Courts Weaken SEC's Power Over Investors
Recent lawsuits have forced the SEC to retreat from rules that gave corporate management more power to block shareholder proposals. The reversal means investor groups and ESG activists are regaining influence to demand more comprehensive climate and risk disclosures, increasing pressure on companies regardless of the SEC's formal rulemaking.
The 2020 amendments to the SEC's Rule 14a-8 significantly raised the bar for investors to submit and resubmit shareholder proposals by increasing stock ownership thresholds and the required votes for resubmission. A subsequent lawsuit filed by investor groups including the Interfaith Center on Corporate Responsibility (ICCR) and As You Sow, which argued the SEC overstepped its authority, was ultimately dismissed by a federal judge in June 2025. This legal backdrop is compounded by the National Association of Manufacturers (NAM) actively intervening in court cases to challenge the SEC's very authority to mandate the inclusion of shareholder proposals on what it deems "divisive issues". NAM argues that forcing companies to include proposals on topics like climate change or diversity in their proxy statements amounts to government-compelled speech, a violation of the First Amendment. More recently, the SEC's Division of Corporation Finance announced it will largely no longer provide substantive responses to companies' requests to exclude shareholder proposals, a process known as "no-action relief". This operational shift, effective for the 2026 proxy season, grants companies greater discretion to block proposals without the SEC formally weighing in, pushing disputes into the courts. For manufacturers, this evolving landscape means shareholder proposals on supply chain transparency and human rights are becoming a critical focus. Even with the new SEC hurdles, investors are increasingly demanding verifiable proof of ethical sourcing and multi-tier visibility to mitigate reputational and operational risks. The number of environmental and social proposals reaching a vote has declined since these changes, with a notable drop of 46% for social-focused resolutions in the 2025 proxy year. However, proposals targeting worker health and safety, a key concern in the manufacturing sector, have continued to gain significant shareholder support. This regulatory retreat by the SEC doesn't eliminate pressure; it shifts it. As noted in publications like Supply Chain Dive, the demand for transparency from customers, investors, and foreign regulatory bodies like the EU is now a primary business driver. Companies that can't provide evidence of compliance on issues like forced labor or deforestation face significant market and legal risks. For internal audit, the focus must shift from mere compliance with SEC disclosure to proactively assessing and validating supply chain integrity. The new battleground isn't the SEC's no-action process, but rather the ability to provide auditable proof of responsible sourcing and operations to satisfy a wider range of stakeholders.
