions, filed the lawsuit on behalf of As You Sow and the Interfaith Centre on Corporate Responsibility.
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The rule, formally known as Rule 14a-8, required companies wishing to exclude a shareholder proposal to notify the SEC explaining the grounds. In response, the SEC would then assess the validity of the claim and issue ‘no-action’ letters.
Now, the plaintiffs claim, the SEC’s revised policy effectively accepts a company’s exclusion of shareholder proposals at face value. This removes the requirement for companies to justify the exclusion.
“Since proposals are generally non-binding, the only real benefit of these changes appears to be shielding companies from having to consider hard issues that would be easier to sweep under the rug”, explains Danielle Fugere, As You Sow’s president and chief counsel.
Sky Perryman, President and CEO of Democracy Forward says the new policy is inconsistent with existing SEC rules. “The new SEC policy is an undemocratic hall pass to corporate mismanagement that sends a message to investors to ‘sit down and shut up’ about how the company they own is managed”, commented Perryman.
The complaint, filed in the U.S. District Court for the District of Columbia, argues that the SEC adopted the policy change without the legally mandated process under the Administrative Procedure Act (APA).
“The APA requires federal agencies to act through transparent procedures; provide reasoned explanations for policy changes, regardless of the language the government uses to characterize them; and to give affected stakeholders an opportunity to comment before altering decades of the operation of existing regulations”, the complaint, reads.
In previous years, no-action requests covered a wide range of issues including climate risk management, corporate lobbying, financed emissions and biodiversity impact disclosures.
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