This post on three shareholder rights advocates examines the history and impact of individual shareholder activism in the United States through the figures of Lewis Gilbert, John Chevedden, and James McRitchie. I am not sure they are all more important than Wilma Soss, Martin Glotzer, or Bill Steiner, but I know them better than the others and believe they will have a lasting impact.

In an era when corporate equity markets in the United States are measured in the tens of trillions of dollars, and institutional investors hold the overwhelming majority of public company shares, it is a remarkable paradox that the corporate governance agenda has been shaped — and continues to be shaped — by a handful of individual shareholders owning tiny slivers of stock. These individuals have used the Securities and Exchange Commission’s shareholder proposal mechanism under Rule 14a-8 to drive reforms that have fundamentally altered the governance landscape of American corporations. [see Jay B. Sykes, The Shareholder Proposal Rule, CRS Report R48855 (Feb. 11, 2026)] As Professors Kobi Kastiel and Yaron Nili observed in their landmark study, individual shareholder rights advocates present “a puzzling reality” in which “much of [the] corporate governance agenda has been and is still dominated by a handful of individuals who own tiny slivers of most large companies.” (The Giant Shadow of Corporate Gadflies, Review on CorpGov.net). That may be. However, those tiny slivers are primarily held by the wealthiest Americans. The three shareholder rights advocates discussed here held or hold stakes in hundreds of companies. Tiny slivers often grow into large piles.

Introduction to Three Shareholder Rights Advocates

This article traces the genealogy of individual shareholder activism across three generational figures: Lewis Gilbert (1907–1993), who pioneered the very concept of shareholder democracy; John Chevedden (active 1994–present), who industrialized the individual proposal model into a governance reform engine of unprecedented scale; and James McRitchie (active 1995–present), who expanded the activist toolkit beyond proposals to include rulemaking petitions, digital infrastructure, and coalition-building. Together, these three advocates represent not merely a sequence of personalities but an evolving institutional form — the individual shareholder as a structural counterweight to managerial entrenchment.

The story of individual shareholder activism is inseparable from the legal infrastructure that enables it: SEC Rule 14a-8, the shareholder proposal rule. Adopted in 1942 and refined over the succeeding eight decades, the rule grants any eligible shareholder the right to include a proposal in a company’s proxy materials for a vote at the annual meeting. [The SEC adopted the predecessor to Rule 14a-8 — then designated Rule X-14A-7 — in 1942. See Marc I. Steinberg, The Federalization of Corporate Governance 157–90 (2018); see also Investor Rights Forum, The History of SEC Rules and Shareholder Proposal Regulation.] It is, in essence, the constitutional foundation of shareholder democracy in the United States — the mechanism through which minority shareholders can place items on the corporate ballot without incurring the prohibitive costs of an independent proxy solicitation.

Yet this foundation is under sustained assault. In September 2025, the House Financial Services Committee convened a hearing titled “Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value,” at which legislators considered bills that would, among other things, remove the significant social policy exception from the ordinary business exclusion, impose registration requirements on proxy advisory firms, and authorize outright repeal of the shareholder proposal rule itself. (Fair Corporate Suffrage or Federal Overreach? The 1943 Hearings and Rule 14a-8)

State legislatures have introduced their own restrictions, including Texas SB 1057, which would impose a $1 million or 3% ownership threshold for proposal eligibility — effectively eliminating individual shareholder proposals. (Raising the Bar or Closing the Door on Shareholder Democracy?)

Against this backdrop, it is essential to understand what individual shareholder activism has actually accomplished and what would be lost if the shareholder rights tradition were extinguished. This article provides that analysis through the lens of three generations of practice. A note on perspective: this article is written from a participant’s vantage point. I am one of the three subjects examined and have collaborated extensively with John Chevedden for over two decades. I have endeavored to present the evidence as objectively as the posture permits, but the reader should be aware of the inherent limitations of first-person scholarship.

Three Shareholder Rights Advocates and Music for a Democratic Corporate Governance

The Regulatory Architecture: Rule 14a-8 as the Foundation of Individual Activism

No account of individual shareholder activism is complete without an examination of the legal infrastructure that makes it possible. SEC Rule 14a-8 — the shareholder proposal rule — is the single most important mechanism for shareholder voice in American corporate governance. Its history illuminates both the promise and the fragility of shareholder democracy.

Origins: The 1942 Rule and the Principle of Fair Corporate Suffrage

Section 14(a) of the Securities Exchange Act of 1934 authorized the SEC to regulate proxy solicitation, but it was not until 1942 that the Commission adopted the predecessor to Rule 14a-8 — then designated as Rule X-14A-7. The rule was grounded in the Commission’s conclusion that proxy materials would be materially misleading if they omitted shareholder proposals of which management had notice. (From Legitimacy to Logic: Reconstructing Proxy Regulation) As one court later explained, “the rationale underlying this development was the Commission’s belief that the corporate practice of circulating proxy materials which failed to refer to the fact that a shareholder intended to present a proposal at the annual meeting rendered the solicitation inherently misleading.” [TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976); Investor Rights Forum, The History of SEC Rules and Shareholder Proposal Regulation] The rule gave concrete meaning to the concept of “fair corporate suffrage“ that the Senate Banking and Currency Committee had identified as a core purpose of the 1934 Act.

The 1943 Hearings: Congressional Pushback and SEC Defense

The new rule immediately provoked congressional opposition. In June 1943, the House Committee on Interstate and Foreign Commerce summoned SEC Chair Ganson Purcell to testify on the Commission’s proxy rulemaking authority. The central question was whether the SEC had strayed beyond its statutory mandate of disclosure into the substantive management of corporate affairs. (Fair Corporate Suffrage or Federal Overreach? The 1943 Hearings and Rule 14a-8) The arguments raised in 1943 — that the rule imposed undue burdens on issuers, that it was susceptible to abuse by cranks and individual shareholders, and that it constituted federal overreach into matters properly governed by state corporate law — would prove remarkably durable, resurfacing in virtually identical form in every subsequent debate over the rule’s scope and existence.

This legislative agenda is animated by the same debates that have recurred since 1943: whether the proxy process should remain a disclosure regime grounded in shareholder franchise, or become an arena for regulating corporate governance, social policy, and institutional investor stewardship.

Judicial Validation: SEC v. Transamerica

The legal foundation of the shareholder proposal right was solidified in SEC v. Transamerica Corp., in which the Third Circuit upheld the SEC’s authority to require inclusion of shareholder proposals in proxy materials. The case arose from Transamerica’s refusal to include proposals submitted by the Gilbert brothers — a direct connection between the judicial architecture and the activist tradition that this article traces. The court’s holding established that the SEC’s proxy rules were a legitimate exercise of the Commission’s authority under Section 14(a) and that shareholder proposals were an integral component of the disclosure regime. (The Transamerica Case and the Development of the Shareholder Proposal)

The Substantive Exclusions and Their Evolution

Over the decades, the SEC refined Rule 14a-8 through a series of amendments that established the substantive grounds on which companies may exclude shareholder proposals. The most significant exclusions include: (i) the “ordinary business“ exclusion, which permits companies to omit proposals that relate to the company’s ordinary business operations; (Staff Legal Bulletin No. 14M) (ii) the “relevance” exclusion, which allows omission of proposals relating to operations that account for less than 5% of the company’s total assets, net earnings, and gross sales, and that are not otherwise significantly related to the company’s business; and (iii) the “election of directors” exclusion under Rule 14a-8(i)(8), which the SEC broadened in 2007 and which was the focus of the proxy access debate that culminated in Rule 14a-11 and its subsequent invalidation by the D.C. Circuit in Business Roundtable v. SEC.

The Pendulum Swing: Staff Legal Bulletins and Political Cycles

The practical scope of Rule 14a-8 has been shaped as much by SEC staff guidance as by formal rulemaking. The pendulum has swung dramatically in recent years. Staff Legal Bulletins 14I through 14K (2017–2020), issued under the Trump administration, expanded the grounds for excluding shareholder proposals — particularly by allowing boards to invoke “economic relevance” and “ordinary business” exclusions more aggressively and by increasing deference to board-level determinations of significance. Staff Legal Bulletin 14L (2021), issued under the Biden administration, reversed course, narrowing the exclusion grounds and re-establishing the principle that proposals raising significant social policy issues are not excludable as ordinary business. Most recently, Staff Legal Bulletin 14M signaled another reversal, and the SEC announced in November 2025 that during the 2025–2026 proxy season it would not respond to no-action requests other than those raising Rule 14a-8(i)(1) bases — a move that effectively suspended the no-action process for most substantive exclusions.

Current Legislative Threats

The September 2025 House Financial Services Committee hearing “Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value“ may represent the most serious legislative challenge to the shareholder proposal rule since 1943. The proposed bills would, among other measures, remove the “significant social policy” exception from the ordinary business exclusion, authorize issuers to exclude environmental, social, and political proposals entirely, impose registration requirements and expanded liability on proxy advisory firms, and, in one bill, repeal Rule 14a-8 outright. As Doyle and Eccles documented in their analysis of the historical parallels, “the same debates that have recurred since 1943” — burden, abuse, overreach — animate the current proposals.(Fair Corporate Suffrage or Federal Overreach? The 1943 Hearings and Rule 14a-8) The Congressional Research Service’s comprehensive 2026 report on the shareholder proposal rule provides essential context for evaluating these proposals.

Learn more about investor rights, why they are important, and how we have joined together to fight those rolling back our rights. Visit the Investor Rights Forum. Would you like to become an advocate? Visit End Supermajority Requirements: Become an Advocate. That post will lead you to several others that provide hundreds of filing opportunities for proposals that will get majority or near majority votes. I name the companies and provide examples of what to file. Additionally, I provide a Handbook with further details.

[caption id=”attachment_42601” align=”alignright” width=”484”]

Investor Rights Forum[/caption]

Lewis Gilbert: Patriarch of Shareholder Democracy

The story of individual shareholder activism in the United States begins with Lewis D. Gilbert, who attended his first shareholder meeting in 1933 and spent the next six decades building the conceptual and legal foundations of shareholder democracy. Gilbert’s career illustrates both the power and the limitations of the individual activist model — a personal crusade that achieved permanent structural reforms but ultimately depended on the energy and commitment of a single extraordinary individual.

If dividends are the harvest,
then democracy is the soil management system.
Ignore the soil long enough—
and the harvest stops coming.

Neither of the Gilberts ever said or wrote that. It is just me, reflecting on corporate governance in the 1950s and 60s. Buybacks were long treated as an illegal form of market manipulation. However, in 1982, the SEC’s Rule 10b‑18 gave companies a clear legal “safe harbor” for repurchases. Stock quickly became more important than dividends since they are more flexible for companies and more tax‑efficient for investors and corporate executives. Over the last year or so, U.S. companies spent about $1 trillion on buybacks versus $3/4 trillion on dividends. Buybacks can still be timed and structured to disproportionately benefit corporate executives whose pay is commonly tied to the stock price or earnings per share, but corrupting influences on management are far less of a public concern these days.

Origins: The 1933 Consolidated Gas Meeting

Lewis Gilbert was born in 1907 into a family whose fortune dated to the California Gold Rush, when his great-grandparents sold provisions to the forty-niners. (The Original “Shareholder Activists” and the Founders of the Modern Corporate Governance Movement) After the family relocated to the East Coast in the early 1900s, it was Gilbert’s grandmother who established the family’s position in the equity markets — purchasing, according to legend, shares of every single dividend-paying stock on the New York Stock Exchange after the market crash of 1929 “for literally pennies per share.” The family’s Park Avenue apartment would later serve as the headquarters for the Gilbert brothers’ proxy-proposal operation.

In 1933, Lewis attended the annual meeting of the Consolidated Gas Company (soon to become Consolidated Edison) in Brooklyn, New York. “I expected to be welcomed cordially and to be treated like one of the owners,” he later recalled. He was not. The story Chevedden heard or read about the 1933 meeting was that during the meeting, Gilbert asked a question, and the Chairman said questions would be taken at the end of the meeting. And at the end of the meeting, the Chairman simply said “meeting adjourned” without any opportunity for questions.

The experience — of being treated as an interloper at a meeting of a company he partly owned — catalyzed a lifelong commitment to the principle that corporations exist for the benefit of their shareholders, not their managers. It was a simple proposition, but one that proved revolutionary in its implications.

The Gilbert Brothers and the Campaign for Corporate Democracy

Lewis was joined in his activism by his brother John J. Gilbert (1914–2002). Together, the Gilbert brothers became what one chronicler called “the original champions of, and untiring fighters for ‘Corporate Democracy.’” They founded Corporate Democracy, Inc., an organization dedicated to representing minority shareholders at corporate annual meetings, and published an annual volume — the Annual Report of Stockholder Activities at Corporation Meetings — that documented proxy season results and tracked the adoption of governance reforms across American corporations.

The Gilbert brothers’ core governance demands were straightforward and, by today’s standards, remarkably prescient: cumulative voting for the election of directors, independent auditor ratification by shareholders, the right to submit shareholder proposals for a vote, and meaningful disclosure of executive compensation. (To Change What We See Fit: The Gilbert Brothers’ Transition from Gadflies to Activists) Each of these demands addressed a specific mechanism of managerial entrenchment — and each, over time, became a standard feature of American corporate governance.

The Transamerica Campaign and Its Legal Legacy

The Gilbert brothers’ most consequential campaign targeted Transamerica Corporation in the mid-1940s. When Transamerica refused to include its shareholder proposals in its proxy materials, the SEC intervened on the Gilberts’ behalf, and the resulting litigation culminated in SEC v. Transamerica Corp. — the Third Circuit decision that validated the legal foundation of the shareholder proposal right. The Transamerica campaign is credited with establishing two features of modern shareholder rights that are now taken for granted: (1) the ability of shareholders to ratify the appointment of outside auditors, and (2) the right to submit shareholder proposals for inclusion in the corporate proxy and ballot. Professor Jill Fisch’s detailed analysis of the Transamerica case and its role in the development of the shareholder proposal rule remains the definitive scholarly treatment of this episode. (The Transamerica Case and the Development of the Shareholder Proposal)

Philosophy and Legacy

Gilbert’s philosophy was encapsulated in a single, oft-repeated maxim: “A corporation is run for the benefit of its shareholders and not that of its management.” This was not, at the time, a platitude — it was a radical assertion of ownership rights against a managerial class that had, as Adolf Berle and Gardiner Means documented in their 1932 classic The Modern Corporation and Private Property, effectively seized control of the corporate form while leaving the formal apparatus of shareholder governance intact.

The limitations of Gilbert’s model, however, are equally instructive. As Brian Sarginger documented in his 2023 Business History Conference paper “To Change What We See Fit,” the shareholder movement that Gilbert built was “a mostly personal crusade” whose “particular conditions and personality” meant that “the Shareholder Movement ended with his retirement.” Gilbert had no institutional infrastructure, no digital platform, no coalition of allied filers. His influence depended entirely on his personal energy, his family wealth, and his willingness to show up, year after year, at annual meeting after annual meeting. After filing hundreds of proposals over the course of more than forty years, he finally won majority support for a proposal at Chock Full o’Nuts in 1987. When he died in 1993, the movement he had created might have died with him.

Contrary to Sarginger’s assertion, it did not. The governance reforms the Gilbert brothers championed — auditor ratification, proxy proposals, compensation disclosure — had become permanent features of American corporate governance. And a new generation of individual activists was already emerging, ready to build on the foundations Gilbert had laid. (see also Lewis Gilbert’s Dividends and Democracy Still Timely)

John Chevedden: The Most Successful Filer in History

If Lewis Gilbert created the individual shareholder activist paradigm, John Chevedden scaled it to a volume never seen. Since the mid-1990s, Chevedden has submitted more shareholder proposals than any other individual or organization in American corporate history, transforming what had been a craft practice — one man at one meeting — into a systematic, scalable governance reform operation of extraordinary breadth and impact. Yet, his is still basically a one-person effort. Unlike John Gilbert, he has no brother to help him or to take over when he dies. I estimate Chevedden has filed more than 3,000 proposals.

Origins: From Hughes Aircraft to the Annual Meeting

Chevedden’s path to shareholder activism was, characteristically, unsentimental. After a career at Hughes Aircraft (then a division of General Motors) in the early 1990s, he channeled his technical precision and procedural expertise into the shareholder proposal process. When Lewis Gilbert died in 1993, John Gilbert continued the movement for a few years. John Gilbert met with John Chevedden and introduced him to his style of attending annual meetings. Chevedden met John Gilbert at his hotel, and “we both went to the 1994 Time Warner annual shareholder meeting in Burbank, California. We both then attended the General Motors annual meeting the next day in Shreveport, Louisiana.”

Chevedden’s first proposal, submitted to GM in 1994, was rejected. His revised proposal in 1995 — requesting an independent board chair — received 15% of the vote, a respectable showing that signaled the viability of his approach. From that point forward, Chevedden never stopped filing. Three decades later, he is by far the most prolific filer in the history of Rule 14a-8. Responsible Investor noted in early May 2026, despite SEC changes making getting a filing to the proxy, “of the 25 highest-supported governance resolutions compiled by RBC Capital Markets, 21 were filed by Chevedden.” (Legendary proxy filer slams SEC attack on shareholder proposals)

The Economy-Class Model

Ross Kerber’s Reuters special report aptly dubbed Chevedden an “economy-class activist investor“ — a description that captures the essence of his method. Unlike hedge fund activists who acquire significant ownership positions to leverage economic pressure, Chevedden operates on a shoestring. He purchases the shares necessary to qualify under Rule 14a-8 in many companies, as he has explained, “for growth opportunities and for the chance to sponsor resolutions.” The genius of the model is its scalability. By focusing most of his attention on widely adopted and supported corporate governance reforms, Chevedden can submit proposals across a vast swath of corporate America, applying similar governance reform pressures simultaneously to dozens of companies in a single proxy season. I use a giant spreadsheet to keep track of my proposals. Chevedden mostly relies on codes and symbols he has developed over the years that look like hieroglyphics on paper to me.

The scale of his one-man operation is staggering. In the 2025 proxy season alone, Chevedden submitted approximately 256 proposals — roughly one-third of all shareholder proposal submissions and approximately half of all governance-related proposals. Gibson Dunn, Sullivan & Cromwell, and the Harvard Law School Forum on Corporate Governance annual tallies often showed Chevedden and his “associates” (William Steiner and me) accounting for approximately 31% of all shareholder proposals and three-quarters of those submitted by individuals.

Core Governance Themes and Notable Successes

Chevedden’s proposals focus on a tightly defined set of governance reforms that are, in the aggregate, aimed at dismantling the structural defenses that insulate incumbent boards and management from shareholder accountability:

• Lower thresholds for calling special meetings — enabling shareholders to convene meetings outside the regular annual cycle to address urgent governance concerns;

• Written consent rights — permitting shareholders to act by written consent without waiting for an annual meeting;

• Elimination of supermajority vote requirements — removing provisions that require 67% or 80% supermajority votes to amend bylaws or charter provisions, which effectively give management a veto;

• Board declassification — requiring annual election of all directors rather than staggered three-year terms that insulate boards from shareholder accountability;

• Proxy access — enabling shareholders to nominate director candidates for inclusion in the company’s proxy materials; and

• Independent chair policies — separating the CEO and board chair roles to enhance board independence.

The support Chevedden’s proposals receive is remarkable. His career average of approximately 41% support for shareholder proposals is extraordinarily high, given that these proposals are typically advisory and often opposed by management. Individual results can be striking: 98.8% support for a simple-majority vote proposal at Domino’s Pizza; 98% support for board declassification at EPAM Systems; 45% support at Home Depot for special meeting rights; and 42% support at McDonald’s for written consent. In 2024, Chevedden’s proposals contributed to a record-breaking proxy season, in which 30 shareholder proposals received majority support under simple-majority voting and related governance reforms, according to Gibson Dunn.

The Ripple Effect: Driving Management-Initiated Reform

Perhaps the most significant — and most underappreciated — dimension of Chevedden’s impact is the management-initiated reform that his proposals catalyze. When companies observe high levels of shareholder support for shareholder proposals at peer firms, boards often pre-empt future proposals by voluntarily adopting the requested reforms or placing their own management proposals on the ballot. The data is compelling. Following the high success rate of shareholder proposals in the 2024 proxy season, management proposals to remove supermajority provisions surged from 44 in 2024 to 76 in 2025; management proposals for board declassification rose from 40 to 54; and management proposals for special meeting rights increased from 20 to 27. These management-initiated reforms are, in a meaningful sense, the product of Chevedden’s shareholder activism. Proposals that were never filed, because the threat of filing backed by demonstrated vote support at comparable companies, was sufficient to drive change.

Litigation Resistance

The scale and effectiveness of Chevedden’s activism have not gone uncontested. Companies have increasingly turned to litigation — filing lawsuits directly against individual proposal sponsors — to block proposals or deter future filings. Notable cases include several lawsuits where Chevedden and I were both named. (EMC v. John Chevedden and James McRitchie: Case Dismissed) These “direct-to-court” actions, in which companies bypass the SEC no-action process and seek judicial orders excluding proposals, have resurfaced industry-wide in the 2020s. Critics argue that such suits are intended less to vindicate legitimate legal rights than to impose costs on individual activists who lack the resources to fund protracted litigation. (ExxonMobil’s Lawsuit Against its Shareholders: A Cautionary Tale) True to his economy-class reputation, Chevedden and I defended ourselves in court, rather than hiring lawyers, thanks to advice from a friend, Phil Goldstein.

The 2024 Innovation: Binding Say on Director Pay

Chevedden has continued to innovate. In the 2024 proxy season, he submitted binding “say on director pay” proposals across multiple companies — a novel approach that, if adopted, would give shareholders a direct vote on the compensation of individual directors. The proposal represents the next frontier in shareholder rights: extending the accountability mechanisms established by Dodd-Frank for executive compensation to directors themselves.

James McRitchie: Computerized Governance

I come to individual shareholder activism from a different angle than either Lewis Gilbert or John Chevedden. Where Gilbert created the activist paradigm through personal moral suasion, and Chevedden scaled it through cryptic coding and a mastery of scale, my contribution has been to expand the toolkit electronically. From the start, I relied on computers, data provider subscriptions, and electronic spreadsheets. I also filed SEC rulemaking petitions, reported on conferences, and worked earlier than Chevedden with various coalitions to advance system-level advocacy. I offer this account in the first person, with the caveat that self-assessment is inherently limited. Readers should weigh the evidence accordingly.

