Top US official makes controversial move that could have big implications for nation's economy: 'Gives companies enormous latitude'

New U.S. federal policies will make it harder for company shareholders to hold leadership accountable, according to Reuters.

What's happening?

The U.S. Securities and Exchange Commission will now be reviewing company requests to ignore shareholder resolutions on a case-by-case basis to ensure that they focus "on a significant policy issue that has a sufficient nexus to a particular company." Previously, the SEC would allow resolutions to be raised to a vote based on broad social issues they represent, such as the environment.

The change is borne of a stance that shareholders shouldn't have a right to micromanage a company, or "by probing too deeply into matters of a complex nature upon which shareholders, as a group, would not be in a position to make an informed judgment," according to a precedent set in 1998.

Why are shareholder resolutions important?

SEC Commissioner Caroline Crenshaw has openly criticized the change for its operational disruption.

"Such proposals include topics relating to poison pills, compensation, emerging issues such as AI, political and lobbying expenditures, and environmental or other issues that shareholders have identified as materially impacting the firm's financial value," she said. "As anyone familiar with the shareholder proposal process knows, excluding a proposal from the proxy statement all but guarantees it will never make it to a shareholder vote."

The SEC's shift makes it harder for shareholders to raise environmental concerns with companies and hold them accountable to material change.

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"By choosing this path, we forsake all consistency, and perhaps even the legitimacy, of the independent, historically staff-governed process to the detriment of all parties," said Crenshaw.

The new wording "gives companies enormous latitude to claim that a proposal micromanages if the proposal asks the company for specifics," said Shareholder Rights Group Director Sanford Lewis, per Reuters.

What's being done about activist shareholding?

Many groups continue to use shareholder resolutions as a way of pushing for corporate change, though major polluters like ExxonMobil have tried to actively squash such efforts. Many other shareholders push for dirty practices for the sake of increased returns. This was the case when BP reversed course on renewables investment.

Progressive investment is still possible, even with the SEC scaling back corporate accountability. Take a look at our guide on how to invest in a clean economy to get started.