Trump’s SEC gave companies more power over investors. Lawsuits pushed them back

A new federal approach that gives U.S. companies more control over which proposals shareholders can vote on at their annual meetings is creating regulatory uncertainty and fueling lawsuits, activists say. The U.S. Securities and Exchange Commission in November changed its traditional process for employees to opt out before a company rejects votes on shareholder proposals. Instead, it gave executives more freedom to choose which resolutions would appear on their proxy statements, the mandatory document issued before shareholder meetings.The change has led to at least three investor lawsuits — against AT&T, Axon Enterprises and PepsiCo — and more may follow. By taking a step back, the SEC has injected uncertainty into the engagement process, said Giovanna Eichner, shareholder attorney at Green Century Capital Management, a Boston-based climate-focused asset manager.

“More than anything, this lack of structure and rules leaves everyone unsure of the best way to proceed,” Eichner said. In November, activists said they worried the change would align with other efforts by Trump-appointed regulators to rein in shareholder efforts in environmental, social and governance (ESG) investing. Many Republicans from energy-producing states have disparaged ESG efforts to limit corporate profits.However, the legal threat appears to have made American listed companies cautious about their new power. Shareholder activist group As You Sow has filed 47 proxy resolutions so far this year, and companies have used their new power to block six. That’s about the same percentage as last year, when companies blocked 8 of 63 such resolutions.

“Companies have to decide: Do you want to have a good relationship with your shareholders, or do you want to pay your corporate lawyers millions?” said Andy Behar, CEO of As You Sow. An SEC spokesperson declined to comment. A person familiar with the agency’s practices said in November that the change was partly motivated by saving staff time.

Changing course after lawsuits

On Jan. 5, Pepsi told the SEC it would skip a proposal that would review animal welfare practices within its supply chain, such as whether bulls at Indian sugar mills are forced to drag overloaded sugarcane carts. Pepsi said, among other things, that the proposer had not indicated he was available to discuss the proposal as required. The petitioner filed suit on February 19, noting that she had offered to meet with the company. The next day, Pepsi said it would take up the resolution on its proxy. “We filed the lawsuit that forced Pepsi to follow the necessary process here,” said Asher Smith, attorney for the People for the Ethical Treatment of Animals Foundation, which represents the petitioner.

Pepsi did not respond to questions.

Communications giant AT&T was sued by New York City pension funds on Feb. 17 after the company refused to let shareholders consider a proposal seeking details about the demographics of the company’s workforce. A week later, New York Comptroller Mark Levine, who oversees the city’s pension money, said AT&T agreed to settle the case by allowing a vote. He called it a “major victory for investors amid ongoing efforts to undermine corporate transparency and accountability.”

AT&T did not respond to requests for comment. Stun-gun maker Axon plans to skip a vote calling for a report on its political contributions, saying it would micro-manage its operations. The petitioner, the Nathan Cummings Foundation, sued the company for the District of Columbia to force a vote. That lawsuit is pending.

Laura Campos, a senior director at the foundation, said the lawsuit was necessary for shareholders to defend their right to file resolutions. “When the Securities and Exchange Commission refrained from providing substantive responses to no-action requests, shareholders were left hoping to preserve their rights and left with few options to do so,” she said via email.

Axon did not respond to questions.

Other companies have taken a different course. On November 7, Starbucks asked to skip a resolution on transgender health care introduced by the conservative think tank National Center for Public Policy Research. According to Starbucks, these were ‘ordinary matters’, which could result in a vote being skipped. After the SEC’s change, Starbucks could have buried the resolution, but instead scheduled the vote for the March 25 annual meeting. The company declined comment.