CorpGov.net: Building the Digital Infrastructure of Governance Advocacy

In 1995, I founded CorpGov.net — one of the Internet’s earliest and most comprehensive corporate governance portals. At a time when governance information was scattered across SEC filings, law firm memos, and academic journals. CorpGov.net provided a centralized, publicly accessible repository of governance analysis, proposal tracking, regulatory commentary, and advocacy resources. In 1998, Pensions & Investments credited the site with being “huge” in “helping shareholders win increasing control over America’s corporate boardrooms.” LexisNexis named CorpGov.net one of the 25 best business law blogs in 2010 and 2011.

The significance of CorpGov.net extended beyond its content. It represented a structural innovation in shareholder activism. My personal diary became a persistent, scalable information source that could serve the broader governance reform community. Individual filers, institutional investors, academics, journalists, students, and policymakers turned to it for news and information. In this sense, CorpGov.net is an attempt to answer to the limitation that Sarginger identified in Gilbert’s model: the risk that a “mostly personal crusade” would “end with his retirement.” I have tried to demonstrate to a younger generation what can be done, but so far, no takers. (End Supermajority Requirements: Become an Advocate; Declassify Boards: Become an Advocate; Majority Vote Requirements for Directors: Become an Advocate; Special Meetings: Become an Advocate; Proxy Access Needed: Become an Advocate)

The 2002 SEC Petition: Re-Energizing Proxy Access

On August 1, 2002, I jointly filed a petition for rulemaking with the SEC (File No. 4-461), together with Les Greenberg of the Committee of Concerned Shareholders, requesting that the Commission amend Rule 14a-8(i)(8) to permit shareholder proposals for director nominations — what would come to be known as “proxy access.” The petition was filed in the wake of the Enron, WorldCom, and Global Crossing scandals, and it argued that the real solution to governance failures was not “tweaking rules and regulations at the margins” but giving shareholders the power to nominate directors:

Nobody decided one day to remove the element of democracy from corporations. Adolf A. Berle and Gardiner C. Means pointed out in their classic 1932 book, The Modern Corporation and Private Property, simply that it had already occurred. Much has been written about this phenomenon over the past seven decades, but there has been virtually no change in law or practice to reflect a shift in control from Shareholders to Management.

The Council of Institutional Investors credited this petition with having “re-energized” the proxy access debate that would eventually culminate in the SEC’s adoption of Rule 14a-11 in 2010 — a rule that, although subsequently vacated by the D.C. Circuit in Business Roundtable v. SEC, led to the widespread voluntary adoption of proxy access bylaws across the S&P 500. Today, the majority of S&P 500 companies have adopted some form of proxy access — a structural reform whose lineage traces, at least in part, to a petition filed by two individual shareholders in the summer of 2002.

Shareholder Proposals: A Strategy of Strategic Engagement

Like Chevedden, I file shareholder proposals under Rule 14a-8 — typically between 20 and 90 proposals annually, focusing on board declassification, majority vote requirements, special meeting rights, written consent, supermajority removal, proxy access, independent chair policies, and lately, with help from Abbott Cooper, the “right to cure.” My approach differs from Chevedden’s in one important respect. I file far fewer proposals, allowing me the time for strategic negotiations, agreement, and withdrawal. In practice, I reach agreements with nearly half the companies where I file, resulting in governance reforms that are adopted without the proposal ever appearing in the proxy statement or being submitted to a shareholder vote. This means that my actual activity — and impact — may be significantly undercounted in public tallies such as the Gibson Dunn and Sullivan & Cromwell annual surveys, which track only proposals that reach the proxy statement or the SEC no-action process.

Recognition and Broader Advocacy

In 1998, I was invited to speak before a worldwide gathering of corporate secretaries in Hong Kong. In 2000, the State Department sent me to Japan and South Korea to open up markets. The year 2002 found me in China speaking at a conference held by the Asian Development Bank and in London in 2005 (papers). By then, others in corporate governance began using the internet. Still, in 2010, I was named to the NACD Directorship 100 — recognized as “one of the most renowned boardroom influentials who merit serious attention, by virtue of what they do and how they do it.” I was named to the Directorship 100: People to Watch list again in 2011.

Beyond individual proposals, I have sought to expand the conceptual framework of shareholder activism to encompass system-level investing advocacy, fiduciary duty reform, and what I have called “shared capitalism” — the principle that the governance structures of corporations should reflect the interests of diversified, long-term shareholders whose returns depend primarily on the performance of the market as a whole rather than any individual company. This perspective — that “as our corporations become less democratic, so does our country” — connects the tradition of individual shareholder activism to broader questions of political economy and democratic governance

The Collaboration Model

Individual shareholder activism need not be — and, in its most effective contemporary form, is not — a solitary pursuit. Over the past two decades, I have worked closely with John Chevedden, public interest groups, and institutional investors to coordinate filing strategies, share procedural expertise, and build coalitions of support for governance reforms. This collaborative model amplifies the impact of individual filings by ensuring proposals are filed at companies where they are most likely to receive significant vote support and by coordinating engagement.

The Governance Impact Matrix: A Comparative Analysis

The following table provides a structured comparison of the three generational figures of individual shareholder activism across key dimensions of practice, impact, and theory of change. The Governance Impact Matrix reveals a clear evolutionary trajectory in individual shareholder activism — from presence-based activism (Gilbert) to procedural mastery (Chevedden) to institutional infrastructure (McRitchie). Each advocate built on prior achievements while attempting to address its limitations.

Patterns Across Shareholder Advocates

Gilbert established the legitimacy of individual shareholder activism. Before Gilbert, the notion that a minority shareholder could use the proxy mechanism to demand governance reforms was not merely unusual. It was conceptually foreign to the prevailing understanding of the relationship between shareholders and management. By attending meetings, filing proposals, and ultimately prevailing in the courts, Gilbert demonstrated that the individual shareholder had both the legal right and the practical capacity to participate meaningfully in corporate governance. His limitation was that the model depended entirely on personal energy and his physical presence.

Chevedden addressed this limitation through scale. By buying qualifying positions across hundreds of companies and mastering the procedural intricacies of Rule 14a-8, Chevedden transformed individual activism from a craft practice into an industrial-scale operation. His proposals reach more companies, receive higher vote support, and drive more management-initiated reform than any individual activist in history. The critique that his volume is excessive misses the structural point. His proposals receive high vote support precisely because they address governance deficiencies that shareholders across the institutional spectrum recognize as value-destroying.

My own contribution, as I see it, has been to expand the activist toolkit beyond the annual proxy cycle. The creation of CorpGov.net, speaking at various conferences, the 2002 SEC petition, my emphasis on coalition-building and settlement, as well as lawsuits, I hope will inspire others. I’ve also contributed money to organizations like The Shareholder Commons and As You Sow. Pay membership dues with the Interfaith Center for Corporate Responsibility and the Shareholder Rights Group. I invested in iconikapp.com and its predecessors to enable retail shareholders to vote automatically, as institutional investors do. These and other financial contributions, memberships, and investments have been small relative to what wealth people can do, but, in total, they are significant to me, and I hope to the cause. These have been efforts to create an institutional infrastructure that can sustain governance reform advocacy across political cycles, regulatory regimes, and individual lifespans. The goal is to ensure that individual shareholder activism is not, as it was in Gilbert’s era, a “mostly personal crusade” that ends when the crusader retires.

The Causal Evidence: Do Individual Shareholder Advocates Proposals Create Value?

The normative case for individual shareholder activism for most people ultimately depends on an empirical question: do shareholder proposals create economic value for shareholders? The evidence — from multiple independent studies using rigorous causal-identification strategies — is strikingly consistent in finding that they do.

The Regression-Discontinuity Evidence

The most methodologically rigorous evidence comes from Cuñat, Giné, and Guadalupe, whose 2012 Journal of Finance study, The Vote is Cast, used a regression-discontinuity design to estimate the causal effect of governance proposals on shareholder value. By comparing proposals that passed by a narrow margin with those that failed by a narrow margin — thereby isolating the causal effect of passage from the confounding effects of firm characteristics — the authors found that passing a governance proposal produces significant positive abnormal returns on the meeting day. Their estimates imply that adopting one governance proposal increases shareholder value by approximately 2.8%. The effect is larger in firms with more antitakeover provisions, higher institutional ownership, and stronger investor activism — precisely the conditions under which governance reform is most needed and most valuable.

Majority Voting and Director Elections

Ertimur, Ferri, and co-authors found abnormal returns of 1.43% to 1.60% when majority-voting proposals — a staple of the individual shareholder advocate’s toolkit — narrowly pass, providing additional evidence that governance reforms driven by shareholder proposals create measurable value.

Proxy Access and Firm Valuation

The proxy access evidence is particularly relevant to the shareholder advocate genealogy, given the central role that proxy access has played in the advocacy of both Chevedden and myself. Cohn, Gillan, and Hartzell, in a 2016 Journal of Finance study, found that proxy-access rule shocks were associated with higher firm valuations — consistent with the hypothesis that shareholder empowerment creates economic value. (On Enhancing Shareholder Control) Conversely, Becker, Bergstresser, and Subramanian found that firms most exposed to proxy access lost value when the D.C. Circuit vacated the SEC’s proxy-access rule in Business Roundtable v. SEC — providing what amounts to a mirror-image confirmation that proxy access is value-enhancing.

The Entrenchment Evidence

Bebchuk, Cohen, and Ferrell’s influential study demonstrated that an “entrenchment index“ — constructed from provisions including staggered boards, supermajority vote requirements, and poison pills — is linked to lower firm valuations and lower stock returns. The provisions that comprise the entrenchment index are precisely the provisions that individual shareholder activists have spent decades seeking to dismantle. The Bebchuk, Cohen, and Ferrell evidence thus provides a direct link between the governance reform agenda of the individual shareholder advocate tradition and measurable economic value. That finding alone has been cited in over 3,600 studies.

The Indirect Value Channel

It is essential to note that the empirical evidence on proposal passage captures only one dimension of the value that individual shareholder activism creates. As documented above, individual shareholder advocate proposals also create value through an indirect channel: they drive management-initiated reforms and voluntary adoptions once boards become aware of shareholder sentiment. When a company observes that a peer firm’s shareholders voted 98% in favor of board declassification, the rational response is to declassify voluntarily rather than wait for a proposal. This indirect channel — which is, by definition, not captured in studies of proposal passage — may account for a substantial portion of the total value created by individual shareholder activism.

The Procedural Battleground: Current Threats and the Future of Rule 14a-8

The shareholder proposal rule has survived eight decades of periodic challenge. But the current constellation of legislative, regulatory, and judicial threats is among the most serious in the rule’s history — and, if successful, would fundamentally alter the governance landscape of American corporations.

The September 2025 Congressional Hearing

The House Financial Services Committee hearing of September 10, 2025 — “Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value“ — considered a suite of proposed bills that would, collectively, gut the shareholder proposal mechanism. The proposals include:

• Registration requirements for proxy advisory firms — imposing regulatory burdens and expanded liability on firms like ISS and Glass Lewis that provide voting recommendations to institutional investors;

• Removal of the “significant social policy” exception — eliminating the carve-out that protects proposals raising important policy issues from exclusion under the ordinary business exception;

• Codification of existing exclusions — converting SEC staff guidance on exclusion grounds into statutory provisions that would be harder to modify through administrative action;

• Authorization to exclude ESG proposals entirely — permitting issuers to omit any proposal relating to environmental, social, or political matters; and

• Outright repeal of Rule 14a-8 — eliminating the shareholder proposal right altogether.

State-Level Restrictions

The federal proposals are complemented by state-level initiatives that would achieve similar results through different mechanisms. The most notable is Texas SB 1057, which would impose a $1 million or 3% ownership threshold for shareholder proposal eligibility — a standard that would disqualify virtually every individual shareholder and most institutional investors. It was adopted, and its thresholds will effectively eliminate the individual shareholder proposal as a governance mechanism at Texas firms opting in to its limitations.

The SEC’s Suspension of the No-Action Process

Adding to the uncertainty, the SEC announced in November 2025 that during the 2025–2026 proxy season, it would not respond to no-action requests other than those raising Rule 14a-8(i)(1) bases — that is, bases relating to whether the proposal is a proper subject for action under state law. While the practical effect of this announcement has been debated, it effectively suspended the no-action process through which companies and shareholders have historically resolved disputes over proposal eligibility, leaving both sides without the staff guidance that has been a central feature of the Rule 14a-8 ecosystem for decades.

The “Exit Strategy” Proposal

Former SEC Commissioner Daniel Gallagher and John Cook proposed in 2015 what they called an “exit strategy” for the SEC from Rule 14a-8 — arguing that the Commission should abandon the shareholder proposal rule entirely and leave questions of shareholder access to the proxy to state corporate law. Chairman Atkins made much the same proposal in 2025 in a speech at the Weinberg Center. The proposal reflects a longstanding view among some practitioners and scholars that Rule 14a-8 constitutes federal overreach into matters properly governed by state law — a view that Professor Alan Palmiter articulated in his influential 1994 article (updated in 2026), which characterized the rule as “a failed experiment in merit regulation.”

The counterargument, which I find more persuasive, is that the federal proxy rules exist precisely because state corporate law has systematically failed to provide shareholders with meaningful governance rights, and that abandoning the federal role would leave shareholders without any effective mechanism for participation in corporate governance. Corporate ownership also transcends state lines.

The Business Community’s Divided Position

It is worth noting that the business community itself is divided on the question of Rule 14a-8 reform. While some trade groups and corporate executives have called for significant restrictions on the shareholder proposal rule, many oppose outright repeal. They recognize that the proposal mechanism, for all its inconveniences, serves a valuable function as a low-cost channel for shareholder communication that can surface governance concerns before they metastasize into more costly proxy contests or litigation.

The Historical Echo

As Doyle and Eccles observed in their analysis of the 1943 hearings, the arguments currently deployed against Rule 14a-8 are virtually identical to those raised when the rule was first adopted: the proposals impose undue burdens on issuers; the rule is susceptible to abuse by unrepresentative individuals; the federal government is overreaching into matters properly governed by state law. These arguments were unpersuasive in 1943, and they are unpersuasive today because they consistently fail to account for the structural asymmetry between shareholders and management in the American corporate form. Without Rule 14a-8, individual shareholders have no cost-effective mechanism for placing governance proposals before their fellow shareholders. The “burden” that the rule imposes on issuers is the burden of responding to the concerns of their owners. Therefore, it is not a burden at all but a feature of some semblance of democratic governance.

These proposals would, in my view, make corporations democratic-free zones. As our corporations become less democratic, so does our country.

Conclusion: The Individual Shareholder Advocate as a Structural Feature of American Corporate Governance

Individual shareholder activism is not an anomaly in the American corporate governance system. It is a structural feature — a mechanism that fills a gap left by institutional investor passivity, regulatory capture, and the inherent power asymmetry between shareholders and management in the publicly traded corporation.

The genealogy of individual shareholder advocates traced in this article, from Lewis Gilbert’s moral suasion to John Chevedden’s procedural mastery to my own contribution, reveals an evolving form that adapts to governance challenges. Gilbert established the legitimacy of individual shareholder voice at a time when the very concept of shareholder democracy was novel. Chevedden demonstrated that individual activism could operate at scale, filing hundreds of proposals that received consistently high vote support and drove reform. And the digital, regulatory, and coalition-building infrastructure I have developed is designed to ensure that individual shareholder activism can persist across political cycles, regulatory regimes, and individual lifespans.

The empirical evidence demonstrates that individual shareholder advocate proposals create measurable economic value. Cuñat, Giné, and Guadalupe’s regression-discontinuity estimates show that passing a governance proposal increases shareholder value by approximately 2.8%. The proxy access evidence shows that shareholder empowerment mechanisms are value-enhancing. The entrenchment evidence shows that the very governance provisions that individual activists seek to dismantle are associated with lower firm valuations and lower returns. These are not marginal effects. They are economically significant and robust across multiple identification strategies.

Current legislative threats to Rule 14a-8 would eliminate not merely a procedural mechanism but a structural counterweight to managerial entrenchment that has served American capitalism for over eight decades. The arguments deployed in favor of these restrictions — burden, abuse, overreach — are the same arguments that were raised in 1943, in 1952, in 1983, in 1997, in 2010, and in 2020. They have been repeatedly considered and repeatedly rejected. A corporate governance system in which management faces no cost-effective mechanism of accountability to dispersed shareholders is worse.

What of the next generation? The individual shareholder advocate tradition has shown a remarkable capacity for self-renewal, adapting its methods to each era’s opportunities and constraints. The next generation of individual activists will likely operate in a governance landscape shaped by artificial intelligence, blockchain-based proxy systems, and the continued growth of passive index investing. They will face new versions of old challenges. The tension between shareholder empowerment and managerial discretion will remain. Who speaks for diversified shareholders? The effort to restrict the mechanisms through which minority shareholders can make themselves heard will persist. If history is a guide, shareholders will find a way. The individual shareholder advocate, like democracy itself, is harder to repress than its opponents imagine.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

A January 23, 2026, guidance from the staff of the U.S. Securities and Exchange Commission (Question 126.06), has reshaped how shareholders can communicate during proxy season. ICCR and As You Sow have stepped up to partially fill the void, but instead of having this information pushed out to them, shareholders must now go looking for it. Most probably won’t. We need your help. If you subscribe to services like Bloomberg or Diligent Market Intelligence (or free services like Visualping, CapEdge, and many more), ask them to scrape these sites and keep pulling the information to their site or to you directly.

The SECʼs Division of Corporation Finance announced that shareholders holding less than $5 million in shares of a company will no longer be able to file Rule 14a-2(b) exempt solicitations using the EDGAR filing platform. (See SEC Compliance and Disclosure Interpretations, Question 126.6).

This change will prevent the vast majority of shareholders from using the EDGAR platform to provide recommendations either in support of or against resolutions on proxy statements. Suppressing material information that investors need to evaluate long-term risks is yet another move by the Trump administration to make corporations less accountable to their shareholders. See my previous post, Voluntary Exempt Solicitations Prohibited.

This post discusses services from ICCR and As You Sow that are attempting to fill the gap by accepting and posting exempt solicitations. I also propose using such solicitations to hold post-AGM meetings to discuss company issues. If we were only to organize, the result could be even better than what happened before or after in-person meetings. 

Exempt Solicitations: Background on CorpGov.net

I first wrote about exempt solicitations in 2012, hoping to get Edgarizing services to lower the cost of filing, since exempt solicitations were only used by larger asset filers. like CalPERS and the City of New York Office of the Comptroller. They did, and their use began to pick up. My post, “Voluntary Exempt Solicitations Prohibited,” stressed how important this tool has become for rebutting company proxy statements. Shareholders have come to rely on these solicitations, so I won’t repeat those arguments here. I’ll just note that under Section 14(a) of the Securities Exchange Act of 1934, the SEC regulates proxy solicitations to ensure that shareholders receive full and fair disclosure when voting without attending meetings in person. The January directive appears to violate that law.

The federal proxy rules are designed to promote fair corporate suffrage by ensuring that shareholders receive material information in advance of voting and can make informed decisions, even if they do not attend the meeting in person. — SEC Final Rule, “Proxy Disclosure Enhancements” (Release No. 33-9089, Dec. 16, 2009)

How can shareholders make informed decisions without hearing rebuttals from by shareholder proponents to company opposition statements? Of course, a lot has changed since 2009. Now most meetings are virtual-only. Even if you attend the meeting and listen to shareholders present their proposals, rebutting opposition statements, you may not get a chance to vote. See Muted at the Mike and sign up for a free subscription to the Optimizer, which has discussed proxy voting with a different perspective for 33 years... even longer than our 31 years.

Exempt Solicitations Not Legally Required are Banned from SEC

Before the change:

• Exempt solicitations were pushed to the market automatically via EDGAR and downstream platforms

After the change:

• They must be pulled by investors who know where to look

This shift:

• Reduces reach

• Narrows audience

• Limits the diversity of viewpoints considered by the average investor

Exempt Solicitations: ICCR’s Clearinghouse

To investors and managers involved in proxy voting:

As we enter the midst of proxy season, ICCR is providing a resource that we believe will be helpful to you in the proxy voting process.

As we are all aware, the SEC announced in January that it was changing the process for posting solicitations on EDGAR and that an investor now needed to have $5 million worth of shares to post using that system. This immediate shift in the use of EDGAR was met by a rapid series of complaints from both large and small investors.

The result of this policy shift by the SEC was an immediate information vacuum for investors wishing to share or review documents making the case for a given resolution.

We believe many pension funds, investment managers and mutual funds, as well as many foundations and religious investors, value receiving such solicitations while making decisions on how to vote. In light of that understanding, ICCR created a page on its website that gathers solicitations by members and allies.

We hope you find this centralized listing of solicitations a useful tool. We will send you occasional reminders that the list has been updated. Feel free to bookmark it to get easy access to 2026 solicitation texts.

Exempt Solicitations: As You Sow’s Proxy Open Exchange

As You Sow, the nation’s leading shareholder representative, today announced the launch of Proxy Open Exchange (POE) -- a community-driven platform that enables shareholders to publicly post exempt solicitations (aka proxy memos) related to their shareholder proposals. These filings contain critical material information and citations explaining the basis for shareholder proposals to be voted on at upcoming corporate annual general meetings.

POE provides a free, transparent, alternative platform for the hundreds of shareholder proponents who lost access to the SEC’s EDGAR filing system following the agency’s decision -- Compliance & Disclosure Interpretation Question 126.06 -- that prevents shareholders with less than $5 million in share value from uploading and sharing their proxy memos with other investors.

For decades, shareholders both large and small, from individual shareholder proponents to large institutional investors, used the SEC’s EDGAR system to voluntarily file Notices of Exempt Solicitation (PX14A6G) to provide analysis and background information with fellow shareholders ahead of annual general meetings. These filings covered a broad range of corporate governance issues, from climate risk disclosure and executive compensation to political spending, worker safety, pesticide reduction, and board accountability.

According to Andrew Behar, CEO of As You Sow,

The SEC’s unilateral decision to restrict access to the EDGAR platform is an attempt to suppress material information that shareholders require to make informed decisions. POE restores transparency, a core tenet of our free markets, to the shareholder proposal process. Shareholders have a right to be heard and a right to know the impact of what’s being proposed at their companies before they cast their votes. The SEC’s decision to restrict access is a continuation of its campaign to suppress vital information that serves as an early-warning system to shareholders in their assessment of risk and return.

