Restricting shareholder proposals undermines the checks and balances that protect markets, innovation and social responsibility. Unsplash+
Illegal child marriages. Coerced sterilization. Debt bondage. Until recently, shareholders had the right to raise such human rights concerns through formal proposals to corporate boards, a right protected by the Securities and Exchange Commission (SEC) for nearly a century. Recent regulatory and interpretive changeshowever, are creating new challenges for this fundamental avenue for accountability.
The sugar cane industry, for example, has become emblematic of harmful supply chain practices, involving some of the most visible and widely reported examples of concerning business practices. Companies including Pepsi, Coca-Cola and Mondelez have faced investigations into alleged labor abusesincluding debt bondage. At Pepsi’s 2025 annual meeting, shareholders sought to submit a proposal requesting a report on the company’s efforts to address human rights violations in its supply chain. The company excluded the proposal, citing SEC staff’s revised interpretation of Rule 14a-8outlined in Staff Legal Bulletin 14M (SLB14M).
SLB14M provides guidance on the application of Rule 14a-8, which allows eligible shareholders to submit proposals for inclusion in a company’s proxy statement. The bulletin also specifies circumstances under which companies may exclude these proposals. Citing that revised interpretation, Pepsi argued that the reported abuses occurred in franchise operations (which are “expected” to follow a code of conduct), not in Pepsi’s direct supply chain, and that the franchise sales were not “significantly related” to Pepsi’s business. Essentially, Pepsi claimed that the source of the ingredients sold under its brand did not materially affect its own business because the company itself did not purchase them. The SEC agreed with Pepsi, preventing shareholders from voting on the proposal.
Pepsi did not dispute reports that its products sold in India were allegedly made with sugar obtained through a supply chain linked to debt bondage and coerced hysterectomies. Instead, the company contended that these issues were unlikely to materially impact its operations. According to the SEC’s interpretation, shareholders may only make proposals with significant financial implications for the company itself, no matter the broader social or environmental consequences.
While SEC rules often shift with administrations, this case reflects a larger trend: a narrowing of shareholder voice. Several recent developments illustrate the pattern:
Collectively, these developments constrain shareholders’ capacity to influence corporate behavior towards more sustainable or ethical practices. Critics of shareholder engagement argue that investors should focus solely on financial returns, treating social and environmental considerations as irrelevant. This is a false dichotomy on two levels. First, environmental and human rights issues often carry real financial risks. Second, systemic harm—from environmental degradation to inequality—affects the broader economy and threatens the diversified portfolios and returns of investors.
The economic opportunity in sustainable business practices
The sugar supply chain demonstrates both the risks and opportunities for companies and investors. Brands derive tremendous value from reputation. The perception that Pepsi products are linked to labor abuses can erode consumer trust and is a significant concern for the company. Addressing these issues presents an opportunity to safeguard brand equity and strengthen customer loyalty. For shareholders, engagement extends beyond a single company’s prospects. Human rights and sustainability issues influence global economic conditions, which in turn impact the returns of diversified investors. By encouraging companies to adopt responsible practices, shareholders can help stabilize markets, support GDP growth and mitigate systemic risk.
The path forward: strengthening market-based solutions
Notably, this regulatory shift is occurring under a Republican-controlled administration and Congress, which has historically advocated for private property rights. Policymakers should ensure that proposal mechanisms remain consistent with free-market principles, enabling investors to allocate capital efficiently and hold companies accountable. If financial market rules are being revised, it should not be forgotten that the strength of our economy is based on a free capital market, which allows investors to fund a broad array of enterprises that create authentic value over the long term.
Limiting shareholder voice affects far more than greenhouse gas emissions and DEI. It alters the balance of power in capital markets, shifting decision-making from investors to executives and politicians. Investors are losing the power to push back when corporate executives risk the future of the company or the economy to boost profits. And this doesn’t just harm investors. This means our markets will become less effective allocators of capital, as decisions are made by unrestrained executives driven by short-term incentives or politicians swayed by political maneuvering, rather than by a commitment to the integrity of capital markets.
The innovation opportunity
Recent SEC actions show the practical consequences. In March, SEC staff allowed Wells Fargo to exclude a proposal on workers’ rights and collective bargaining, a proposal that observers note likely would have been allowed a few months prior. Limiting shareholder engagement reduces opportunities for market-driven innovation in workforce development, climate solutions and sustainable growth strategies. Climate issues illustrate the stakes vividly. Analysts project that unchecked greenhouse gas emissions could reduce global GDP by 50 percent between 2070 and 2090. Economic modeling suggests that decisive global climate action could lead to a $43 trillion gain in net present value to the global economy by 2070. Investor engagement can accelerate the transition to cleaner energy and sustainable business models, creating economic opportunities while mitigating systemic risks. Ignoring investors’ voices on these matters rejects the role that capital has played in creating the economic engine of the U.S. economy.
Workers depending on 401(k) plans, such as those in the American Airlines plan, could face real financial consequences if investor oversight is curtailed. Estimates suggest that the current trajectory of emissions could depress the entire equities market by up to 40 percent. The fossil fuel industry’s shortsightedness and the current administration’s policies are exacerbating the environmental crisis and creating economic and retirement instabilities.
Limiting shareholder voice threatens far more than individual investors. It weakens the very mechanisms that keep U.S. markets dynamic, resilient and capable of driving long-term growth. The muzzling of investors is part of a larger story: environmental data is being scrubbed from federal websites, critical scientific inquiry is being stalled and dissenters are being penalized. Historically, U.S. markets and democracy alike have relied on open debate and the free flow of information. Undermining shareholder oversight is part of a broader erosion of transparency that threatens both markets and the very norms that underpin a free society. Shareholder input is not a political preference but a market stabilizer, an innovation driver and a critical check on corporate governance. Preserving this function is essential to sustaining the economy, the integrity of capital markets and the broader social and environmental systems on which long-term prosperity depends.
