It is a yearly ritual for American corporations: executives of Fortune 500 companies appearing at shareholder meetings to answer investors’ concerns about everything from board membership to climate-change policies.
Now the Securities and Exchange Commission wants to make it harder for small shareholders to get resolutions onto company ballots, known as proxies. It says responding to resolutions can pose an undue burden on companies, costing tens of thousands of dollars apiece for research, and printing and mailing of ballots.
The move has sparked a lively debate over the limits of shareholder democracy. Critics say the proposal would make it harder for regular investors to hold executives accountable. Advocates say that current rules are lax, opening the door to a multitude of resolutions, and that small shareholders have other ways of exerting influence, including through social media.
“The world has changed since those rules and thresholds were first set out” in the 1990s, William Hinman, director of the SEC’s division of corporation finance, said at a conference in January. “We also were observing that a small handful of folks were continuously providing some of the same proposals year after year, and the majority of shareholders were not getting on board.”
Among the SEC’s proposed changes: raising the minimum stake required to submit a resolution to $25,000 from $2,000, assuming one year of continuous ownership. The threshold falls after years two and three. The commission would also bar representatives from submitting proposals on behalf of more than one shareholder at the same meeting. Unsuccessful resolutions would have to garner more support to be resubmitted on future ballots.
A period for public comment that ended this past week has generated thousands of letters from chief executive officers, fund managers, interest groups and individual shareholders. SEC Chairman Jay Clayton must now decide whether to tweak the proposal before advancing it for a formal vote in coming months.
Among those backing the changes is the U.S. Chamber of Commerce, one of the country’s most influential business lobbies.
The system has “devolved into a free-for-all that a small minority of interests use to advance idiosyncratic agendas at the expense of Main Street investors,” Thomas Quaadman, an official at the chamber who specializes in market regulation, said in a comment letter to the SEC.
Investors including Elizabeth Halliday, a self-employed website designer with an individual retirement account, see it differently.
She said the SEC’s proposal would “just completely take out huge numbers of people” from the process. After reading about it in a newsletter last month, she said she fired off an email to the SEC, calling the plan “tinder for the socialist, pissed-off left.”
One investor who says she would have been excluded by the proposal is March Gallagher, a 51-year-old attorney in Rosendale, N.Y.
About two months after the 2011 nuclear disaster at Fukushima, Japan, Ms. Gallagher said she invested $3,000 in shares in Entergy Corp., ETR -0.98% which owned the Indian Point nuclear facility near her home.
After two unsuccessful attempts, she brought a resolution to Entergy’s 2014 annual meeting asking the company to shutter the facility. Ms. Gallagher’s resolution only garnered 3% support, but she was grateful for a chance to speak at the meeting and interact with several company officials who she said seemed swayed by her arguments. The plant is now slated for decommissioning.
“I’ve never felt like my voice had more impact,” Ms. Gallagher said in an interview, adding that she would be reluctant to invest $25,000 in the shares of a single company.
An Entergy spokesman said the company had nothing to add to Ms. Gallagher’s account.
A related change being considered by the SEC would impose new regulations on so-called proxy-advisory firms, which are paid by mutual funds and other large investors to research items on shareholder ballots and provide recommendations on how to vote.
The firms would have to disclose conflicts of interest—such as when they sell services to both public companies and their investors—and give companies a chance to review and provide feedback on their recommendations. It would also increase the advisers’ liability for publishing false or misleading information.
Corporate executives complain that the two main proxy-advisory firms—Institutional Shareholder Services Inc. and Glass, Lewis & Co.—use opaque methodology to formulate their recommendations, and that smaller companies have limited opportunities to contest them.
Proxy advisers say they have been caught in the middle of a broader debate over shareholder rights and are being targeted by executives who resent occasional recommendations to vote against management.
Institutional investors and asset managers have generally sided with the proxy-advisory firms in criticizing the SEC’s proposed rule.
William J. Stromberg, CEO of asset-management company T. Rowe Price, wrote in a comment letter to the SEC that his firm needed an adviser to recommend how to vote on 56,532 proposals—98% of them from management—at 6,444 shareholder meetings last year. He said the proposed rule would likely give proxy advisers’ clients less time than corporate managers to review voting recommendations.
“The proposal will effectively provide companies with a mechanism to influence proxy advisory firms’ voting recommendations,” Mr. Stromberg wrote.