In January 2026, the SEC’s Division of Corporation Finance reversed its longstanding position on who can post exempt solicitation filings. The change effectively closed EDGAR to most shareholder proponents who had relied on the system as a public channel for transparent engagement. The SEC’s rationale was that shareholder information filings on EDGAR were being used “primarily as a means to seek publicity.” Behar rebutted that argument:

If, by publicity, the SEC means shareholders use their filings to inform company executives, board directors, shareholders, and the public, about critical details enabling them to fulfill their fiduciary duty, then I agree. Such open information sharing has previously been actively supported by the SEC as a means of ensuring sufficient information for sound investor decision-making. Having closed off EDGAR, shareholders will either have less information to inform their vote or will spend far more time and energy seeking such information.

The Proxy Open Exchange is a searchable, publicly accessible repository where proponents can post rationales and references for shareholder proposals, and all shareholders can read them before making a voting decision. Each submission links directly to a company’s definitive proxy statement (DEF 14A) on EDGAR and identifies the specific proposal item number. All posts are reviewed before publication and released under Creative Commons Attribution 4.0 terms, ensuring they remain freely available to shareholders, researchers, journalists, and the public.

Said Danielle Fugere, President and Chief Counsel of As You Sow:

Transparency in shareholder engagement should not depend on how much stock you own. The proposals these proxy memos support address some of the most significant risks facing companies today. POE ensures that shareholders can continue to make their case publicly, regardless of changes in SEC policy.

Organizations wishing to submit exempt solicitations can create a free account at proxyopenexchange.org. The platform is open to the public for browsing and research. See also See As You Sow’s shareholder resolution tracker.

Exempt Solicitations: Note to Filers

Filers of exempt solicitations still need a Central Index Key (CIK) because the SEC uses the CIK as the unique identifier for the filer in its EDGAR system and in filing/notice processing. In practice, the SEC requires a CIK so it can correctly:

• Attribute the filing to the right legal entity/organization (so the record is under the correct account).

• Validate filing authority and route the submission through EDGAR’s internal systems.

• Link related filings (e.g., amendments, associated documents, prior submissions) to the same filer identity.

• Index and search filings accurately in SEC databases and public records.

Both ICCR and As You Sow also require users of their systems to have CIKs to ensure system integrity.

Step-by-Step Guide to Obtaining a SEC CIK Identifier

The Central Index Key (CIK) is a permanent, public 10-digit alphanumeric code assigned by the SEC to uniquely identify each filer in the EDGAR system. It is required for all companies, mutual funds, investment advisers, and certain insiders to file with the SEC (background).

Create a Login.gov Account

• Go to Login.gov and create an individual account. Using a business email address for your EDGAR account to receive notifications is highly recommended (Workiva).

Prepare Required Documents

• Prepare notarized copies of required documents (Toppan Merrill).

Complete Form ID

• Access the EDGAR Filer Management (EFM) website via Login.gov.

• Fill out the Form ID application online.

• Upload and notarize required documents.

• Submit the application.

Wait for SEC Processing

• Allow 6–8 business days (sometimes up to two weeks) for SEC review. Be ready to respond to any questions or corrections.

Receive Your CIK and CCC

• Once approved, your CIK will be assigned and displayed in your EDGAR account. You will also receive a CIK Confirmation Code (CCC), an 8-character code used with your CIK to file and manage EDGAR data SEC.gov+1. Note: I’m not sure about the CCC identifier. I don’t have that 8-character code, but I can still file.

Secure and Manage Your CIK

• Keep your CIK and CCC confidential.

• Change your CCC periodically or immediately if compromised.

• Use the EDGAR Filer Management dashboard to update administrators, reset codes, or manage permissions.

Virtual After-AGM Meetings

The really great part of in-person AGMs was the chance encounters that happened infrequently, either before or after the meeting, when shareholders discussed the issues. Now that most companies have moved to virtual-only shareholder meetings, such occurrences are rare or nonexistent. I once helped form a 13D group after one of those chance meetings at Reeds, which led to a total revolution at the company, replacing the CEO and the entire board.

Where are the visionaries with the time and ambition to recreate such meetings virtually? Will it be “wireless investors“ using online communities (Reddit, Discord) to coordinate, engage in corporate governance, and drive ESG initiatives, who effectively overcome traditional apathy? I wouldn’t continue writing this blog for 31 years unless I thought investors could reshape companies. While Millennials and Gen Z may be influencing corporate decisions through digital channels without directly discussing corporate governance, I still have hope that more substantive restructuring will come from owners.

Maybe start by inviting shareholders to a Substack or Zoom after AGM discussions, using exempt solicitations filed through the alternative platforms hosted by ICCR and As You Sow. Invite shareholders not only to join you in voting, but also to an after-AGM online gathering. Celebrate your victories. Comiserate over your losses. Discuss what next steps you are thinking of taking. Maybe you will end up talking about the next steps WE could, or even will, take. Use it as an opportunity to build community.

Include a Zoom link or a place to find such a link that will invite readers to an after AGM discussion in your exempt solicitations filing. Or tell us how to join a virtual meeting room on another platform. Let’s get this revolution started. I’m getting too old to wait much longer and have always depended on others to take the initiative.

Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it’s the only thing that ever has. Margaret Mead

Remember, it still takes a “small group.” You are unlikely to do it on your own.

The recent UK-based EY analysis, How capital allocation can rebalance capitalism in a changing world, offers a timely and largely accurate diagnosis of the system’s current tensions. Capitalism, the authors argue, is not failing; it is delivering precisely what its incentives reward—efficient allocation of capital toward short-term financial returns, scale, and market dominance. This framing is correct as far as it goes. However, it does not go far enough.

The central challenge is not merely the misalignment of incentives. It is the misalignment of power—specifically, the growing gap between those who bear the long-term risks of the system and those who exercise control over corporate decision-making. Recent scholarship describes this as a “rights–power gap,” in which shareholders retain formal rights but lack meaningful influence over how those rights are exercised (see Sergio Alberto Gramitto Ricci & Christina M. Sautter, Corporate Disenfranchisement). Without addressing this structural divide, efforts to rebalance capitalism risk remaining aspirational rather than operational.

Rebalancing Power Now and Music for a Democratic Corporate Governance

From Incentives to Power

The EY paper’s core insight, that “the current capitalist system delivers what its incentives reward,” is consistent with decades of economic and governance scholarship. Yet incentives do not arise in a vacuum. They are embedded in institutional structures that determine who sets them, who monitors them, and who benefits from them.

Today, those structures are increasingly concentrated. A small number of asset managers exercise voting power over a substantial portion of public equity markets. As Lucian Bebchuk and Scott Hirst document in The Specter of the Giant Three (2019), index fund managers such as BlackRock, Vanguard, and State Street collectively wield outsized influence over corporate governance.

At the same time, beneficial owners—workers, retirees, and diversified investors—bear the consequences of systemic risks such as climate change, inequality, and geopolitical instability. This divergence between economic exposure and control echoes longstanding fiduciary concerns articulated in Meinhard v. Salmon, where Justice Cardozo emphasized the “punctilio of an honor the most sensitive.” Today’s institutional arrangements fall short of that standard when those exercising power are insulated from system-wide harms.

The Limits of Stakeholder Capitalism

The paper’s proposed shift from shareholder to stakeholder value reflects a growing consensus that corporations must account for a broader set of impacts. However, this shift faces significant legal and practical constraints.

Under prevailing corporate law, directors’ fiduciary duties run to the corporation and its shareholders. Courts in the United States have consistently reinforced this principle. In Dodge v. Ford Motor Co., the court made clear that a corporation is organized primarily for the profit of its shareholders. More recent Delaware jurisprudence continues to emphasize firm-level value. In Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the court held that directors must maximize shareholder value in change-of-control transactions.

Similarly, eBay Domestic Holdings, Inc. v. Newmark rejected a corporate governance structure designed to privilege community values over shareholder value, reaffirming that directors of for-profit corporations cannot subordinate stockholder interests to other constituencies absent clear statutory authorization. More recently, McRitchie v. Zuckerberg underscored that fiduciary duties run to the corporation and its shares, not directly to broader stakeholder groups. Even the beneficial owners of those shares and their desires are deemed “incidental.”

These precedents create a structural constraint. Stakeholder considerations are typically permissible only if they can be justified as enhancing long-term shareholder value. Thus, while the EY paper calls for internalizing externalities and investing in resilience, directors may be constrained from doing so where such actions reduce firm-level value. Without changes to fiduciary doctrine or governance structures, stakeholder capitalism risks becoming a normative overlay on an unchanged legal foundation.

Erosion of Shareholder Voice

The feasibility of rebalancing capitalism also depends on the mechanisms available to investors to influence corporate behavior. Here, recent developments are troubling.

The shareholder proposal process under SEC Rule 14a-8 (17 C.F.R. § 240.14a-8) has long served as a critical mechanism for shareholder engagement. The SEC has emphasized that this rule is intended to provide shareholders with a meaningful avenue to present proposals for inclusion in company proxy materials (see SEC Release No. 34-40018 (May 21, 1998).

Judicial decisions have reinforced the importance of full and fair disclosure in proxy processes. In Virginia Bankshares v. Sandberg, the Supreme Court held that materially misleading statements in proxy solicitations can violate federal securities laws. Earlier, in SEC v. Texas Gulf Sulphur Co., the court emphasized the importance of transparency in securities markets to ensure investor protection and market integrity.

However, recent policy shifts—particularly the SEC Division of Corporation Finance’s November 17, 2025 guidance indicating that staff may decline to express views on many no-action requests, effectively transfers interpretive authority to issuers. This development risks weakening the shareholder proposal process by increasing uncertainty and enabling more aggressive exclusions.

If the channels for shareholder voice continue to erode, the prospect of investor-driven reform diminishes. A system that depends on investor engagement to rebalance incentives must preserve and strengthen the tools that enable such engagement.

Employee Ownership as Governance Infrastructure

One of the more promising elements in the EY framework is the recognition that employee ownership can improve outcomes. However, the paper treats such ownership primarily as a distributional mechanism rather than a governance innovation.

Broad-based employee ownership, particularly when paired with voting rights, can function as governance infrastructure. Employees possess firm-specific knowledge that can improve oversight and long-term decision-making. Organizations such as Ownership Works and NCEO have documented improvements in performance, retention, and workplace outcomes associated with shared ownership models.

More importantly, employee ownership can help close the rights–power gap by distributing governance authority more broadly. Allocating a meaningful but non-controlling stake (e.g., 3–20%) to employees, with voting rights exercised directly rather than through intermediaries, can enhance accountability while preserving market discipline. See Shared Capitalism: Supercharge Economy and Democracy.

Rebalancing Capitalism Through Governance Reform

The EY paper correctly emphasizes that rebalancing capitalism requires coordinated changes across governments, investors, and companies. To that list should be added a fourth dimension: governance reform.

Several reforms could help align incentives with long-term, system-level value creation. Pass-through voting initiatives—such as those being explored by BlackRock reconnect beneficial owners with voting rights. Enhanced disclosure of ownership structures, including employee ownership levels, can improve transparency. iconik helps shareholders automatically vote in alignment with the policy of each asset manager or individual’s policy.

Fiduciary frameworks may also need to evolve. Scholars and practitioners, including The Shareholder Commons, have argued that fiduciary duty should account more explicitly for portfolio-wide impacts and systemic risks. Hybrid ownership models that combine institutional oversight with employee participation offer a practical pathway to align governance with long-term value creation.

From Incentive Design to Implementation Constraints

The EY analysis ultimately extends beyond capital allocation to encompass broader reforms in resource allocation, trust formation, and productivity growth. It highlights the importance of pricing externalities, investing in human and intellectual capital, and rebuilding trust as economic infrastructure. These are not peripheral ideas; they represent the operational core of the proposed “rebalanced capitalism.”

Yet across these domains, a common assumption persists: that adjusting incentives—through policy, market signals, or voluntary shifts in behavior—will be sufficient to redirect outcomes at scale. That assumption underestimates the constraints imposed by existing governance structures and legal frameworks. For example, pricing externalities such as carbon or biodiversity loss may be economically sound, but firms remain bound by fiduciary duties that prioritize firm-level value, as reinforced in cases such as Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc.. Similarly, proposals to increase long-term investment in human capital or innovation may conflict with short-term performance pressures embedded in executive compensation and capital markets, pressures that boards are often obligated to respect.

The same tension arises in the paper’s emphasis on trust and broader stakeholder value. Trust may function as a form of intangible capital, but its accumulation depends on credible accountability mechanisms. Where shareholders lack effective tools to influence corporate behavior—whether due to concentrated voting power, weakened proxy processes, or regulatory retrenchment—trust becomes difficult to sustain. Disclosure and transparency requirements, long central to securities regulation (see SEC Release No. 34-31326 (Oct. 16, 1992), can mitigate this problem, but only if paired with mechanisms that enable investors to act on the information provided.

In short, the later chapters of the EY framework reinforce rather than resolve the central challenge. Expanding what markets measure and reward is necessary, but it is not sufficient. Without corresponding changes in who exercises control—and how that control is constrained—new incentives may be filtered through existing power structures that continue to favor concentration and short-term outcomes. Rebalancing capitalism, therefore, requires not only better incentives but governance mechanisms capable of implementing and sustaining them.

Why Incentive Reforms Fail Without Shifting Control

Even well-designed reforms falter when they leave underlying control structures untouched. Incentives—whether carbon pricing, enhanced disclosure, or revised compensation metrics—must be interpreted and implemented by those who currently exercise governance authority. Where that authority remains concentrated in a small set of intermediaries or insulated boards, new incentives are filtered through the same decision-making frameworks that produced the existing imbalances.

The result is adaptation without transformation: firms may adjust at the margins while preserving practices that prioritize short-term, firm-level gains over long-term, system-wide value. Durable change, therefore, requires more than recalibrating signals; it requires reallocating voice and accountability so that those who bear the long-term risks—diversified investors, workers, and beneficiaries—can meaningfully influence how those signals are applied. Without that shift, reforms risk becoming another layer of policy intent absorbed by structures designed to resist it.

Conclusion

The EY analysis is correct in rejecting the false choice between preserving capitalism and replacing it. The more urgent task is to ensure that capitalism evolves in ways that sustain its legitimacy and effectiveness.

But evolution will not occur solely through changes in incentives. It requires confronting the distribution of power within the system. Without such changes, efforts to expand the definition of value or encourage long-termism may be absorbed into existing structures that continue to favor concentration and short-term returns.

Rebalancing capitalism, in short, requires rebalancing control. Only by narrowing the gap between those who own the system and those who govern it can capitalism deliver on its promise of broad-based, sustainable prosperity.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Related Posts

CorpGov.net

Debates over alternative corporate forms are too often framed as a choice between two institutional worlds. Choose the conventional investor-owned corporation, valued for liquidity, transferability, and scalable access to capital, or 2) the cooperative, valued for participation, voice, and use-based ownership. That binary framing is increasingly inadequate. Law should facilitate multiple forms of democratic capital without forcing enterprises to choose between participation and scale. The Blockchain Cooperative Coalition’s proposals for “Regulation Membership” and James McRitchie’s writings on employee ownership without control capture should be read together as complementary responses to that problem.

Note: This post was prompted by a streamed event from the Center for Business Law and Policy (CBLS) entitled Corporate Metamorphosis: How Shifting Ownership from Investors to Customers Will Change the World. It was held at King Hall, UC Davis School of Law, on April 14, 2026, and featured James Wigginton. Since I am having lunch with Wigginton on Tuesday, I thought to compare our two visions in advance so our conversation would be better grounded. Hopefully, a few readers may also find it useful or at least interesting. After our discussion, I may update this post, especially if I find I have misrepresented Regulation Membership.

Aria of Many Owners and Music for a Democratic Corporate Governance

The Coalition’s project is principally a legal-infrastructure project for patron- and user-based ownership. McRitchie’s project is principally a governance-capacity project for public corporations. The former seeks a federal securities safe harbor for bona fide cooperative membership interests; the latter seeks to improve the informational foundations of corporate governance by broadening the shareholder base inside the conventional corporation through moderate, broad-based employee ownership coupled with meaningful voting rights.

This post advances a sharper thesis: Regulation Membership and shared capitalism without control capture address different failures of modern capitalism, and American law should be revised to permit both models–and hybrids between them–to scale. Regulation Membership is best suited to enterprises in which patron participation, user contribution, or community affiliation is the central economic relationship. Shared capitalism without control capture is best suited to enterprises in which employee knowledge is the central underutilized governance asset. Properly understood, the choice is not between “cooperatives or corporations,” but among institutional forms designed to fit distinct economic functions. American law should not force a choice between these paths. It should revise securities, cooperative, corporate, ERISA, and disclosure rules so both models—and hybrids between them—can scale.

Legal Reform Needed for Both

That thesis has practical consequences. Bringing the Coalition’s vision to fruition would require federal legislation directing the Securities and Exchange Commission to adopt a genuine cooperative safe harbor, clarifying the treatment of tokenized or distributed-ledger-based memberships, adjusting accredited-investor rules so democratic capital aggregation is not structurally disfavored, and preempting duplicative state registration burdens for qualifying memberships. Bringing McRitchie’s vision to fruition would require a different set of reforms: greater pass-through or direct employee voting rights under ERISA-governed structures, standardized disclosure of employee ownership and voting agency, safe harbors for capped employee ownership trusts, and a more intelligible legal framework for treating broad-based employee ownership as orthodox long-term value governance rather than doctrinal deviation.

This post proceeds in five parts. First, we analyze the Coalition’s Regulation Membership proposal, including Exhibit A and Exhibit B to the August 2025 letter and the Coalition’s later Fall 2025 discussion draft. Then, we explain the doctrinal foundations of the proposal in United Housing Foundation, Inc. v. Forman, SEC v. W.J. Howey Co., SEC no-action practice, and state-law exemptions. Third, we compare the Coalition’s model with McRitchie’s shared-capitalism model and evaluate their comparative strengths, weaknesses, and likely domains of fit. We then examine the legal changes necessary to make each vision real. Last, we argue for institutional pluralism and sketch a hybrid agenda for democratic capital.

Regulation Membership as a Federal Safe Harbor for Participatory Ownership

The Blockchain Cooperative Coalition’s August 5, 2025, letter to Senator Tim Scott and other members of the Senate Banking Committee proposed a new Section 110 to the Responsible Financial Innovation Act of 2025. The Coalition’s later Fall 2025 discussion draft reworks the idea as a Section 111 addition, but the architecture remains materially the same. In both versions, the proposal directs the SEC to promulgate “Regulation Membership” under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940.

At the center of the proposal is a carefully bounded safe harbor. A cooperative membership interest would not be deemed a security if the cooperative’s governing documents satisfy four principal conditions: first, issuance must be limited to persons who participate in the business of the cooperative or an entity in which the cooperative owns equity; second, distributions must be limited to patronage dividends derived from the member’s own participation; third, transfers must be limited and subject to cooperative control; and fourth, members must retain voting control of the cooperative. The proposal also specifies that a mere investment of money is not “participation.

Exhibit A

Exhibit A to the August 2025 letter is especially important because it translates the proposal’s normative claims into operative legal text. Section 110(a) would create a rulemaking mandate and timetable. Proposed Section 110(b) would exclude qualifying membership interests from the definition of “security” under the Securities Act and Exchange Act. Proposed Section 110(c) excludes qualifying cooperatives from the definition of “investment company.” Section 110(d) seeks to create a specialized accredited-investor rule for qualifying cooperatives. Proposed Section 110(e) would preempt state securities registration laws only to the extent those laws would require registration of federally qualifying membership interests, while preserving state authority over cooperative governance, fraud, and unfair business practices.

Exhibit B

Exhibit B, a one-page visual summary, is not merely promotional material. It shows the proposal in administrative form: the problem is a regulatory patchwork; the solution is a federal safe harbor; the core conditions are active participation, patronage dividends, limited transferability, and member control; and the intended policy effect is broader ownership in blockchain enterprises, healthcare cooperatives, fan-owned sports franchises, and other user-centered businesses. The importance of Exhibit B lies in its recognition that, for a safe harbor to matter, it must be legible ex ante to founders, lawyers, regulators, and community organizers. A doctrinally elegant rule that cannot be readily operationalized will not meaningfully expand democratic ownership.

Refinements

The Fall 2025 discussion draft makes three notable refinements. First, it places much stronger emphasis on blockchain-enabled and tokenized cooperative memberships, expressly stating that cooperative members may contribute “work, data, time, or service, not just capital.” Second, it aligns the proposal more explicitly with efforts to modernize financial regulation for digital-asset markets. Third, it adds a more explicit reference to guardrails for anti-fraud, dispute resolution, and consumer protection. Those additions make the proposal less vulnerable to the criticism that it is simply seeking a deregulatory carveout for crypto-adjacent instruments.

Still, the proposal is not merely about blockchain. Its broader ambition is to create a national legal pathway for non-speculative, participatory cooperative ownership across sectors. In the August 2025 letter, the Coalition identifies blockchain enterprises, healthcare companies, and fan-owned sports franchises as illustrative use cases. What unites these sectors is not technology alone, but a recurring mismatch between those who create or sustain enterprise value and those who hold formal residual claims. Regulation Membership is designed to narrow the mismatch when patron participation, use, or community contribution is central to the business model.

Doctrinal Foundations: Forman, Howey, SEC No-Action Letters, and State-Law Exemptions

Forman and the Non-Security Character of Use-Based Cooperative Interests

The Coalition places significant weight on United Housing Foundation, Inc. v. Forman. There, the Supreme Court held that shares in a nonprofit housing cooperative were not securities when the economic reality of the transaction was the purchase of housing rather than the acquisition of an investment for profit. The Court emphasized that the shares lacked the ordinary attributes of investment stock: they were not freely negotiable, could not appreciate in market value, and were not marketed on the basis of passive profits to be earned from the efforts of others.

Forman matters because it rejects formalism. The case does not say that anything labeled a “cooperative share” is automatically exempt from securities law. Instead, it asks what the instrument actually is in economic substance. If the interest functions as an incident of use, governance, and participation rather than a vehicle for speculative return, then the policies underlying securities registration may not be implicated. Regulation Membership is, in effect, an attempt to codify the kinds of structural constraints that made the instrument in Forman non-security-like in substance.

That is why the Coalition’s four core conditions matter. Limiting issuance to participants prevents membership from becoming a broad capital-raising device for passive investors. Tying returns to patronage dividends ties economic upside to member use rather than generalized enterprise profit. Restricting transfers prevents the emergence of a secondary speculative market. Requiring member voting control ensures that the cooperative remains a governed association of users rather than a firm controlled by outside capital. Together, these features operationalize Forman’s insight: not every ownership-like instrument is a security when its defining economic reality is participation rather than investment.

Howey and the Investment-Contract Problem

If Forman is central to the Coalition’s account of why these instruments are not properly treated as “stock,” SEC v. W.J. Howey Co. is central to its account of why they should not be treated as “investment contracts.” In Howey, the Supreme Court articulated the now-familiar test for investment contracts: an investment of money in a common enterprise with an expectation of profits to come from the efforts of others.

The Coalition’s safe harbor is designed, element by element, to negate that characterization. First, the proposal states that an investment of money does not count as participation. That is important because it prevents the safe harbor from being used to disguise ordinary passive investing. Second, the proposal permits only patronage dividends derived from the member’s own participation. That feature is intended to negate the expectation that profits come primarily from the efforts of others. Third, transfer restrictions reduce or eliminate speculative resale value. Fourth, member control reinforces the participatory, governance-based nature of the interest.

The Coalition’s repeated emphasis on patronage dividends is not merely rhetorical. Section 1388 of the Internal Revenue Code defines patronage dividends as amounts paid to a patron on the basis of the quantity or value of business done with or for that patron, pursuant to a preexisting obligation, and determined by reference to the cooperative’s net earnings from patron business. By tying returns to that tax-law concept, the Coalition situates cooperative distributions within a longstanding legal framework in which economic participation and economic return are linked.

The safe harbor thus seeks to prevent two opposite errors. On one side lies overreach: treating every tokenized, blockchain-enabled, or innovative cooperative membership as a security simply because it carries some economic consequence. On the other side lies evasion: allowing ordinary speculative schemes to don cooperative language and escape registration. The proposal’s structural conditions aim to separate the first category from the second.

Regulation Membership: SEC No-Action Letters

The August 2025 letter also relies on SEC no-action letters involving mutual insurance companies, purchasing cooperatives, country clubs, real-estate data cooperatives, and other entities. Those letters are significant because they show a long pattern of staff recognition that some membership interests fall outside the core concerns of securities regulation. The recurring themes are use, governance, non-transferability, and the absence of passive profit expectation.

Yet, the Coalition is right to insist that no-action letters are not enough. A no-action letter is a staff response to a specific factual submission. It is not a Commission rule, much less a statutory safe harbor. Reliance on no-action practice therefore advantages well-counseled parties with the resources to obtain bespoke relief and imposes uncertainty on smaller enterprises and communities that might wish to experiment with cooperative ownership. From the standpoint of institutional design, one of the Coalition’s strongest points is that legal clarity cannot depend on piecemeal, staff-level, fact-specific toleration.

Regulation Membership: State-Law Exemptions and the Patchwork Problem

The Coalition’s account of state law is also persuasive. Some states broadly exempt cooperative memberships from their securities laws; some do so only for particular sectors, such as agriculture, housing, or utilities; some exempt only intrastate cooperatives; and some apply a “risk capital” approach that can classify a use-based membership as a security if the purchaser’s funds are substantially at risk.

This patchwork matters not simply because it is complicated, but because it is form-distorting. A legal environment in which a cooperative must perform a fifty-state survey before issuing participatory memberships nationally discourages precisely the kind of experimentation the Coalition seeks to encourage. It also gives an advantage to capital structures already normalized by federal securities law and integrated national markets. Proposed Section 110(e), and the later Section 111(e), therefore seek only a limited preemption: if a membership interest qualifies for the federal safe harbor, state securities registration rules should not independently re-impose registration burdens, though states would retain authority over fraud, unfair practices, and cooperative governance.

That is a relatively modest move toward federalism. It does not displace state entity law. It merely prevents duplicative registration burdens where the federal government has already drawn a specific line between participatory cooperative memberships and securities.

The Accredited-Investor Problem and the Need to Reform Democratic Capital Aggregation

Among the most consequential features of the Coalition’s proposal is its specialized accredited-investor provision. In the August 2025 draft, a cooperative would qualify if it had issued all of its membership interests in compliance with Regulation Membership and if a majority of its governing body were accredited investors. The Fall 2025 discussion draft improves that language by replacing the accredited-investor-majority requirement with a more functional requirement that members of the governing body possess “sufficient financial, industry, or contextual expertise” as determined by SEC rule.

The change is significant. Existing accredited-investor rules under Regulation D are designed principally for private capital markets in which wealth or institutional form proxies for sophistication. They are poorly suited to democratic capital aggregation by users, fans, patients, or other patrons who may wish to form a cooperative to acquire an equity stake in an enterprise they use. If such a cooperative is treated merely as a vehicle “formed for the specific purpose” of acquiring securities, existing rules can frustrate precisely the kind of inclusive ownership project the Coalition seeks to enable.

Shift From Wealth to Expertise

The Coalition’s original instinct was that without some tailored rule, democratic capital pools are structurally disadvantaged relative to concentrated capital pools. But the revised draft’s shift from wealth to expertise is plainly preferable. If the objective is to democratize ownership while protecting cooperative members from imprudent acquisitions, the relevant question is not whether the cooperative’s leaders are wealthy, but whether they are capable, independent, and subject to appropriate safeguards.

Even so, a workable rule would require more than a bare expertise standard. The SEC should specify governance safeguards, disclosure standards, fairness-review requirements, conflict-of-interest limitations, and, perhaps, ongoing reporting obligations when a cooperative acquires a significant stake in an operating company through a private-placement exemption. Otherwise, the risk remains that the cooperative will be treated as sophisticated for purchase purposes without adequate protection for its own members.

In short, the accredited-investor framework needs adjustment. A democratic capital market cannot rest on the premise that only already-wealthy investors may aggregate capital efficiently.

Watch a Regulation Membership Video

Shared Capitalism Without Control Capture

McRitchie’s proposal begins from a different problem. His writings diagnose what he calls a rights-power gap: shareholders formally possess voting rights, proposal rights, and litigation rights, but the practical capacity to exercise those rights effectively is thinly distributed. Institutional investors hold enormous quantities of stock across thousands of firms, yet their stewardship teams face unavoidable capacity constraints. Outside investors, moreover, often lack the firm-specific information needed for close monitoring. Employees, by contrast, possess such information in abundance.

The response is not worker control. McRitchie is explicit that the proposal is one of employee ownership without control capture. Employees would hold meaningful but minority stakes–typically in the range of three to twenty percent of outstanding equity, with a practical focus on roughly ten to fifteen percent–while boards remain subject to orthodox Delaware fiduciary principles, one-share/one-vote remains intact, and capital-market discipline remains operative.

This model has several strengths. First, it is institutionally realistic. Unlike a worker cooperative or full employee buyout, it does not require abandoning public markets or conventional corporate finance. Second, it is doctrinally conservative. Directors continue to owe duties to the corporation and stockholders as a whole; employee ownership does not create a separate governing class. Third, it is informationally ambitious. The proposal seeks to improve governance by increasing the number of informed owners within the shareholder electorate, not by treating employees merely as stakeholders to be consulted from the outside.

Its principal weakness is not doctrinal but operational. In many current employee-ownership structures, especially ESOPs, the economic incidence of ownership does not carry corresponding voting agency. Shares may be voted by trustees, management, or intermediaries rather than by employees themselves. McRitchie is therefore correct that the model requires legal changes if ownership is to become governance-relevant rather than symbolic.

Comparative Strengths, Weaknesses, and Domains of Fit

The Coalition’s model is strongest where patron use, or community participation, is the enterprise’s defining relationship. User-owned platforms, fan-owned sports franchises, health-data cooperatives, community broadband, creator networks, and some blockchain-based businesses fit that description well. In such settings, participatory ownership is not a sideshow. It is part of the enterprise’s core logic. Regulation Membership is attractive precisely because it allows users to become owners without converting every such effort into a conventional securities offering.

Its weakness is equally clear. The same features that make a qualifying membership interest look non-security-like–limited transferability, patronage-based returns, and membership control–also limit the liquidity and outside-capital appeal that characterize conventional public equity. The Coalition attempts to address that problem through accredited-investor reform and exemptive coordination, but the underlying tradeoff remains. A cooperative safe harbor is not a substitute for public equity markets. It is a legal pathway for a different kind of ownership relation.

McRitchie’s model is strongest where the enterprise is already, and likely should remain, a conventional corporation, but where governance quality would benefit from broader informed ownership. Large retailers, logistics companies, service businesses, manufacturers, and other human-capital-intensive firms fit that profile. There, the challenge is not to replace the corporation with a cooperative but to bring more operational knowledge into the governance process without sacrificing liquidity, access to external capital, or fiduciary coherence and case law.

Its limitation is that it leaves users, patients, and other nonemployee constituencies largely outside the ownership frame. For that reason, the two models should not be treated as substitutes. They solve different problems. One democratizes patron ownership. The other democratizes a portion of shareholder governance inside the public corporation.

Legal Changes Needed to Realize Regulation Membership

Bringing the Coalition’s vision to fruition would require more than interpretive goodwill. At a minimum, six legal moves are necessary.

1. Congress would need to enact a version of the proposed Section 111 or Section 110 that directs the SEC to adopt Regulation Membership. Because the Coalition seeks a durable, generally available federal safe harbor, ordinary exemptive administration is insufficient.

2. The SEC would need to write detailed implementing rules defining participation, patronage-linked distributions, acceptable transfer restrictions, valuation practices, tokenized membership mechanics, recordkeeping standards, and anti-abuse guardrails. The more the proposal emphasizes digital-ledger-based membership, the more important it becomes to specify operational rules rather than rely on broad concepts alone.

3. The SEC would need either to amend Regulation D’s accredited-investor rules or to create a functionally equivalent parallel exemption allowing qualifying cooperatives to acquire securities without being structurally disfavored as democratic capital pools.

4. Congress or the SEC would need to provide the Investment Company Act relief promised in the proposal so that qualifying cooperatives holding equity interests in operating firms are not forced into a regulatory category designed for investment funds rather than participatory ownership vehicles.

5. Congress would need to enact the limited blue-sky preemption contemplated by the Coalition so that qualifying memberships are not dragged back into the fifty-state registration patchwork.

6. States would still need to modernize cooperative statutes so that multi-stakeholder, platform, tokenized, and digitally administered cooperatives have clear entity-law foundations. Securities clarity will not help much if state cooperative law remains ill-suited to contemporary forms.

Legal Changes Needed to Realize Shared Capitalism Without Control Capture

McRitchie’s proposal requires a different set of reforms.

1. ERISA and related plan-governance rules should be amended to permit or require greater pass-through or direct employee voting in ESOP-like and trust-based structures. Without voting agency, broad-based employee ownership does not meaningfully narrow the rights-power gap.

2. The SEC should require standardized disclosure of employee ownership, including the total percentage of outstanding shares held by employees, the distribution between executives and rank-and-file workers, the distinction between direct and plan-based holdings, and, crucially, who controls the vote attached to those shares.

3. Tax and corporate-law safe harbors should be developed for capped employee ownership trusts that are clearly noncontrolling and that preserve one-share/one-vote governance while facilitating long-term employee holdings.

4. SEC proxy rules and exchange governance frameworks should make it easier for employee-shareholders to communicate, vote confidentially, and participate in ordinary corporate governance without thereby becoming a separate legal class.

5. Financial reporting and human-capital disclosure should be improved so that investors can actually observe the scale and character of workforce investment and employee ownership. McRitchie’s work correctly emphasizes that current accounting and disclosure systems leave too much of this invisible.

Toward Institutional Pluralism and Hybrid Forms

The best reading of the Coalition’s proposals and McRitchie’s writings is not that one model should triumph over the other. It is that American law should support a more pluralist ecosystem of democratic capital.

Some enterprises are best organized around patron ownership. Others are best organized around conventional investor ownership supplemented by employee ownership without control capture. Still others may justify hybrids. A digital platform, for example, might remain conventionally incorporated and publicly traded while including a capped employee ownership trust for internal governance capacity and a cooperative layer through which users hold governance or economic rights tied to participation. A sports franchise might combine outside capital, fan cooperative ownership, and broad-based employee equity. A healthcare enterprise might include patient, provider, and worker ownership in different legally differentiated forms.

The law today makes such experimentation too cumbersome to be realized. Securities regulation is often calibrated to a world of conventional passive investment. Cooperative law is often calibrated to legacy agricultural or local retail forms. Employee-ownership law is often calibrated more to retirement-plan administration than to governance design. The task now is not to abolish these older frameworks but to update them so that flexible participatory ownership can develop at scale where it is economically appropriate.

Conclusion

The Blockchain Cooperative Coalition’s Regulation Membership proposal and James McRitchie’s shared-capitalism model share a common ambition. Reconnect ownership, participation, and accountability in sectors where those relationships have been thinned out by legal form, capital-market convention, and institutional intermediation. The two visions differ chiefly in the class of owners they seek to elevate. The Coalition looks to patrons, users, fans, patients, and other participants in community-centered enterprises. McRitchie looks to employees inside conventional corporations.

Those are not rival projects. They are complementary institutional responses to different forms of democratic deficit in modern enterprise. American law should, therefore, be revised not to choose between them, but to permit both separate and in combination. A legal system capable of supporting patron cooperatives, employee ownership without control capture, and thoughtful hybrid forms would not abolish capitalism. It would broaden its ownership base, improve its information flows, strengthen its democratic legitimacy and grow the economy.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Virtual-only shareholder meetings promised broader access. Instead, they are becoming one of management’s most effective tools for controlling dissent.

Miriam Schwartz-Ziv has now proven, with hard data, what active shareholders have warned for years: many annual meetings are designed less to hear investors than to manage and mute them.

Is Shareholders’ Voice Strategically Shaped at Shareholder Meetings, and Does the Market Care? is one of the most consequential recent contributions to the literature on shareholder democracy because it provides rigorous empirical proof for what active shareholders have long observed in practice: annual shareholder meetings are increasingly structured not to facilitate shareholder voice, but to shape, filter, and sometimes suppress it.

How Virtual-Only Shareholder Meetings Silence Investors

Schwartz-Ziv’s core finding is that firms facing anticipated shareholder dissent are significantly more likely to adopt mechanisms that limit shareholder participation, and that these mechanisms are substantially more prevalent in virtual-only meetings.

Drawing on 2,513 shareholder meeting transcripts spanning 2017–2023, together with a uniquely valuable dataset of 767 shareholder-submitted questions,[1] Schwartz-Ziv identifies four recurrent methods by which firms constrain shareholder voice:

1. Ignoring submitted shareholder questions;

2. Preventing shareholders from presenting questions in their own words;

3. Restricting questions only to proposal-related topics;

4. Reporting only pass/fail voting outcomes instead of exact vote tallies.

These practices are not accidental or neutral administrative choices. Schwartz-Ziv demonstrates that they are strategically deployed when management has advanced knowledge that shareholder support for directors or management proposals is weak. In other words, companies are more likely to suppress voice precisely when dissent is strongest.

Her findings also document a profound structural transformation in AGM design. Before COVID-19, only 8.3% of S&P 500 companies held virtual-only meetings. During the pandemic, that number surged to 85.1%, and even after the pandemic, virtual-only meetings remain dominant at 70.7%. What began as an emergency accommodation has now become a normalized governance architecture.

Muted at the Mike and Music for a Democratic Corporate Governance

Market Consequences are Real

Perhaps the paper’s most important advance is its demonstration that this shift has market consequences. Virtual-only meetings are followed by:

• Smaller abnormal stock returns;

• Lower trading volume;

• Lower volatility;

• Fewer online discussions and tweets.

These findings[2] matter because they show that when shareholder voice is constrained, markets receive less meaningful information. Governance opacity becomes not only a shareholder-rights problem but also a market-efficiency problem.

These conclusions strongly reinforce the January 2025 Statement of the Shareholder Rights Group and the Interfaith Center on Corporate Responsibility (ICCR), which warns that many virtual AGMs have devolved into “robotic or scripted rituals” and that virtual-only formats are “a poor substitute for the real-time exchange that occurs in a face-to-face meeting” Schwartz-Ziv’s work gives empirical grounding to that governance warning.

We Warned About This for Years—Now the Data Proves It

Long before academic studies could quantify these patterns, experienced shareholders were already describing them in real time. The concerns documented in Schwartz-Ziv’s paper are not new; what is new is that they have now been statistically validated.

Early Attempts to Counter

For more than a decade, I have chronicled the gradual transformation of AGMs from open accountability forums into increasingly controlled communication environments. In Virtual Meetings: Can Shareholder Proposals Stem the Tide? (2016), I argued that virtual-only meetings were being adopted not because shareholders demanded them, but because entrenched boards preferred formats that minimized unscripted confrontation. I noted that hybrid meetings preserve both access and accountability, whereas virtual-only meetings preserve access while significantly reducing accountability.

Schwartz-Ziv’s evidence confirms that firms are more likely to choose virtual-only meetings precisely when they anticipate heightened shareholder scrutiny. The strategic venue choice that once appeared speculative is now empirically demonstrated.

In Virtual-Only Meetings: The Nuclear Option (2017), I recommended voting against governance committee directors at companies adopting virtual-only formats without meaningful protections, reflecting the view that the AGM format itself had become a core governance issue rather than a procedural side matter.

Destruction of shareholder-to-shareholder communication

The deeper loss, however, extends beyond management filtering of formal questions. In Chat Rooms Missing at Shareholder Meetings (2020), I identified what remains one of the least appreciated governance harms of virtual-only AGMs: the destruction of shareholder-to-shareholder communication. Some of the most important information at an in-person meeting emerges not from scripted management remarks but from informal conversations among shareholders before, during, and after meetings. In these unscripted moments, investors compare interpretations, identify governance concerns, and sometimes uncover facts management never discloses publicly. I recount learning at one meeting that certain directors had never even met one another in person—a startling fact that revealed deep board dysfunction that would never have appeared in proxy materials.

Virtual-only meetings sever this informational ecosystem. When shareholders cannot see who else is present, cannot speak informally, and cannot build coalitions in real time, shareholder democracy becomes atomized. Each investor is isolated in one-way communication channels controlled by management.

Best Practice Discussions Failed

I continued documenting the consequences. In Virtual Shareholder Meetings 2021, I described persistent patterns of cherry-picked Q&A, paraphrased shareholder questions, distorted sequencing, and the elimination of follow-up dialogue. I also emphasized that best-practice discussions were failing to address the most essential missing infrastructure: the capacity for shareholder-to-shareholder chat.

What makes Schwartz-Ziv’s paper so important is that it closes the loop between lived shareholder experience and academically documented proof. The shareholder community’s long-standing warnings are no longer merely anecdotal; they are now supported by systematic evidence across thousands of meetings.

From Suspicion to Proof: How Schwartz-Ziv’s New Research Changes the Debate

Schwartz-Ziv’s earlier scholarship had already begun documenting the weakening of shareholder voice in virtual environments. Her previous work established that virtual meetings often involve reduced transparency, increased management control over questioning, and diminished opportunities for spontaneous shareholder challenge. That earlier research identified recurring evasion tactics: companies falsely claiming there were no more questions, restricting inquiries to proposal-only subjects, paraphrasing critical questions into softened versions, and eliminating follow-up exchanges.

What distinguishes the new paper is not merely additional data, but conceptual maturation in three critical respects.

First, the new paper establishes strategic intent. Earlier work showed that voice suppression occurred. This paper demonstrates when and why it occurs: firms suppress voice more aggressively when shareholder dissatisfaction is higher. That transforms the issue from one of poor meeting design into one of deliberate opportunism in governance (pp. 2–4).

Second, the new paper proves market significance. Prior scholarship focused primarily on fairness and participation. Here, Schwartz-Ziv demonstrates that communication suppression weakens price discovery itself. Virtual-only meetings generate less meaningful information, resulting in smaller abnormal returns and lower trading activity (pp. 4–6). This elevates AGM design into the realm of securities market regulation.

Third, the new paper reveals that the choice of format itself is strategic. Firms choose virtual-only meetings more often when greater scrutiny is expected. That is a profound finding because it means the meeting venue is no longer neutral architecture; it has become an instrument of defensive governance.

Appendix D

Her current recommendations are more concrete—and narrower—than the paper’s main body alone suggests. Appendix D sets out five specific procedural reforms aimed at reducing issuer control over shareholder meetings and making virtual AGMs more transparent and accountable. Schwartz-Ziv recommends: requiring firms to make audio and video recordings and transcripts of shareholder meetings publicly available on a permanent basis; requiring disclosure of all submitted shareholder questions, together with the company’s policy for allocating time to questions and its mechanism for selecting which questions are answered; allowing shareholders to present their own questions directly rather than having them filtered through management; requiring firms to disclose the number of shareholders attending each meeting, so unusually low levels of participation or questioning can be scrutinized; and easing technical barriers to question submission, including reducing authentication obstacles and encouraging competition beyond dominant platform providers such as Broadridge.

These recommendations align closely with the 2025 ICCR / Shareholder Rights Group statement, particularly in their shared emphasis on transparency, meaningful participation, and reducing management control over shareholder communications. At the same time, Schwartz-Ziv’s Appendix D is distinctive in focusing less on broad governance principles and more on practical procedural design—especially disclosure of submitted questions, public availability of recordings, and platform reforms that make suppression easier to detect and harder to conceal.

Ten Priority Reforms to Restore Accountability at Shareholder Meetings

The following reforms combine Schwartz-Ziv’s Appendix D recommendations with additional governance reforms drawn from her empirical findings, shareholder experience, and broader policy analysis. Together, they form a coherent agenda for restoring accountability at shareholder meetings.

1. Strongly Prefer Hybrid Meetings and Require Justification for Virtual-Only Formats

Hybrid meetings best preserve both accessibility and accountability. Virtual-only formats should be permitted only where issuers can justify why in-person participation is not feasible.

2. Require Permanent Public Access to AGM Recordings and Transcripts

Companies should make audio recordings, video recordings, and transcripts of shareholder meetings publicly available on a permanent basis, ideally through SEC filing systems. Public archives allow investors, researchers, and regulators to independently assess the fairness of meetings and detect patterns of suppression. Companies should also disclose the number of shareholders attending each meeting, since low question volume relative to attendance may signal barriers to participation or question suppression.

3. Require Full Question Transparency and Integrity Protections

Companies should disclose in advance how questions will be selected, grouped, paraphrased, queued, and answered. All submitted questions should be publicly disclosed, preserved in their original wording unless edits are clearly disclosed, displayed in participant-visible transparent queues where feasible, and included in audited post-meeting logs with written responses to unanswered questions.

4. Protect Meaningful Real-Time Shareholder Participation Rights

Virtual and hybrid meetings should permit reasonable follow-up questioning where feasible, allow shareholders to present their own questions directly rather than through management intermediaries, and keep voting open long enough after presentations and Q&A to allow informed shareholder decision-making.

5. Require Exact Vote Tally Disclosure During Meetings

Pass/fail reporting deprives shareholders of critical governance information. Exact vote counts allow real-time scrutiny of low-support directors and proposals.

6. Create Shareholder-to-Shareholder Communication Channels

Virtual platforms should include independent shareholder chat rooms before, during, and after meetings. Shareholder democracy requires peer deliberation, not merely one-way communication with management.

7. Establish Auditable Platform Accountability Standards

Virtual meeting platforms should provide continuous, live, visible participation by directors and senior executives and be subject to independent auditing of moderation systems to prevent the selective suppression of dissenting voices. Platforms should minimize technical barriers to question submission, reduce unnecessary authentication obstacles, and encourage interoperability beyond dominant providers such as Broadridge.

8. Tie Governance Committee Director Votes to AGM Quality

Investors should oppose directors of the governance committee when companies repeatedly hold virtual-only meetings without adequate protections. Meeting design should itself be treated as a governance performance issue.

9. Adopt SEC AGM Fair Process Rules

The SEC should adopt enforceable AGM Fair Process Rules that establish minimum national standards for question handling, disclosure, moderation, transparency, and shareholder participation rights. Because shareholders face severe penalties under Rule 14a-8(h) for failing to present proposals, issuers should also face comparable obligations to conduct fair and transparent meetings.[3]

10. Reform Corporate Law and Proxy Oversight Systems

State corporate law should prohibit boards from unilaterally imposing permanent virtual-only formats without shareholder approval, and proxy advisors such as ISS and Glass Lewis should incorporate AGM transparency and responsiveness into governance ratings.

What Happens Next: Research, Reform, and What Shareholders Must Do Now

Miriam Schwartz-Ziv’s contribution is transformative not only because she empirically demonstrates that AGM accountability is eroding, but also because Appendix D converts diagnosis into institutional design. Her paper does more than document strategic suppression of shareholder voice—it offers a practical blueprint for rebuilding fairness into meeting architecture itself. That combination of empirical proof and procedural design makes this paper unusually important in the evolution of shareholder governance reform.

Taken together, her work, long-running shareholder advocacy, and the ICCR 2025 governance statement create a unified picture: AGMs are at a crossroads. Without reform, they risk becoming brief ceremonial check-the-box events—scripted performances rather than deliberative accountability forums.

Future research should now extend in several directions

• Compare governance outcomes between hybrid and virtual-only firms over time;

• Study whether suppressed AGM communication predicts future governance failures;

• Analyze whether question filtering correlates with litigation, restatements, or activist campaigns;

• Measure the impact of shareholder chat functionality, if it is ever offered, on coalition-building and proposal outcomes.

Most importantly, readers need not wait for regulators.

Schwartz-Ziv has provided the empirical foundation. Shareholders have already provided the lived evidence. The next phase depends on coordinated action: reporting, voting, proposing reforms, and insisting that technology serve shareholder democracy rather than displace it. Who will step up?

Experiences at Virtual AGMs - 2026

We hope you can help track how companies treat shareholders who attend 2026 AGMs virtually. Data with academics, the SEC Investor Advisory Committee, or others, including the press, but your name and contact information will be kept confidential.

ICCR and the Shareholder Rights Group released a statement in 2025 addressing several issues experienced by investors at annual general meetings while exercising their shareholder rights. These include the right to file shareholder proposals, shareholders’ ability to attend AGMs in person, remedying participation issues in the new virtual meetings environment, and shareholders’ use of universal proxy cards. See Regarding Corporate Governance and Annual General Meetings in 2025. The British Columbia Investment Management Corporation (BCI) released Best practices for hybrid AGMs on November 4, 2025.

Please fill out the ICCR Reporting form to record your experience for every AGM you attend this season using the internet. If you lose track of the link, you can find it in the right-hand column on most pages at CorpGov.net. Look for

AGMs: How Responsive are Companies to Shareholders? All shareholders are invited to reference studies and recommendations. Use the ICCR Reporting Form to report on every meeting. Your submissions will be compiled and reported.

Footnotes

[1] The analysis of questions is limited to those submitted by John Chevedden and James McRitchie because they shared detailed records of hundreds of questions they submitted across 199 virtual-only meetings (with 767 questions in total), providing a large, consistent dataset, and because as prominent “gadflies” whose shareholder proposals historically receive relatively high ISS and shareholder support and above-average pass rates, they are experienced, credible retail activists rather than outliers.

[2] She explicitly contrasted virtual-only meetings with (1) in‑person meetings in the same 2018–2023 window and (2) the firm’s own pre‑meeting period, plus cross‑sectional variation in voting support.

[3] Rule 14a-8(h) provides that if a proponent or their qualified representative fails to appear and present a proposal without good cause, the company may exclude that shareholder’s proposals for the following two calendar years. No equivalent SEC rule comparably penalizes issuers for running unfair AGMs, suppressing shareholder participation, or structuring meetings to mute dissent. That imbalance is increasingly untenable as virtual-only AGMs become dominant. The legal architecture still assumes management can be trusted to run fair meetings. Schwartz-Ziv’s evidence strongly suggests that the assumption no longer holds.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Paul Rissman’s excellent post When Fiduciaries Collide: Foreshadowing a Looming Conflict in Corporate Governance identifies a structural contradiction at the heart of modern corporate governance in the United States. On one side stand corporate directors, bound by fiduciary duties under Delaware law to maximize the long-term value of the corporation. On the other side stand fiduciaries of diversified investment portfolios—particularly pension trustees—who must safeguard the financial welfare of human beneficiaries across the entire market. I doubt I can improve Rissman’s arguments. Instead, I share some ideas below to update fiduciary duty to address systemic risk.

As Rissman notes, when corporations generate negative externalities such as carbon emissions, labor exploitation, or other systemic harms, these two fiduciary mandates collide. Directors may rationally refuse to reduce such externalities if doing so would harm firm-level value, while diversified investors may rationally demand their reduction because those same externalities threaten portfolio-wide returns. Again, this is not merely a theoretical tension—fiduciaries acting rationally within their respective domains systematically work at cross purposes. The concern is urgent: estimates of systemic risk impacts—including climate, inequality, and instability—suggest huge potential losses, materially impairing diversified portfolios over timeEstimates of systemic risk impacts—including climate, inequality, and instability—suggest potential losses large enough to materially impair diversified portfolios over time.

System on Fire: Updating Fiduciary Duty to Address Systemic Risk and Music for a Democratic Corporate Governance

Background and Constraints

This is not a failure of either set of fiduciaries; it is a failure of legal architecture. Corporate law remains rooted in a firm-centric model of value. As Judge Laster noted in McRitchie v. Zuckerberg (Del. Ch. 2024) “The fact that shares are freely alienable by default means that, from the directors’ standpoint, the ultimate human beneficiaries of that value are incidental.” (Credit to Rick Alexander and The Shareholder Commons for the idea of the lawsuit, funding, and work with Heyman Enerio Gattuso & Hirzel LLP)

Because of modern portfolio theory and the recognized benefits of diversification, capital markets are portfolio-centric. Huge funds manage investments on behalf of millions of investors. These large institutional investors are “universal owners,” exposed to economy-wide risks rather than firm-specific outcomes. Externalities that depress overall economic performance—climate change, inequality, or systemic instability—are therefore internalized at the portfolio level, even if they remain external to any single firm. As scholars have noted, this creates a divergence between firm-level optimization and portfolio-level welfare.[1]

The result is a paradox: actions that maximize the value of individual firms can erode the value of the market as a whole, thereby harming the very investors corporate law and the very concept ‘fiduciary duty’ is meant to serve. Recent scholarship suggests this divergence may require not just expanded discretion, but a redefinition of fiduciary prudence itself to incorporate systemic risk.

I don’t see us readily abandoning the corporate form or broadly redefining fiduciary duty to run directly to “humanity.” Such a move would destabilize the predictability and coherence of corporate governance. See my discussion on Shareholder Primacy. The easiest path forward is probably a series of reforms proceeding incrementally, preserving the entity-based model while updating the content of fiduciary duty to reflect the economic reality of diversified ownership. However, incremental reforms may ultimately need to culminate in deeper changes to trust law itself.

Redefine Materiality to Capture Systemic Risk

The first and most immediate reform could be to clarify that systemic risks can be financially material under securities law. Current disclosure regimes often emphasize firm-specific impacts, but this approach is increasingly artificial in a highly interconnected economy.[2]

Amend (SEC regulatory guidance or rulemaking)

Amend Regulation S-K (Item 105 – Risk Factors) to provide:

“A risk shall be considered material if there is a substantial likelihood that it will affect the registrant’s long-term financial condition or operating performance, including through systemic or market-wide economic impacts that influence demand, supply chains, capital costs, or financial stability.”

This clarification would:

• Legitimize board consideration of systemic risks

• Improve disclosure consistency

• Provide evidentiary grounding for future fiduciary analysis

Safe Harbor for Systemic Risk Mitigation

Even where systemic risks are recognized as financially relevant, directors may hesitate to act due to fiduciary constraints. A targeted statutory reform can address this concern without dismantling existing doctrine.

Amend Delaware General Corporation Law (new §141(l)

“In discharging their fiduciary duties, directors may consider the effects of corporate conduct on systemic risks and on the long-term financial interests of diversified shareholders. A director shall not be deemed to have breached any duty of care or loyalty solely by reason of considering or acting upon such effects in good faith.”

This approach preserves the business judgment rule while expanding the permissible scope of board deliberation. It also follows a familiar pattern in Delaware law, where fiduciary doctrine has evolved incrementally to address emerging risks, as reflected in the recognition of board oversight duties in In re Caremark International Inc. Derivative Litigation.[3] Over time, what begins as a permissible consideration may (or may need to) evolve into an affirmative fiduciary obligation, particularly for diversified investors. Many risks, such as climate change and microbrial resistance, are urgent. These and other risis are not marginal—credible estimates suggest they could erase a substantial share of global portfolio value over time.

Broaden Ownership Through Employee Equity

Doctrinal reform alone cannot resolve the underlying misalignment if governance remains dominated by actors constrained to firm-level thinking. A complementary structural reform is to broaden share ownership among nonexecutive employees.

Employees:

• Possess superior firm-specific information

• Experience localized externalities

• Are not bound by fiduciary duties requiring strict wealth maximization

Encouraging employee ownership introduces a class of shareholders capable of balancing financial and non-financial considerations in ways fiduciaries cannot.

Amend ERISA (29 U.S.C. §1103(a) and related provisions)

Add language such as:

“To the extent plan assets include employer securities, such securities shall, where practicable, be allocated to individual participants with:
(1) minimum holding periods of not less than three years; and
(2) pass-through voting rights exercisable directly by participants.

Trustees shall not exercise voting authority over such securities except where participants have not provided instructions.” (Maybe uninstructed ballots should be voted proportionately as directed by those exercising such rights to avoid capture of such votes by management?)

Additional incentives could include:

• Tax advantages for broad-based employee equity grants, while avoiding control capture levels by employees

• Safe harbors for companies meeting minimum employee ownership thresholds

This reform would:

• Embed informed, locally affected shareholders into governance

• Reduce incentives to externalize costs onto workers and communities

• Improve long-term firm performance, as supported by empirical research [4]

Disclose Employee Ownership and Incentives

To allow markets to respond to governance differences, disclosure must be enhanced.

Proposed SEC rule (new Item under Regulation S-K)

“Registrants shall disclose:
(1) the percentage of outstanding equity held by nonexecutive employees;
(2) the distribution and vesting terms of such holdings; and
(3) the extent to which voting rights are exercised directly by employees.

Such disclosure shall be provided to allow investors to conduct a material to an assessment of governance, incentives, or long-term performance.”

This would enable investors to price governance structures, facilitate comparative analysis across firms, and enhance accountability in ownership design. This approach is consistent with the broader trajectory of disclosure-based regulation, which seeks to improve market outcomes by improving information rather than mandating specific conduct. [5]

Enable Retail Shareholders Through Standing Voting Instructions

Retail shareholders represent a largely dormant but potentially decisive governance force. Unlike institutional investors, they are not constrained by fiduciary duties and may be willing to support trade-offs that reduce externalities. The barrier is procedural friction.

Proposed SEC and Proxy Plumbing Reform

Amend Exchange Act Rules 14a and 15c to require intermediaries to implement standing voting instructions (SVIs):

“Broker-dealers and other intermediaries shall provide beneficial owners the ability to establish standing voting instructions applicable to recurring or substantially similar proxy matters. Such instructions shall be implemented automatically unless revoked or modified by the beneficial owner.”

Key features should include:

• Predefined policy templates (e.g., climate-focused, labor-focused, governance-focused)

• Customizable voting policies

• Transparency and auditability of vote execution

This reform would:

• Dramatically increase retail participation

• Introduce broader preference diversity into voting outcomes

• Reduce reliance on concentrated institutional voting power[6]

Reinforce Trust Law to Address Systemic Risk

Parallel clarification in trust and pension law is necessary to legitimize systemic risk stewardship.

Proposed amendment to ERISA fiduciary duty provisions:

“A fiduciary shall consider risks to the portfolio arising from systemic economic conditions, including environmental, social, and governance factors, where such risks are reasonably likely to affect long-term investment performance.”

This aligns fiduciary duty with modern portfolio theory and protects trustees from claims that such considerations are non-pecuniary.

Updating Fiduciary Duty to Address Systemic Risk: Toward Doctrinal Convergence

Over time, these reforms can support a gradual evolution in corporate law itself. Courts may begin to recognize that the “best interests of shareholders” include their interests as diversified investors whose returns depend on the health of the broader economy.

This shift need not be abrupt. It can emerge through:

• Disclosure-based litigation

• Oversight claims involving systemic risk

• Judicial recognition of financial interdependence

Updating Fiduciary Duty to Address Systemic Risk: Conclusion

The conflict Rissman identifies is not temporary; it is the predictable result of applying firm-centric legal doctrines to portfolio-centric markets. Modern portfolio theory has reshaped investing, but fiduciary law has yet to catch up.

The solution is not to abandon shareholder primacy, but to update its meaning. By redefining materiality, creating safe harbors, broadening ownership, enhancing disclosure, and empowering retail investors, the law can reconnect fiduciary duty and corporate governance to the real economic interests of the human beings fiduciary law was invented to protect.

In our interconnected world, fiduciary duty must evolve from a doctrine that operates within isolated firms to one that reflects the interconnected system in which those firms—and their shareholders—actually exist.

References

[1] Ronald J. Gilson, Jeffrey N. Gordon & Roberto Tallarita, Systemic Stewardship, 2021 Colum. L. Rev. 1501.
[2] Jill E. Fisch, Making Sustainability Disclosure Sustainable, 107 Geo. L.J. 923 (2019).
[3] In re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959 (Del. Ch. 1996).
[4] Joseph R. Blasi, Richard B. Freeman & Douglas L. Kruse, The Citizen’s Share: Reducing Inequality in the 21st Century (2013).
[5] Merritt B. Fox, Civil Liability and Mandatory Disclosure, 109 Colum. L. Rev. 237 (2009).
[6] Lucian A. Bebchuk & Scott Hirst, The Specter of the Giant Three, 99 B.U. L. Rev. 721 (2019).

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

James McRitchie, 04/04/2026 ,

I was talking the other day at the Center for Business Law & Society(leadership) with Brian Bartow, General Counsel of CalSTRS, who mentioned—somewhat casually—that he had to fly to Hawaii as part of litigation involving Mark Zuckerberg and Meta Platforms. (We all make sacrifices for our jobs.) He was there in Hawaii, I gather, to take a deposition in connection with CalSTRS’ case—one that ultimately led to a significant shareholder settlement. For those who missed it, CalSTRS recently highlighted that outcome.

That conversation lingered with me—not because of the litigation itself, but because of the setting. Hawaii was the home of some of my wife’s ancestors. On several visits, we have tended some of their graves and traced lives. Only one of her close relatives remains… and she grew up in Iowa. More on the geography of inequality to follow.

• E Ku Kaʻāina and Music for a Democratic Corporate Governance

Hawaii

Later, while listening to Beth Post’s Na Mele O Hawaii on KDRT, I found myself thinking less about depositions and more about inequality—specifically, how it manifests not just in wealth portfolios, but in land, place, and belonging.

We often talk about inequality in terms of wealth distribution. The numbers are stark and familiar: the top 1% of U.S. households now hold roughly 30.9% of total national wealth—about $50 trillion as of late 2024. That’s up dramatically from the late 1970s, when the top 1% held closer to 7%. Entry into that group doesn’t require billions—“only” multimillion-dollar assets—but the scale still matters. Billionaires, numbering perhaps 900–1,100 in the U.S., occupy a rarified stratum: roughly the top 0.0003% of adults.

But wealth isn’t just an abstraction. It takes physical form. In Hawaii, that form is land, the geography of inequality.

The Geography of Inequality

A quick search—prompted by Brian’s trip and a bit of musical inspiration—turned up a striking figure: 37 billionaires collectively own about 218,000 acres of land in Hawaii, or roughly 11.1% of the state’s private land. The precise breakdown is hard to determine, since much of it is held through LLCs and layered ownership structures. Still, the pattern is unmistakable. Even Forbes—once branded as “the capitalist’s tool”—has taken note.

It’s not hard to see the implications.

When land—especially finite, culturally rooted land—is increasingly concentrated in the hands of the ultra-wealthy, the effects ripple outward. Housing becomes unaffordable. Local ownership declines. Cultural continuity frays. For many Hawaiians, the idea of owning property in their home state has slipped out of reach.

And if current trends continue? It’s not unreasonable to imagine a future in which billionaires control 20% or more of private land in Hawaii and a considerable proportion of it in every desirable state.

That’s not just a statistic. It’s a structural shift.

Which brings us back—indirectly—to power and corporate governance.

Breaking Free

Because the same forces that drive wealth concentration also shape our corporations, our capital markets, and ultimately, our democracy. When ownership becomes too concentrated, voice diminishes. When voice diminishes, accountability erodes. And when accountability erodes, systems begin to serve themselves rather than the people within them. Think of the implications of the law considering humans as “incidental.” Fiduciary Duty Drift and Restoration

There are, of course, many possible pathways forward. I’ve outlined one here: Shared Capitalism. The idea is simple, though not easy: broaden ownership in public companies. Not through control capture or symbolic gestures, but through meaningful, distributed stakes—so that more people have both the incentive and the capacity to monitor, build, and engage their bodies, minds, and voices.

But no single reform will suffice. We need dozens—hundreds—of complementary changes across law, markets, and institutions.

Because if we don’t address these dynamics, we risk drifting further into an economy that feels less like capitalism and more like a mix of speculation, extraction, and what can only be described as organized gamboling or scamming.

As we mark Easter and Passover—a season of renewal and liberation—we’re reminded that our collective work in restoring fairness and shared ownership is, at its heart, an act of release and rebirth.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

I come to The Handbook of System-Level Investing (book link) not as a neutral reviewer, but as an individual who has spent decades filing shareholder proposals, engaging with corporate boards, and pressing CalPERS to live up to its potential as a universal owner. Like many shareholder advocates, I have often argued—sometimes against skepticism—that issues like climate risk, political spending, worker treatment, and market integrity are not peripheral concerns. They are central to corporate governance and long-term value creation. What I found in this volume, edited by Jon Lukomnik and William Burckart, is not just affirmation of that view, but a far more rigorous framework for explaining why it is true—and how to act on it. System-level investing is not an ESG add‑on, but the logical next step once you accept that climate, inequality, and governance breakdowns are structural drivers of returns, not “externalities.”

The book does something that shareholder advocates have long struggled to do convincingly: it connects the dots between individual corporate behavior and portfolio-wide outcomes. It provides language, structure, and evidence that elevate what might otherwise be dismissed as “ESG concerns” into the core of fiduciary duty. For those of us who have worked both inside and outside institutional investing—filing proposals on the one hand, while relying on pension systems like CalPERS on the other—it offers a way to align those roles more coherently.

From Systems to Song Music for a Democratic Corporate Governance

From Company Risk to System Risk

The intellectual foundation for this shift is laid out clearly in Chapter 1, where Lukomnik and Burckart explain why Modern Portfolio Theory, for all its usefulness, is incomplete. Diversification can manage idiosyncratic risk, but it does little to address systemic risks—those arising from climate instability, inequality, geopolitical stress, and institutional fragility. These are the risks that determine the overall performance of the economy and, therefore, the returns of diversified portfolios. For readers steeped in Modern Portfolio Theory, the Handbook’s most disruptive claim is empirical: 75–94% of portfolio return variability comes from market‑level “beta.” I don’t doubt that for a minute, so ignoring systemic risks is not sophistication; it is negligence.

This argument echoes earlier work by Lukomnik with James Hawley, but here it is developed into a practical framework. The key insight is that investors are not merely selecting securities within a system; they are exposed to—and can influence—the conditions under which that system operates. As a shareholder advocate, I recognize this immediately. Many of the proposals I have filed over the years were attempts to address exactly these kinds of risks, even if they were not always described in these terms.

What the Handbook does is provide a language that connects those efforts to fiduciary duty. If systemic risks dominate returns, then addressing them is not optional. It is central to the role of long-term investors.

Rethinking Shareholder Proposals Through a System Lens

That insight becomes more concrete in Chapter 8, where Steve Lydenberg and Carole Laible tackle the question of where investors should focus. Their framework—emphasizing consensus, relevance, effectiveness, and magnitude—offers a disciplined way to identify which issues truly rise to the level of systemic importance.

For a shareholder advocate filing proposals, this is more than theory. It provides a way to prioritize. Not every governance issue is systemic. But some clearly are. Climate change, for example, affects virtually every sector of the economy. Extreme inequality can suppress demand and destabilize markets. Weak democratic institutions can distort capital allocation and undermine investor protections.

Using Lydenberg and Laible’s framework, proposals can be reframed to emphasize these broader dynamics. A climate proposal becomes not just about emissions at a single company but about the cumulative impact of corporate behavior on economic stability. A proposal on political spending becomes not just about disclosure, but about whether corporate influence strengthens or weakens the institutional foundations of markets.

This shift—from firm-level risk to system-level causation—makes proposals harder to dismiss. It aligns them with the financial interests of diversified investors and grounds them in a more rigorous understanding of risk.

From Priorities to Practice: Learning Where to Act

The Handbook of System-Level Investing (link) does not stop at identifying risks; it also explores how investors can act. In Chapter 6, Jane Ambachtsheer, Adam Kanzer, and their co-authors describe how large asset managers are already integrating system-level considerations into stewardship. Their case studies—from biodiversity to labor standards—illustrate how engagement can move beyond individual company performance to address broader systemic issues.

Similarly, Chapter 11 by Jake Barnett and Patrick Peura examines the work of the Net-Zero Asset Owner Alliance, showing how collaborative engagement can amplify investor influence. For shareholder advocates, this reinforces something we have long known: individual proposals matter, but their impact is magnified when they are part of a broader, coordinated effort.

What is new here is the explicit framing. Engagement is not just about improving company behavior. It is about shaping system outcomes. That distinction matters, because it changes how success is measured. The goal is not simply to win a vote or secure a disclosure, but to contribute to a shift in market norms and practices.

Implications for CalPERS: Aligning Beliefs, Models, and Action

Reading the Handbook as a CalPERS beneficiary, I was particularly struck by Chapter 14, where Scott Kalb and Paul O’Brien examine capital market assumptions. These assumptions underpin everything from asset allocation to funding strategies, yet they are often based on historical data that may not reflect future realities.

Kalb and O’Brien argue that systemic risks—especially climate change—must be incorporated into these assumptions. The capital‑market‑assumptions chapter is a wake‑up call for asset owners like CalPERS: if your CMAs do not incorporate climate and other systemic risks, your entire asset‑allocation model is effectively pricing in a world that no longer exists. If climate disruption is likely to reduce long-term returns, then failing to account for it is a form of mispricing. More importantly, once it is accounted for, it raises an unavoidable question: what are investors doing to mitigate that risk?

For CalPERS, this creates a direct link between modeling and stewardship. If expected returns are shaped by systemic risks, then efforts to address those risks—through voting, engagement, and policy advocacy—become part of the strategy for achieving those returns. Shareholder proposals can play a role in this by pushing companies to align their strategies with the realities reflected in those assumptions.

This is where the Handbook moves from analysis to accountability. It suggests that investment beliefs, capital market assumptions, and stewardship practices should not exist in silos. They should reinforce one another.

Guardrails and the Power to Shape Markets

One of the most practically useful chapters for shareholder advocates is Chapter 15, where Takeshi Kimura introduces the concepts of “guardrails” and “standard-shaping.” Markets, he argues, are structured by rules, norms, and expectations. Investors have the ability—and, increasingly, the responsibility—to influence those structures. One of the Handbook’s quiet revolutions is its insistence that investors use their influence not just on issuers, but on benchmarks, policy, and data standards—the plumbing that actually shapes markets.

This resonates strongly with my experience filing proposals on corporate lobbying and political spending. For anyone who has ever had a “political” proposal ruled out of order, this book offers something powerful: a financially grounded argument that protecting democracy, information integrity, and social cohesion is part of protecting diversified portfolios. These proposals are often treated as peripheral, yet they directly address how market rules are shaped. Are companies supporting policies that reinforce system stability, or are they undermining them?

Kimura’s framework provides a way to articulate this more clearly. Guardrails—such as climate standards, labor protections, and transparency requirements—help align market behavior with long-term value creation. Standard-shaping is the process by which those guardrails are established and strengthened. Takeshi Kimura’s discussion of “guardrails” and “standard‑shaping” gives shareholder advocates a vocabulary for something we have long intuited: that we must hard‑wire system‑protective rules into mandates while simultaneously raising minimum standards across the market.

For CalPERS, this suggests a more active role in policy and standard-setting. For shareholder advocates, it suggests framing proposals not just in terms of company behavior, but in terms of the broader rules of the game.

A Different View of Fiduciary Duty

The legal implications of this shift are addressed directly in Chapter 16, where Susan Gary, Keith Johnson, and Tiffany Reeves argue that fiduciary duty is evolving. Drawing on U.S. trust and pension law, they make the case that considering systemic risks is not only permissible but, in many cases, required. For fiduciaries worried about legal exposure, the trio makes a compelling case that failing to address systemic risks may itself violate the evolving duty of prudence and loyalty to beneficiaries.

This is a critical point for anyone engaged in shareholder advocacy. Too often, proposals are opposed on the grounds that they fall outside fiduciary concerns. The Handbook turns that argument on its head. If systemic risks affect long-term returns, then ignoring them may itself be a breach of fiduciary duty.

For those of us who have been making versions of this argument for years, this chapter provides a welcome and authoritative foundation.

Returning to an Old Question, with a More Practical Answer

For decades, Robert A. G. Monks and Nell Minow reminded us that corporations shape the conditions of our lives, yet are often not accountable to anyone. That observation has guided much of my work. I don’t think it is a coincidence that Nell Minow’s Minivra Press is the publisher of the Handbook.

What The Handbook of System-Level Investing (buy) offers is not a complete solution, but a more practical answer than we have had before. Accountability, it suggests, can emerge from the actions of universal investors—those whose portfolios depend on the health of the system as a whole.

That is a powerful idea. It places responsibility not only on corporations, but on the investors who own them. It suggests that tools such as shareholder proposals, proxy voting, and policy engagement are not marginal activities but central mechanisms of accountability.

System-Level Initiatives: Resources

What makes the Handbook so useful for practitioners is that it treats system‑level investing as a toolbox—engagement, index design, policy work, consultant oversight—not a purity test or ideology. In addition to contacting the contributors to the Handbook and their organizations, I also recommend the following:

• As You Sow is a shareholder‑advocacy nonprofit that files and negotiates hundreds of ESG and system‑risk–oriented shareholder resolutions each year. For Handbook readers, it provides concrete proposal models, company targets, and campaign data that translate system‑level concepts into actionable engagements on climate, plastics, toxins, equity, and political influence.

• High Meadows Institute (HMI) is a think‑tank focusing on system change investing—moving beyond issuer‑level ESG to strategies that alter market rules and structures. It co‑sponsors system‑level investing case studies and research with TIIP, giving Handbook readers analytical framing and evidence to justify guardrail‑setting and policy‑focused strategies inside asset‑owner and asset‑manager organizations.

• The Predistribution Initiative (PDI) helps investors examine how fund structures, leverage, fees, and governance contribute to inequality and systemic risk, and how to redesign them so value is shared more fairly up front. For system‑level investors, PDI offers frameworks, tools, and case examples that shift focus from “mopping up” harm to predistributing power and income through capital structures, worker voice, and contract terms.

• The Investment Integration Project (TIIP) is the primary specialist on system‑level investing, providing frameworks, metrics, and case studies that show how investors can integrate system health into strategy, governance, and implementation. Handbook readers can use TIIP’s tools (including its SAIL platform and assessment frameworks) as roadmaps and diagnostics to move from concept to concrete policies, mandates, and stewardship practices.

• The Shareholder Commons focuses on systems‑first stewardship for universal owners, arguing that voting and engagement should sometimes prioritize system health (beta) over single‑company alpha. For readers of the Handbook, it supplies model voting principles, talking points, and case studies that operationalize system‑risk–aware proxy voting and guardrail campaigns, especially on climate, inequality, and other macro risks.

Handbook of System-Level Investing: Conclusion

If Modern Portfolio Theory taught investors how to build portfolios, The Handbook of System-Level Investing (book link) teaches them how to sustain them. It challenges investors to move beyond a narrow focus on individual securities and to engage with the systems that determine long-term outcomes.

As someone who files shareholder proposals and depends on CalPERS for retirement security, I find that challenge both familiar and urgent. The work of aligning corporate behavior with system health has been underway for decades, often at the margins. What this Handbook makes clear is that the center of gravity is shifting.

In a field crowded with ESG marketing, The Handbook of System‑Level Investing stands out as a practitioner‑written manual on how investors worth trillions are redesigning finance around system health—and why the rest of us need to catch up. The question now is whether shareholder advocates, institutional investors, and beneficiaries are ready to act with the coherence, discipline, and ambition the new framework demands.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Why do shareholders who formally possess extensive governance rights so often lack meaningful influence?

A recent paper by Sergio Alberto Gramitto Ricci and Christina M. Sautter, Corporate Disenfranchisement, provides one of the most compelling answers. The authors argue that modern corporate governance suffers from a persistent “rights–power gap.” Shareholders formally retain the right to vote, submit proposals, nominate directors, and challenge corporate actions. In practice, however, most investors lack the information, coordination mechanisms, and institutional capacity necessary to exercise those rights effectively. The rights–power gap, therefore, reflects a structural feature of modern corporate governance rather than a temporary regulatory imbalance.

The result is a governance system that appears democratic in form but frequently operates oligarchically in practice. One response is to preserve and expand the institutional infrastructure that allows dispersed shareholders to participate. For example, I have both tried to prevent the erosion of rights (Restore Shareholder Proposal Rights) and help shareholders more intelligently and automatically (In Celebration of MoxyVote.com and (Free Proxy Advisor From As You Sow & Iconikapp).

Another response, explored here, is to broaden the base of informed owners within firms themselves. Moderate employee ownership without control capture—on the order of three to twenty percent of outstanding shares—offers one potential mechanism for doing so, without altering the basic architecture of shareholder governance. However, for this informational advantage to influence governance outcomes, the law must be amended to allow employee shareholders to exercise voting rights directly, rather than relying solely on trustees or intermediaries. Knowing which companies have moderate employee ownership would then become material information for investors seeking to maximize returns due to increased employee involvement.

Republic of the Company, Long version — Republic of the Company, Short version

Music for a Democratic Corporate Governanc

e

Erosion of Rights

This diagnosis arrives at a moment when the institutional infrastructure supporting shareholder participation is undergoing significant change. Amendments adopted by the Securities and Exchange Commission in 2020 increased eligibility thresholds and resubmission requirements for shareholder proposals under Rule 14a-8 of the Securities Exchange Act. The rule historically allowed qualifying shareholders to place proposals in corporate proxy statements for a vote at annual meetings (SEC Release No. 34-89964. See my final comments on that rulemaking.

More recently, the SEC’s Division of Corporation Finance announced that it would scale back responses to many no-action requests regarding shareholder proposals, effectively shifting greater responsibility to companies to determine whether proposals may be excluded from proxy materials. At the state level, new legislation, such as Texas Senate Bill 1057, imposes significant ownership thresholds for shareholder proposals submitted to companies incorporated in Texas.

Viewed individually, these developments may appear incremental. Viewed collectively, they illustrate the structural dynamics described in Corporate Disenfranchisement.

Yes, we must fight the erosion of rights. However, we should also consider the implications of this insight: Corporate governance works best with informed owners. The shareholder proposal process can also be understood as a corporate analogue to what recently deceased political theorist Jürgen Habermas described as the “public sphere”—a space in which participants exchange views and subject ideas to reasoned scrutiny as part of collective decision-making. Within corporate governance, shareholder proposals have historically provided one of the few structured forums for such communication between investors and management. Weakening that mechanism risks diminishing the deliberative quality of corporate decision-making and investors’ ability to surface emerging risks and concerns.

Below, I summarize the main argument of Corporate Disenfranchisement, which explains the rights–power gap in modern corporate governance. I then turn to their discussion of the “Leopard Paradigm,” which illustrates how governance reforms often evolve in ways that preserve existing power structures even as formal rules change. Then, I examine the shareholder proposal system and other institutional mechanisms that allow dispersed investors to participate in governance. Finally, I consider how moderate employee ownership can broaden the base of informed shareholders within firms and thereby strengthen the informational foundations of corporate governance.

Corporate Disenfranchisement: The Rights–Power Gap

The central contribution of Gramitto Ricci and Sautter’s analysis is the distinction between formal governance rights and the practical ability to exercise those rights.

Corporate law formally grants shareholders numerous participatory tools:

• voting for directors

• submitting shareholder proposals

• bringing derivative litigation

• inspecting corporate records

• participating in corporate meetings.

Yet the effective use of these rights requires significant resources. Most investors face several structural barriers.

• Information barriers. Modern corporations are complex organizations whose governance structures often require specialized expertise to evaluate.

• Collective-action barriers. Shareholders are widely dispersed and frequently hold small stakes across many firms, limiting incentives to invest time in governance monitoring.

• Institutional intermediation. Asset managers, proxy advisors, and governance consultants increasingly mediate between beneficial owners and corporate decision-making.

Together, these conditions create a system in which the formal architecture of shareholder democracy remains intact while practical governance power becomes concentrated among a relatively small group of actors. As Gramitto Ricci and Sautter observe, “corporate governance rights may exist formally while the institutional environment prevents most shareholders from exercising them effectively.” The persistence of this gap raises an obvious question: why do governance reforms so often fail to alter underlying power structures?

If we want things to stay as they are, things will have to change.[/caption]

Corporate Disenfranchisement: The Leopard Paradigm

To explain why this pattern persists, Gramitto Ricci and Sautter introduce what they call the “Leopard Paradigm.” The concept derives from Giuseppe Tomasi di Lampedusa’s 1958 historical novel The Leopard (Il Gattopardo), set in 1860 during the political upheaval of Italian unification. In the novel, the aristocratic character Tancredi famously explains that the aristocracy must support political change in order to preserve its social position:

“If we want things to stay as they are, things will have to change.” [Giuseppe Tomasi di Lampedusa, The Leopard (1958); Wikipedia]

Political theorists often refer to this dynamic as the di Lampedusa principle—the idea that elites adapt institutions in ways that preserve underlying power structures even as formal reforms occur. Applied to corporate governance, the Leopard Paradigm suggests that reforms designed to expand shareholder participation through procedural rules, for example, frequently trigger countervailing institutional adjustments, leaving the underlying distribution of power largely unchanged.

Examples include:

• higher ownership thresholds for shareholder proposals

• increasingly complex procedural requirements

• regulatory changes affecting proxy advisory firms

• new restrictions enacted at the state level.

Each change appears modest in isolation. Collectively, however, they can shift governance influence toward elite actors with the resources and expertise necessary to navigate increasingly complex participation mechanisms. If the Leopard Paradigm accurately describes the evolution of corporate governance, reforms that rely solely on procedural adjustments are unlikely to close the rights–power gap. Structural changes that broaden the base of informed shareholders are therefore necessary.

Shareholder Proposals as Governance Infrastructure

One of the arenas where the rights–power gap and the Leopard Paradigm intersect most visibly is the shareholder proposal system. Rule 14a-8 allows shareholders meeting certain ownership requirements to place proposals in a company’s proxy statements for a vote at annual meetings.

Although proposals are typically advisory, they perform several important governance functions.

1. Proposals allow dispersed investors to signal concerns and priorities to corporate boards.

2. They facilitate coordination among shareholders who might otherwise remain unorganized.

3. They generate information for investors, analysts, and markets about emerging governance issues.

4. Athough proposals are advisory, shareholders can punish directors by withholding votes or filing proxy access candidates when boards fail to heed the votes.

Historically, many widely accepted governance reforms—including majority voting standards for directors and reporting standards—first emerged through shareholder proposals.

For more than three decades, the author of this post has participated directly in this proces, filing shareholder proposal at hundreds of companies as documented at CorpGov.net. These proposals have often addressed governance reforms—such as proxy access, majority voting, and declassified boards—that later became widely adopted governance norms. Fairer nomination guardrails may be next.

That experience illustrates an important point: the shareholder proposal process has long served as a laboratory for governance innovation, allowing dispersed investors to raise issues that can be tested as potential solutions before they become mainstream corporate practices.

From the perspective of Corporate Disenfranchisement, the proposal process therefore represents core democratic infrastructure within corporate governance. As Ricci and Sautter note:

Shareholder proposals are the miners’ canary of corporate disenfranchisement: when those in power subject participation to deterring requirements and formalities, ordinary shareholders are silenced.

Weakening that infrastructure does more than reduce the number of proposals appearing on proxy ballots. It reduces dispersed shareholders’ capacity to coordinate, communicate, and influence governance agendas.

Recent scholarship similarly highlights the informational role of the shareholder proposal process. As Jill Fisch and Jeff Schwartz observe in Corporate Value(s), “the power of public company shareholders to introduce shareholder proposals… has inspired a powerful backlash.” Yet they caution that eliminating or restricting this mechanism would undermine an important governance channel because “precatory proposals provide a focused and transparent mechanism for management to learn about what their shareholders value (and what they consider unimportant) without interfering with board discretion.”

In this sense, shareholder proposals do more than signal investor dissatisfaction. They serve as an information bridge between dispersed shareholders and corporate decision-makers.

Pass-Through Voting and the Limits of Participation

Recent developments involving pass-through voting illustrate both the promise and limitations of shareholder democracy. Large asset managers, such as Vanguard, BlackRock, and State Street, have begun experimenting with mechanisms that allow clients, to direct how shares are voted rather than relying exclusively on centralized stewardship teams.

These initiatives may broaden participation. Yet they also highlight the structural problem identified in Corporate Disenfranchisement. Expanding voting rights alone does not necessarily resolve the coordination and information barriers that prevent most investors from exercising those rights meaningfully.

Corporate Disenfranchisement: Adam Smith and the Information Problem of Ownership

The rights–power gap identified by Gramitto Ricci and Sautter also reflects a deeper shift in the structure of capitalism itself.

In The Wealth of Nations (1776), Adam Smith warned that large joint-stock companies create monitoring problems because those who manage corporate assets often do not bear the same risks as those who supply the capital. As Smith famously observed, “the directors of such companies… being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance.” Smith’s observation is often viewed as an early description of the monitoring problem later formalized in modern corporate governance scholarship in Jensen and Meckling’s Theory of the Firm.

Modern corporate governance attempts to address this separation through fiduciary duties, disclosure rules, and shareholder voting rights. Yet the structural problem Smith identified persists when ownership becomes widely dispersed, and the shareholders who formally possess governance rights lack the information or incentives necessary to exercise them effectively.

The separation of ownership from information and oversight lies at the heart of the rights–power gap. Corporate governance works best when ownership includes an informed voice. Expanding ownership among those with firm-specific knowledge, such as employees, represents a modern mechanism for addressing the monitoring problem Smith identified nearly 250 years ago.

Smith’s analysis highlights an important feature of corporate governance that remains relevant today. Effective oversight depends not only on formal ownership rights but also on owners with meaningful knowledge of the enterprise. Modern securities law attempts to address the separation of ownership and control through fiduciary duties, disclosure obligations, and shareholder voting rights. Yet these mechanisms do not eliminate the informational asymmetries created by widely dispersed ownership. When most shareholders lack firm-specific knowledge, governance influence tends to shift toward managers and financial intermediaries. The resulting gap between formal rights and practical oversight closely resembles the “rights–power gap” identified by Gramitto Ricci and Sautter.

One implication of Smith’s insight is that governance systems function more effectively when ownership includes participants who possess both economic stakes and operational knowledge. In this sense, moderate employee ownership can be understood as a modern institutional response to the monitoring problem Smith identified in early joint-stock companies.

Shared Capitalism as a Response to the Rights–Power Gap

Under this model, employees hold meaningful but minority equity stakes—typically between three and twenty percent of outstanding shares—while traditional corporate governance structures remain intact. Boards retain fiduciary oversight, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance.

The goal is not to transfer corporate control to employees. Instead, the objective is to increase the number of shareholders who possess both firm-specific knowledge and meaningful economic stakes in corporate performance.

Employees occupy a distinctive informational position within firms. They observe operational decisions, internal processes, and emerging risks in ways that outside investors cannot easily replicate. Adam Smith recognized this informational advantage long ago, noting that many improvements in industrial machinery “were originally the inventions of common workmen” who directly observed the production process (The Wealth of Nations, Book I, Ch. I). When employees also hold equity stakes, their informational advantages can translate into more informed participation in corporate governance.

For this informational advantage to contribute meaningfully to corporate governance, however, employee shareholders must be able to exercise their voting rights directly. In many employee ownership structures—particularly ESOPs—shares are formally held by trustees who vote the stock on behalf of employees. While such arrangements may serve compensation or retirement purposes, they do little to translate employees’ firm-specific knowledge into influence over governance. If employee ownership is to narrow the rights–power gap identified in Corporate Disenfranchisement, employees must be able to vote their shares, communicate with other shareholders, and participate in governance processes, such as filing shareholder proposals. Otherwise, the informational advantages of employee ownership remain institutionally muted.

Limitations

Critics may worry that expanding employee ownership could undermine traditional shareholder governance and access to public markets by introducing competing stakeholder claims or weakening board authority. The model proposed here does neither. Moderate employee ownership—on the order of three to twenty percent of outstanding shares—does not transfer corporate control to employees, alter fiduciary duties, or replace the existing architecture of shareholder governance.

Directors continue to owe duties to the corporation and its shareholders as a whole, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance. The objective is not to create worker-controlled firms but to broaden the base of informed shareholders within them. By increasing the number of investors who possess both firm-specific knowledge and meaningful economic exposure to corporate performance, moderate employee ownership can strengthen the informational foundations of shareholder governance rather than displace it. Importantly, unlike worker-controlled firms, companies with moderate employee ownership benefit from lower capital costs and more liquid markets.

Evidence on Employee Ownership

Empirical research suggests that moderate employee ownership can strengthen both firm performance and organizational resilience. Studies summarized by the National Center for Employee Ownership report that firms with employee ownership plans often demonstrate higher productivity and improved firm performance. Research from Rutgers University’s Institute for the Study of Employee Ownership and Profit Sharing similarly finds that employee ownership can improve workplace productivity and firm stability.

While results vary across industries and firms, these findings suggest that broader ownership can strengthen both corporate governance and firm performance.

From the perspective of long-term institutional investors, the question is not whether employees should influence corporate governance as a distinct stakeholder group, but whether governance systems include a sufficient number of informed owners capable of monitoring management. Stewardship teams at large asset managers and pension funds face inherent capacity constraints when overseeing thousands of portfolio companies. Governance structures that broaden ownership among participants with firm-specific knowledge can, therefore, complement institutional stewardship by distributing monitoring capacity more widely.

Moderate employee ownership does not replace institutional oversight; rather, it reinforces it by increasing the number of shareholders with both economic exposure and informational incentives to identify emerging operational risks and governance problems. Realizing these benefits requires governance structures that allow employee shareholders to exercise voting rights directly rather than delegating those votes to company-appointed trustees. In many ESOP structures, shares are voted by plan trustees rather than by employees, except in limited circumstances, such as tender offers or major corporate transactions. See 29 U.S.C. §1103(a). Those provisions would need to be amended to enable employees to contribute their insights more fully to improve corporate governance.

Shared Capitalism and the Stewardship Capacity Problem

Modern capital markets increasingly rely on institutional investors to monitor corporate governance. Yet stewardship teams at large asset managers and pension funds face inherent capacity constraints when overseeing thousands of portfolio companies. From the perspective of long-term investors, the central question is therefore not whether employees should influence corporate governance as a distinct stakeholder group, but whether governance systems include a sufficient number of informed owners capable of monitoring management. Governance structures that broaden ownership among participants with firm-specific knowledge can complement institutional stewardship by distributing monitoring capacity more widely.

Moderate employee ownership—on the order of three to twenty percent of outstanding shares—offers one such mechanism. This model does not alter the basic architecture of shareholder governance. Directors continue to owe fiduciary duties, voting rights remain proportional to equity ownership, and capital markets continue to discipline managerial performance. Instead, employee ownership broadens the base of shareholders who possess both meaningful economic exposure and operational knowledge of the firm, strengthening the informational foundations of corporate governance. These benefits are realized most fully when employee shareholders can exercise their voting rights directly, rather than delegating them to company-appointed trustees.

The rights–power gap identified in Corporate Disenfranchisement is closely related to the problem of stewardship capacity. Large institutional investors now hold diversified portfolios across thousands of companies, limiting the amount of firm-specific monitoring they can realistically provide. By increasing the number of informed shareholders within firms, moderate employee ownership can supplement institutional stewardship. Employee shareholders are often well-positioned to identify emerging operational risks, communicate concerns internally, and support governance reforms that improve long-term performance.

In this sense, moderate employee ownership represents a modern institutional response to the monitoring problem Adam Smith identified in early joint-stock companies. Allowing employee shareholders to exercise voting rights directly helps transmit this firm-specific information into the broader shareholder governance process. In this way, employee voting does not displace institutional stewardship but complements it by improving the informational environment in which shareholders evaluate management performance and governance proposals. Again, 29 U.S.C. §1103(a) would need to be amended for employees to improve corporate governance.

This argument does not suggest that employee ownership alone can resolve the governance challenges associated with dispersed ownership. Corporate governance will continue to rely on institutional investors, fiduciary duties, disclosure regimes, and market discipline. The claim advanced here is more modest: broadening ownership among participants with firm-specific knowledge can improve the informational environment in which governance decisions are made and provide one practical mechanism for narrowing the rights–power gap.

The argument also suggests a testable empirical hypothesis. If governance failures arise partly because dispersed investors lack the information and incentives necessary to monitor corporate management, firms that broaden ownership among informed participants should exhibit stronger governance outcomes. Public companies with moderate employee ownership may therefore demonstrate higher shareholder participation, more informed voting patterns, and stronger long-term performance than otherwise comparable firms without such ownership structures. Empirical research comparing governance outcomes across firms with differing levels of employee ownership could provide valuable evidence on whether broader informed ownership helps narrow the rights–power gap identified by Gramitto Ricci and Sautter.

Conclusion

Debates about shareholder governance often focus on procedural details—proposal thresholds, voting rules, or proxy advisory regulation. Corporate Disenfranchisement reminds us that these debates reflect a deeper structural challenge. Modern corporate governance faces a persistent gap between formal shareholder rights and the practical ability to exercise them.

The Leopard Paradigm suggests that governance reforms frequently evolve in ways that preserve existing power structures even as formal rules change. Addressing the rights–power gap, therefore, requires more than expanding procedural rights; it requires governance systems that include a sufficient number of informed owners capable of exercising them.

Moderate employee ownership offers one practical mechanism for doing so. Employees possess firm-specific knowledge and direct exposure to corporate performance. When employee shareholders can exercise voting rights directly, that knowledge can enter the shareholder governance process, rather than remaining confined within the workplace. In this way, employee voting rights convert employee knowledge into governance influence.

Modern public corporations can be understood as institutional republics of capital: systems of delegated authority in which shareholders elect directors, directors oversee management, and fiduciary duties constrain the exercise of power. Like political republics, however, corporate governance can suffer from a gap between formal rights and effective participation. When ownership becomes widely dispersed, and most shareholders lack the information or incentives necessary to participate meaningfully in governance, republics risk becoming oligarchic in practice even if formal structures remain representative.

Strengthening corporate governance, therefore, requires more than expanding formal shareholder rights. It requires ensuring that Republics of Capital include a sufficient number of informed owners capable of exercising those rights effectively. Moderate employee ownership—particularly when employee shareholders can exercise voting rights directly—offers one practical way to broaden that base. By bringing firm-specific knowledge into the shareholder voting process, employee voting rights convert employee knowledge into governance influence.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Across the best-available empirical studies focused on publicly traded U.S. firms, “significant” employee ownership is most often operationalized through (i) an ESOP stake as a percent of common shares outstanding and/or voting shares, and (ii) broad-based equity programs (especially broad-based stock options in the 1990s).

The evidence base points to a nonlinear relationship between employee ownership and market performance: a large U.S. Census Center for Economic Studies working paper finds that small ESOPs (<5% of shares outstanding) are associated with materially higher valuation, while larger ESOP stakes show no valuation effect. In contrast, a National Bureau of Economic Research working paper focused on “labor voice” in corporate governance identifies public firms where employees control ≥5% of voting shares and uses a large non-employee-owned control universe; this study’s framing and empirical design emphasize that when employee owners vote a meaningfully sized block, the ownership stake can act as a governance lever that plausibly affects corporate policy (investment, risk, productivity).

For broad-based stock options, a Rutgers working paper (with matched peer benchmarking) reports that option firms show higher Tobin’s Q levels than comparable firms in 1997 (about 0.61–0.62 higher than “otherwise-similar” firms in the authors’ comparisons), while ROA results are more mixed across cross-sectional and pre/post adoption comparisons.

Overall, the literature is constrained by (a) measurement challenges (who owns? how much? voting control vs economic ownership; executive vs non-executive), (b) frequent reliance on selection-prone designs (cross-sectional comparisons even with controls), and (c) relatively few settings with clean quasi-experimental shocks to employee ownership among U.S. public companies. (Accompany your reading with popular opera in WAV, instead of our usual mp3 format. Click below to listen.)

Employee Ownership and Democracy: Author’s Note

This article relied on AI tools. I’ve been interested in this area for about 50 years. I can see I’m not going to live to see the social/economic changes I want, so this post is one of many notes in a bottle that I hope will inspire younger people to carry on. My current vision favors an economy with substantial employee ownership in large publicly traded companies (5-15% to avoid control capture that would disuade outside investors). Employees should be able to vote their shares and also have many of the other “necessary” components of Workplace Democratization outlined by Paul Bernstein in 1976.

As a long-time student of The Social Construction of Reality (1966), I had a falling out with Peter Berger, but found redemption in the work of Carole Pateman’s Participation and Democratic Theory (1970) and Jaroslav Vanek’s The Participatory Economy (1971). Along with Severyn Bruyn (The Social Economy, 1971), Monks and Minow (Power and accountability, 1991), those were my primary influences. Today’s youth may find similar inspiration from The Predistribution Solution and Initiative. Democracy is key to human flourishing and democratic corporate governance is key to political democracy.

As you will see in the section of this post entitled “Evidence Gaps and Future Research Directions,” a major obstacle to moving forward is the lack of data. My efforts to obtain disclosure of some of the needed data have been rebuffed. See Incentive Shares: Meta, Amazon & Repligen Refuse to Say How Distributed.

Incentive shares – shareholders have a right to know their distribution. Meta, Amazon, and Repligen argue against disclosure. Working mostly from the same template, they argue distribution of shares to employees is “ordinary business” and “does not focus on any significant policy issue that transcends the company’s ordinary business operations.”

Employee Ownership Performance: Primary Sources

The following are the main empirical sources used as the backbone for this report (PDF/official sources where accessible):

• E. Han Kim and Paige Ouimet, Employee Capitalism or Corporate Socialism? Broad-Based Employee Stock Ownership (U.S. Census Bureau Center for Economic Studies working paper CES-WP-09-44).

• Olubunmi Faleye, Vikas Mehrotra, and Randall Morck, When Labor Has a Voice in Corporate Governance (National Bureau of Economic Research working paper 11254).

• James C. Sesil, Maya K. Kroumova, Douglas L. Kruse, and Joseph R. Blasi, Broad-Based Employee Stock Options in the U.S.: Company Performance and Characteristics (Rutgers University working paper).

• Public Companies with Broad-Based Stock Options: Corporate Performance from 1992–1997 (National Center for Employee Ownership report; uses Compustat plus survey/public-plan data).

• Peter Cramton, Hamid Mehran, and Joseph Tracy, ESOP Fables: The Impact of Employee Stock Ownership Plans on Labor Disputes (Federal Reserve Bank of New York Staff Report 347).

• Lilli A. Gordon and John Pound, ESOPs and Corporate Control (abstracted via ScienceDirect).

• Michael Conte, Joseph R. Blasi, and Douglas L. Kruse, Employee Stock Ownership and Corporate Performance Among Public Companies (summary via Rutgers CLEO page; underlying journal access is restricted).

• Lisa F. Borstadt and Thomas J. Zwirlein, ESOPs in Publicly Held Companies: Evidence on Productivity and Firm Performance.

Employee Ownership Performance: Scope and Methods

This report targets empirical, firm-level studies that compare publicly traded U.S. companies with measurable employee ownership (typically ESOP share blocks or broad-based equity programs) to publicly traded U.S. companies without employee ownership, evaluated using financial-market outcomes (e.g., valuation, stock returns), accounting outcomes (e.g., ROA), and real outcomes (e.g., productivity).

Because many canonical finance papers are behind paywalls, priority was given to official PDFs and working papers hosted by credible institutions (Census CES, NBER, FRBNY, Rutgers, NCEO). Several frequently cited peer-reviewed articles were therefore included via reputable abstracts or institutional summaries when full PDFs were not accessible in-session.

Employee ownership definitions vary materially across studies; this report distinguishes:

• Economic ownership (percent of outstanding shares held for employees) vs voting control (who votes employee-held shares).

• ESOP-based holdings vs non-ESOP employee equity (profit sharing plans holding employer shares, stock purchase, stock bonuses, etc.).

• Broad-based option programs (coverage of non-management employees) vs narrow, executive-only equity compensation.

Primary Empirical Studies

Comparison table of study attributes

Analytical notes on identification strategies

The most policy-relevant identification pattern in this evidence base is non-experimental matching with extensive robustness work, rather than clean quasi-experiments:

• The CES working paper’s headline result (valuation gain for ESOPs <5%) is supported by sensitivity checks to control-group choice (dropping controls and estimating within ESOP firms) and robustness with additional controls, but remains observational.

• The NBER “labor voice” study uses an unusually concrete measurement approach (manual parsing of SEC proxy filings, with an explicit focus on who votes employee shares) and a very large internal control universe, but its baseline sample is constructed from a 1995 proxy-statement universe and thus is still subject to selection and survivorship concerns.

• The Rutgers broad-based stock-options study’s matched-peer design (next-largest/next-smallest within 2-digit industry by employment) is transparent and replicable, but adoption into broad-based options is plausibly endogenous to growth opportunities and compensation strategy.

Employee Ownership Performance: Cross-study Synthesis

What the evidence implies about “3–20% ownership” style thresholds

Even though the literature does not consistently target a 3–20% band, several studies effectively hinge on around-5% thresholds that are close in spirit to “meaningful” ownership:

• In one large CES study, the cutoff at 5% separates “small” ESOPs (which are linked to valuation gains) from larger ESOPs (with no valuation consequences).

• In an NBER study explicitly interested in governance influence, ≥5% of voting shares owned by employees is used to define “labor voice” firms; the mean and median employee voting ownership among these firms are ~13% and ~11%.

Taken together, these findings are consistent with a nonlinear story: small, broad-based stakes may operate primarily as incentives (potentially value-enhancing), while larger, voting-controlled blocks can create genuine stakeholder power that changes corporate decision-making, potentially in ways that do not maximize shareholder value in all settings.

Market valuation vs. accounting performance vs. real outcomes

The evidence is uneven across outcome classes:

• Market valuation: The most numerically explicit and interpretable valuation estimate in the sourced set is the ~17% valuation increase associated with small ESOPs in the CES study.

• Tobin’s Q (market-to-assets type measures): The broad-based stock options working paper reports materially higher Tobin’s Q levels in 1997 relative to matched peers (roughly +0.61 to +0.62 in the comparisons highlighted) but also describes mixed patterns when looking at changes over time.

• ROA: The broad-based stock options paper reports that ROA differences are not consistently significant in levels across broad groups, but some pre/post comparisons are significantly positive (depending on window and subsample).

• Productivity and wages: Several studies emphasize that productivity gains (where present) may be partially captured by employees (wage/rent-sharing), making it essential to interpret shareholder returns jointly with wage outcomes.

Publication Timeline

1990 ESOP announcements, takeover context, and shareholder wealth effects (event-study strand) 1995 Cash-flow/informational effects of ESOPs (finance strand; often cited in later work) 1996 Public-company comparisons using>5% employee ownership threshold (performance levels and growth) 2005 Governance-oriented measurement of employee voting blocks in public firms (proxy-statement based) 2005Broad-basedemployee stock options; peer matching and multiple performance outcomes 2008 ESOPs and labor disputes; includes an ESOP announcement event study component 2009 Broad-based ESOP ownership; small vs large ESOP stakes and valuation nonlinearity 2014 Journal publication of the 2009 working-paper results on broad-based employeeownership/valuation Employee ownership in U.S. public firms — key empirical publications and working papers

Employee Ownership Performance: Evidence Gaps and Future Research

The existing empirical literature leaves several high-value gaps for a rigorous “public U.S. firms with employee ownership vs without” comparison program:

1. Measurement remains the central constraint. The most careful governance-oriented study in this set explicitly excludes firms in which management votes employee-owned shares, highlighting that “employee ownership” can be economically meaningful while not actually giving employees a governance voice. Future research that systematically distinguishes (i) economic ownership, (ii) voting rights, and (iii) who exercises voting discretion (trustees vs employees vs management) would materially improve identification.

2. There is a shortage of credible causal shocks in U.S. public-firm settings. The CES study adds robustness and policy-style difference-in-differences-like checks, but the core design is still observational. Stronger designs could leverage quasi-exogenous variation such as discontinuities in plan eligibility rules, staggered adoption driven by regulatory or accounting changes, or plausibly exogenous institutional ownership changes that interact with employee ownership in governance.

3. Many public-firm studies emphasize market-based outcomes (announcement returns, Tobin’s Q) but provide incomplete joint accounting of distributional channels (wages, employment, labor share). The CES working paper explicitly frames the question of how productivity gains are split between shareholders and employees, and it operationalizes “unexplained wages” in a way that could be extended into richer decomposition work.

4. Finally, there is limited integrated evidence on risk and downside exposure (volatility, tail risk, survival) for U.S. public firms with meaningful employee ownership blocks. The governance-focused NBER study is structurally positioned to examine investment and risk policies, while the broad-based options work highlights risk/return tradeoffs in the background but does not anchor a unified risk framework in the extracted excerpts.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

The year marking the 250th anniversary of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations invites reflection not only on the origins of modern political economy but also on the institutional evolution of capitalism since Smith’s time. Smith wrote in an era dominated by small proprietors whose ownership of productive assets linked effort, prudence, and reward.

Modern capitalism operates very differently. Production is increasingly concentrated in large corporations whose scale and complexity Smith could scarcely have imagined. Yet the core insight that animated his work—that economic systems function best when incentives are aligned with responsibility and ownership—remains central to contemporary debates about corporate governance and economic legitimacy.

This article argues that the next institutional evolution of capitalism may lie in broadening capital ownership within the corporate form itself. By expanding employee ownership without undermining shareholder governance, modern corporations can reconnect the incentives of those who create value with the rewards of capital ownership.

In doing so, they may revive, in updated institutional form, the alignment between prudence, enterprise, and ownership that Smith observed two and a half centuries ago.

• Adam Smith & Employee Ownership – Music for a Democratic Corporate Governance

In 1776, Adam Smith published The Wealth of Nations, laying the intellectual foundations of modern political economy. Smith described a commercial society populated largely by small proprietors whose ownership of productive assets aligned incentives with outcomes. The butcher, brewer, and baker in Smith’s famous example were not merely workers; they were owners whose livelihoods depended directly on the success of their enterprises. Smith captured this dynamic in one of the most widely quoted passages in economics:

It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest. (Book I, Chapter II)

Two hundred fifty years later, the institutional structure of capitalism has changed dramatically. Production is now organized primarily through large corporations that coordinate global supply chains and employ tens or hundreds of thousands of workers. The alignment between ownership, incentives, and effort that Smith observed in eighteenth-century markets has weakened. In the modern corporation, those who contribute most directly to value creation—employees—often hold little ownership stake in the enterprises they sustain.

The challenge for contemporary capitalism is therefore not the one Smith confronted. The question is no longer how markets coordinate small proprietors. Instead, the challenge is how large-scale enterprises can maintain the incentive structures and social legitimacy that once arose naturally from widespread ownership.

Adam Smith, Prudence, and the Moral Foundations of Markets

A persistent misunderstanding in modern economics is the belief that Smith’s economic framework was based purely on self-interest in the narrow utilitarian sense. In fact, Smith’s economic analysis cannot be separated from the moral philosophy he developed in The Theory of Moral Sentiments. Also helpful, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness.

Smith’s moral philosophy was rooted in virtue ethics. Central to that framework was the virtue of prudence. Prudence represented the disciplined pursuit of one’s own well-being and the responsible management of one’s resources. According to Smith, prudence formed the foundation upon which other virtues—such as justice, temperance, and benevolence—could be exercised.

Individuals must first secure their own stability and resources before they can extend generosity to others. Benevolence, therefore, follows prudence rather than replacing it. Without the economic surplus created by prudent conduct, individuals cannot sustain charitable or socially beneficial actions. (Part VII)

Modern utilitarian interpretations of Smith often obscure this moral structure. By treating Smith as an early theorist of pure utility maximization, later economists detached his economic analysis from the ethical framework within which it was originally embedded. Smith’s conception of self-interest therefore referred not to selfishness but to prudent conduct embedded within social norms and justice. (Adam Smith Was Consistent in Both the Theory of Moral Sentiments and the Wealth of Nations on the Role of the Concept of Self Interest)

Understanding Smith in this way is particularly important at the 250th anniversary of The Wealth of Nations. Smith’s vision of market society was grounded in a world of small proprietors whose ownership of productive assets aligned incentives with enterprise outcomes. Modern capitalism has moved far from that structure.

Corporate Concentration and Diffuse Ownership

Recent research highlights a striking transformation in the structure of modern capitalism. Production has become increasingly concentrated within large firms, even as ownership has become more widely dispersed. Studies by Yueran Ma and collaborators document a long-term rise in corporate concentration across advanced economies. Large firms now account for a growing share of revenues, assets, and employment across many sectors. (100 Years of Rising Corporate Concentration)

Technological scale economies, network effects, and the growing importance of intangible capital have enabled dominant firms to expand dramatically relative to the broader economy. Yet ownership has moved in the opposite direction. Public equity markets have spread corporate ownership across millions of investors through pension funds, retirement accounts, and mutual funds.

This dual transformation—concentrated production combined with diffuse ownership—was recognized nearly a century ago by Adolf Berle and Gardiner Means. In The Modern Corporation and Private Property, they observed that modern corporations separate ownership from managerial control, creating governance challenges that require institutional safeguards such as fiduciary duties and shareholder voting rights.⁵

The paradox of contemporary capitalism is therefore that economic power is centralized while capital ownership is dispersed.

Adam Smith himself anticipated governance concerns that arise when managers control other people’s capital. Reflecting on early joint-stock companies, he wrote that directors managing “other people’s money” could not be expected to watch over it with the same vigilance as owners managing their own resources. (Wealth, Book V, Chapter 1) Modern corporate governance institutions/mechanisms—boards, fiduciary duties, disclosure regimes, and shareholder voting—represent attempts to manage this separation between ownership and control. All have fallen short of the ideal, especially fiduciary duty, which, as noted by Marc Steinberg, might better be labeled “discretionary” duty. (Corporate Director and Officer Liability: “Discretionaries” Not Fiduciaries)

Yet another dimension of the problem remains underexplored: the distribution of capital ownership itself.

Capital Ownership and Wealth Inequality

The distribution of capital ownership has become central to debates in modern political economy. Thomas Piketty’s research, documented in Capital in the Twenty-First Century, demonstrates that wealth inequality tends to grow when the returns to capital exceed overall economic growth.⁶

Although modern financial markets allow millions of households to hold diversified portfolios through retirement accounts and mutual funds, ownership of productive capital remains unevenly distributed. Employees often participate in corporate success primarily through wages rather than capital gains.

This structural gap matters because modern corporations rely heavily on human capital and organizational knowledge. Workers contribute directly to the value generated by firms. Yet frequently remain marginal participants in the wealth those firms produce. Research on employee equity participation suggests that plan design alone is insufficient; clear communication and transparency significantly increase participation and engagement among employees. (Communication insights for improved employee share plan engagement)

Broadening capital ownership, therefore, represents one potential mechanism for addressing inequality while preserving the efficiency advantages of market institutions. Investor coalitions, such as the Predistribution Initiative, are increasingly exploring predistribution strategies that broaden capital ownership before taxes and transfers become necessary.

Employee Ownership Without Control Capture

Employee ownership offers one promising mechanism for reconnecting labor participation with capital ownership. However, traditional models of employee ownership—particularly worker cooperatives—often require worker control of the firm.

While such structures can succeed in specific contexts, they may face limitations in accessing external capital markets or scaling operations.

The framework proposed here—employee ownership without control capture—offers a different path. (Shared Capitalism: Supercharge Economy and Democracy)

Under this model, employees participate as shareholders within the existing architecture of investor governance. Equity allocated to employees is held in an employee ownership trust, which accumulates shares through compensation programs or corporate contributions.

Crucially, shares held in the trust are voted directly by employee beneficiaries. Employees, therefore, exercise genuine shareholder rights. They participate in director elections, governance proposals, and shareholder votes alongside other investors.

To preserve capital market discipline, liquidity, and investor confidence, employee ownership stakes should be capped—approximately ten to fifteen percent of outstanding equity, for example. That ensures that corporations remain broadly governed by the full shareholder base and are not “captured” by employees. Reducing the attractiveness of shares to outside investors would increase the cost of capital, reduce liquidity and investor confidence.

The goal is not to replace shareholder governance but to broaden participation within it.

Delaware Fiduciary Duty and Legal Compatibility

A key question for governance reform is whether broader employee ownership is compatible with the fiduciary duty framework governing American corporations.

Delaware corporate law places the board of directors at the center of corporate governance. Directors owe fiduciary duties of care and loyalty to the corporation and its stockholders as a whole. Under the business judgment rule, directors retain substantial discretion in pursuing long-term corporate value.

Employee ownership without control capture fits comfortably within this framework. Employees participating through an ownership trust are shareholders rather than a separate governance constituency. Directors, therefore, continue to owe fiduciary duties to the corporation and its stockholders collectively.

The model preserves the traditional shareholder-oriented fiduciary framework while broadening the population of shareholders themselves.

From Adam Smith to Modern Corporate Governance Reform

The effort to broaden capital ownership also reflects a deeper intellectual lineage connecting Adam Smith’s political economy with contemporary corporate governance reform.

Smith’s analysis assumed a society in which many participants in economic activity owned the capital they used. Ownership reinforced prudence, industry, and accountability.

Modern corporations disrupted that alignment by separating ownership from labor participation. Yet the diffusion of share ownership through capital markets now creates an opportunity to restore that alignment in new institutional forms.

Over the past several decades, shareholder advocates have pursued reforms designed to strengthen accountability between corporate managers and investors. Initiatives such as proxy access, majority voting standards, and shareholder proposal rights have sought to reconnect corporate authority with its owners.

Expanding employee ownership represents a natural extension of this trajectory. Rather than redefining fiduciary duties or replacing shareholder governance, the objective is to broaden the shareholder base itself.

In this sense, employee ownership without control capture represents a modern institutional adaptation of Smith’s insight that markets function best when incentives, ownership, and responsibility are aligned.

Accounting Issues

If employee ownership is to become a meaningful component of modern corporate governance, investors must be able to identify companies that invest in their workforce not only through wages but also through equity participation and long-term human capital development. Yet current financial reporting frameworks provide remarkably little visibility into workforce investment. In many public companies, investors cannot even determine the total amount spent on labor.

Under U.S. accounting rules, labor costs are typically embedded within multiple line items—Cost of Goods Sold, Selling, General and Administrative expenses, or Research and Development—making it difficult to assess how firms allocate resources to their employees. As scholars have observed, this absence of standardized disclosure creates a major gap in financial reporting at a time when human capital is increasingly central to firm value.

Modern disclosure rules, therefore, lag the evolution of the economy itself. In industries such as technology, healthcare, and advanced services, firm value increasingly derives from skilled labor and internally developed knowledge rather than from physical capital. Yet while firms disclose investments in physical property, acquisitions, and research and development, investments in employees are often invisible to investors. This asymmetry distorts financial analysis, obscures the drivers of productivity, and weakens markets’ ability to evaluate companies whose business models rely heavily on human capital.

A meaningful reform agenda should therefore focus on improving transparency around workforce investment while preserving the core principles of existing accounting standards. Several complementary disclosure reforms would move reporting in that direction. (Wage Wars: The Battle Over Human Capital Accounting, Colleen Honigsberg & Shivaram Rajgopa, 2021)

Disclosure Reform and Legislative Pathways

Labor Costs

First, public companies should disclose total labor costs in a standardized format comparable to existing disclosure of research and development expenditures. Although accounting standards properly treat labor costs as current expenses rather than capitalized assets, investors nevertheless require visibility into the magnitude of these expenditures. Standardized disclosure of aggregate labor costs would allow analysts to evaluate the relative importance of workforce investment across firms and industries and would enable more accurate modeling of firm cost structures.

Human Capital Disclosure Table

Second, companies should provide a standardized human capital disclosure table within the notes to the financial statements. Such a table would report key workforce investment categories in a consistent, comparable format across firms. Relevant categories could include wages and salaries, healthcare and retirement benefits, stock-based compensation, employee training expenditures, and workforce development programs. Additional metrics such as employee turnover rates, average tenure, and participation in equity compensation programs would further illuminate how firms invest in and retain their workforce. These disclosures would not require firms to capitalize human capital on the balance sheet, but they would allow investors to incorporate workforce investment into their own valuation models.

Income Statements

Third, income statements should provide greater transparency regarding how labor costs are distributed across major operating categories. Currently, labor expenses are often embedded within aggregated accounting lines such as Cost of Goods Sold, Selling, General and Administrative expenses, or Research and Development. Disaggregating the labor component of these categories would allow investors to better understand a firm’s cost structure, assess the scalability of its operations, and distinguish between investments in future growth and recurring operating costs. Such transparency would be particularly valuable for high-growth firms whose current losses may reflect substantial investment in workforce capabilities.

Employee Incentives

Fourth, disclosure frameworks should provide greater visibility into employee ownership itself. Companies that allocate equity to employees through stock grants, option programs, or employee ownership trusts should disclose the percentage of outstanding shares held by employees, the distribution of those holdings between executives and rank-and-file workers, and the voting rights attached to employee-held shares. These disclosures would allow investors to evaluate the extent to which firms align employee incentives with long-term enterprise performance.

Materiality

Because existing securities disclosure rules require information to be material to investors broadly rather than to specific governance initiatives, implementing these reforms will likely require regulatory action. The Securities and Exchange Commission could incorporate standardized workforce disclosures into Regulation S-K or coordinate with accounting standard-setters to integrate human capital reporting into the financial statement framework. See the Rulemaking petition to require public companies to disclose public companies’ investments in their workforce from The Working Group on Human Capital Accounting Disclosure. Congress could also encourage such reforms by directing regulators to modernize disclosure standards for an increasingly intangible-asset-driven economy.

Improved human capital disclosure would serve multiple objectives simultaneously. Disclosures would enhance investors’ ability to evaluate firms whose value derives from workforce knowledge and innovation. Boards of directors would have clearer benchmarks for assessing whether firms are investing adequately in their employees. Policymakers would have a more accurate picture of how corporations allocate resources between capital, labor, and long-term enterprise development.

Most importantly, these reforms would begin to close a widening informational gap between the realities of modern production and the reporting structures inherited from an earlier industrial era. As capital markets increasingly depend on firms whose primary assets walk out the door each evening, transparency regarding human capital investment is no longer a peripheral governance concern. It is becoming a prerequisite for understanding corporate value creation itself.

Policy Implications for Boards and Institutional Investors

For corporate boards, the central implication of this analysis is that expanding employee ownership does not require abandoning the fiduciary governance framework that has long structured corporate law. By enabling employees to participate meaningfully in capital ownership through equity programs or employee ownership trusts, boards can strengthen incentive alignment, deepen employee commitment to enterprise performance, and reinforce the legitimacy of corporate decision-making among the firm’s most economically exposed participants.

For institutional investors, the implications are equally significant. Pension funds, sovereign wealth funds, and diversified asset managers increasingly function as universal owners whose long-term returns depend on overall economic performance. Governance structures that improve productivity, workforce stability, and social legitimacy therefore benefit both diversified investors and employees.

Institutional investors are uniquely positioned to encourage such reforms through stewardship initiatives and engagement with corporate boards.

Conclusion: The Next Institutional Evolution of Capitalism

Two hundred fifty years after the publication of The Wealth of Nations, capitalism has evolved far beyond the world Adam Smith described. Yet the institutional evolution of capitalism has preserved one of Smith’s central insights: incentives matter.

Employee ownership without control capture represents a practical step toward restoring the alignment between participation and reward that once arose naturally in a world of small proprietors.

By broadening capital ownership while preserving investor governance and capital market liquidity, hybrid corporate structures can combine the advantages of centralized enterprise with the incentives created by decentralized participation.

Two hundred fifty years after The Wealth of Nations, the next institutional evolution of capitalism may lie in expanding the circle of capital ownership itself.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Right to Cure proposals have moved from a reform idea in 2024 to an emerging governance norm. Costco, Microsoft, Cisco, Clorox, Exact Sciences, Hain Celestial, and many other companies have adopted right-to-cure provisions. Several companies each year have negotiated withdrawals of my proposals after agreeing to implement “right to cure” language.

What began as a shareholder rights protection proposal is increasingly recognized as basic governance hygiene to avoid frivolous lawsuits.

The proposal has only been rejected by one company that I approached. Frankly, I don’t think ServiceNow even tried to understand what a right-to-cure provision offers to both sides.

• Right to Cure – Music for a Democratic Corporate Governance

Right to Cure After Hammann

Then came (Del. Ch. Apr. 4, 2025), which I found on The Chancery Daily with the help of Abbott Cooper. I’m also delighted to have connected with the editor, Lauren Pringle, while attending the Y’all Street Symposium at SMU’s Rowling Center for Business Law & Leadership.

In Hamman, the Chancery upheld rejection of a nomination notice, but the reasoning matters more than the outcome. The stockholder lost because their omissions were material and the submission was careless. The Court made clear that equity protects diligence, not sloppiness. The opinion suggested that if the defects were merely facial and obvious, and the board had ample time but chose to remain silent, the result could have been different. Timing matters. Quoting from The Chancery Daily:

The Court finds the board and its Governance Committee to have acted equitably because -- although plaintiff plausibly asserted that he believed one question in the questionnaire completed by each nominee to have applied only to sitting directors and that his nominees therefore properly did not answer it -- his nominees omitted other information regarding their employment history that was demonstrably required (including by the SEC) and was “material and easily obtainable,” the omission of which, with respect to at least one candidate, the board’s own investigation revealed to have been “glaring.” Further driving the Court’s conclusion was that plaintiff admitted to not having reviewed the questionnaires for “accuracy or completeness” before submitting them with his notice, a step that would have revealed them to have left out information that the candidates included in response to separate questionnaires that plaintiff had asked them to supply as part of his own evaluation of their suitability, permitting conclusions that plaintiff “did not even try to be accurate and complete” and that failure to provide required information “was at least the result of gross negligence, and perhaps worse.”...

While TCD does not presume to suggest strategy or tactics, a few lessons might be drawn. For stockholders contemplating a potential rejection of their nominations on grounds of an advance notice bylaw, and contemplating a potential later challenge on equitable grounds, a technically timely submission may not be enough; better to have in one’s back pocket an early submission coupled with an earnest attempt to get it right. For a board wishing to ensure that any rejection of a stockholder slate on grounds of such bylaws will be judicially respected, prompt action may also be best advised -- particularly when the envelope shows up well before it’s due -- and, at the very least, a cursory first glance to ensure that nothing is blank may be in order. From either perspective, Assertio and the decisions it cites suggest that the difference between an Arturo Fuente on the veranda and dreams of directorship disappointingly snuffed out may be much dependent on time.

Silence can matter. The doctrine of Schnell still has teeth. “Inequitable action does not become permissible simply because it is legally possible.”

Right to Cure is a Win/Win

That is precisely why Right to Cure provisions make sense. They do not reward negligence, force boards to investigate, or extend nomination windows. They simply require prompt notice of facial defects when a nomination is submitted early enough to allow correction. That modest procedural clarity protects shareholders who make good-faith efforts to comply. Just as importantly, it protects boards from accusations that they strategically “ran out the clock.”

Absent “cure” language, disputes become expensive, fact-intensive litigation over motive and equity. With clear cure language, the question becomes procedural: Was a facial defect identified and timely noticed? That clarity narrows disputes and discourages frivolous claims. Boards adopting cure provisions are not conceding weakness. They are demonstrating that they understand fiduciary duties must be exercised equitably.

The goal is not to tilt the field toward dissidents. It is to prevent elections from turning into technical ambushes. Advance-notice bylaws are intended to ensure order and disclosure, not to create traps. When companies adopt clear cure procedures, they reduce uncertainty, lower litigation risk, and reinforce the legitimacy of director elections.

TCD has the right idea. For stockholders the lesson is “an early submission coupled with an earnest attempt to get it right.” For boards, “prompt action may also be best advised -- particularly when the envelope shows up well before it’s due -- and, at the very least, a cursory first glance to ensure that nothing is blank may be in order.” Offering a right to cure makes that advice explicit for both parties.

Right to Cure: Future Resolved Language

Working on this issue for the last two years has been a learning process. Below is revised language I may use in future proposals reflecting lessons from Hammann and recent implementations, while preserving board authority over material misstatements and non-facial deficiencies.

RESOLVED: Shareholders request that the Board amend the Company’s bylaws to include a “Right to Cure” provision providing that, if a stockholder’s notice of nomination is received during the nomination window and at least fourteen (14) calendar days before the final date on which such notice could be timely submitted, and if upon a good-faith facial review (without independent investigation or verification) the Secretary determines that the notice contains one or more facially apparent defects or omissions, the Company shall, within fourteen (14) calendar days of receipt, provide written notice identifying with reasonable specificity each such defect (a “Deficiency Notice”). The nominating stockholder shall have the right to cure the identified defects by submitting corrective information on or before the last date such notice could have been timely given. If the identified defects are cured in a timely manner, they shall not serve as grounds to invalidate the nomination. This provision shall apply only to facially apparent defects and shall not obligate the Company to investigate, verify, or assess materiality; shall not extend the nomination window; and shall not limit the Company’s authority to reject nominations containing material misstatements, omissions of material fact, failures to comply with Rule 14a-19, or deficiencies not reasonably apparent on the face of the original notice. This amendment is intended to ensure the equitable application of advance-notice bylaws consistent with directors’ fiduciary duties.

Clear rules. Prompt review. Fair opportunity. That is good governance — and it is far less expensive than litigating over whether someone played “gotcha.” Suggested changes and future company “targets” are always welcome.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Employee ownership without control capture could be the way out of our current quagmire. For more than three decades at CorpGov.net, I have argued that corporate governance works best when ownership, accountability, and voice reinforce one another. Too often, debates about stakeholder capitalism versus shareholder primacy miss a simple truth. Employees are not outsiders to the firm; they are among its most economically exposed and knowledgeable participants.

The model outlined below builds on concerns I expressed in an academic thesis on democratizing the workplace, as an observer of employee ownership at Rath Pack, heading California’s Cooperative Development Project, as a director on several cooperative boards, and as a shareholder advocate at publicly listed companies.

What I propose below is a practical way to broaden ownership, incentives, and intelligence, without diluting board responsibility or market discipline. The model treats employees as shareholders with meaningful stakes, not as a separate governing class, and seeks to strengthen long-term value creation without surrendering the core architecture of Delaware corporate law.

• Supercharge the Share – Music for a Democratic Corporate Governance

A Market-Compatible Governance Model for Directors, Employees, and Counsel

Corporate boards increasingly confront a persistent tension. A growing body of empirical research suggests that broad-based employee ownership can improve productivity, retention, and long-term resilience. At the same time, directors and counsel rightly hesitate to adopt structures that dilute fiduciary clarity, impede capital access, or introduce governance capture. The question is no longer whether employees should participate in ownership, but how to structure participation so that it strengthens shareholder capitalism rather than destabilizes it.

This paper presents employee ownership without control capture, a market-compatible model suitable for new incorporations and voluntary conversions of private or public companies. It would be relevant for private, employee-anchored firms such as Hy-Vee, as well as culture-driven public retailers such as Tractor Supply and others, where workforce stability and customer trust are core assets. The model treats employees as investors with meaningful influence, but not as a separate governing class.

Why Employee Ownership Is Back on the Board Agenda

The renewed interest in employee ownership is empirical and bipartisan, not ideological. A substantial body of research finds that broad-based employee ownership is associated with higher productivity, improved profitability, and stronger firm performance. Douglas Kruse, Richard Freeman, and Joseph Blasi document consistent performance gains where ownership is widely distributed rather than concentrated at the executive level. Joseph Blasi, Kruse, and Freeman further argue that shared-capitalism structures can strengthen long-term firm performance and worker commitment.

However, the literature is equally clear that ownership alone is insufficient. The positive effects are strongest when employee ownership is paired with meaningful participation, information sharing, and engagement. Alex Bryson and Richard Freeman findthat employee ownership produces stronger performance when employees have input into decision-making. Virginie Pérotin’s comparative research on worker cooperatives emphasizes that ownership without participatory practices produces weaker results than ownership combined with genuine involvement.

Employee-owned firms also demonstrate greater employment stability and resilience. Pérotin finds that worker-owned firms often perform at least as well as conventional firms and may exhibit greater survival rates during downturns. For directors focused on durable enterprise value, these findings are not peripheral. They are central.

At the same time, directors and counsel are correct to reject models that undermine fiduciary coherence or constrain access to capital. The objective is to design employee ownership that preserves board authority, stock liquidity, and market discipline while delivering incentive and retention benefits.

The Core Architecture: Ownership Without Veto Power

The employee ownership without control capture model proposed here rests on a straightforward structural choice: meaningful ownership capped below control thresholds.

At its center is an Employee Ownership Trust holding up to fifteen percent of outstanding common stock. Fifteen percent is intentionally material. It is large enough to influence director elections and to command serious attention in shareholder engagement. Yet it is small enough to avoid any plausible characterization as a control block or transaction veto. It resembles a significant long-term institutional holder rather than a constituency sovereign.

Shares held by the trust carry the same voting rights as all other common shares. There is no dual-class structure, no super-voting equity, and no separate class voting. The one-share-one-vote norm is preserved.

Employees remain free to acquire additional shares in their individual capacities through public markets or equity programs. This preserves entrepreneurial incentives and allows employees who believe strongly in the firm’s prospects to increase their exposure. It reinforces the culture of long-term appreciation seen in successful public retailers.

Equally important is what the model excludes. It does not reserve board seats for employee representatives. All directors are elected by common shareholders voting together as a single class. Directors owe fiduciary duties solely to the corporation and its shareholders as a whole. By avoiding constituency-designated seats, the model preserves a unified fiduciary framework and eliminates concerns about fragmented loyalties.

Influence flows through electoral salience rather than formal representation. Directors seeking election must appeal to both capital market investors and a significant segment of employee shareholders. Employees influence governance as owners, not as a legally distinct class.

Advisory store or unit councils may provide structured channels for employee and customer input on workplace conditions, safety, and service practices. These councils have no authority over wages, pricing, hiring, or bargaining. They function as advisory and information pathways rather than management bodies.

Delaware Compatibility

For directors and counsel, doctrinal integrity is essential. Our employee ownership without control capture model fits comfortably within existing Delaware law.

Section 141(a) of the Delaware General Corporation Law vests management authority in the board of directors, subject only to the certificate of incorporation and bylaws. Advisory councils lacking managerial authority do not intrude upon that statutory allocation.

Fiduciary duties remain orthodox. Directors owe duties of care and loyalty to the corporation and its shareholders as a whole. Because the model does not create employee-designated fiduciaries or grant employee veto rights, it does not generate competing fiduciary obligations.

In change-of-control contexts, enhanced scrutiny principles associated with Revlon and its progeny would apply in the ordinary way. A fifteen percent trust does not constitute a controlling shareholder and does not authorize subordinating shareholder value to employee preferences in a sale-of-control transaction.

From an oversight perspective, Delaware doctrine, beginning with Caremark and reinforced in Marchand v. Barnhill, emphasizes the importance of information systems and responsiveness to red flags. Structured channels for employee input can serve as risk-sensing mechanisms, improving board visibility into operational and cultural issues without displacing management authority.

Why Not Full Employee Ownership or Cooperatives?

If employee ownership has documented advantages, why not adopt full worker ownership or cooperative structures?

The answer lies in capital structure and liquidity. Henry Hansmann’s classic analysis demonstrates that worker-owned firms face structural constraints in raising capital from outside investors. Because cooperative equity is typically non-tradable and tied to membership, it limits diversification and external investment. Gregory Dow’s work similarly identifies scaling and capital constraints that can inhibit growth relative to investor-owned firms.

Fully employee-owned firms often rely heavily on retained earnings, internal financing, or member capital contributions. While viable in certain contexts, such structures generally lack the advantages of stock liquidity and deep capital markets. Publicly traded equity allows price discovery, risk-sharing, and large-scale investment that cooperative forms struggle to replicate. I certainly witnessed the financial weakness of the cooperative model firsthand when I was invited to serve on the board of Associated Cooperatives to help structure its bankruptcy.

The capped EOT model deliberately preserves stock liquidity and access to capital markets. It broadens ownership without sacrificing the advantages of tradable equity and diversified investors, encouraging entrepreneurial drive within the traditional corporate framework.

Application: New Incorporations and Conversions

For new incorporations, the architecture can be embedded at the time of formation. Expectations regarding ownership caps, voting rights, and advisory participation are established from inception, reducing uncertainty for investors and employees alike.

For private companies with strong employee cultures—such as Hy-Vee—the model offers a pathway to liquidity and succession planning without abandoning employee ownership. It allows conversion to a structure compatible with eventual public markets while preserving meaningful workforce participation.

For public companies such as Tractor Supply or similar culture-driven retailers, the model can be introduced gradually. Shares may be accumulated into the EOT in phases, advisory councils may be piloted at selected units, and enhanced proxy engagement may be rolled out over time. The process can be voluntary and incremental.

Responding to Anticipated Objections

Some shareholder-primacy scholars will object that broadening employee ownership risks diluting value maximization. But the model does not redefine fiduciary duty, create constituency directors, or grant veto authority. It simply broadens the shareholder base. Employees become shareholders and vote as shareholders. From a doctrinal standpoint, the model reinforces shareholder primacy by aligning employees with residual claimants rather than positioning them outside the ownership structure.

Others may argue that employee-owners will resist value-maximizing transactions. This concern is overstated. The trust is capped at fifteen percent and cannot block transactions. Employees vote within the same class as all other shareholders. Directors remain bound by enhanced scrutiny principles in sale-of-control contexts. There is no structural authority to subordinate shareholder value to workforce preferences.

Another critique is that employee ownership may encourage managerial entrenchment. That risk exists where employees are pressured to vote with management or where shares are structurally controlled by insiders. The proposed model avoids this. The trust is independent and capped. Voting procedures are designed to reflect independent employee preferences. There are no guaranteed employee board seats that management can manipulate.

Some may argue that the model weakens market discipline by introducing inelastic capital. Here again, the fifteen percent cap is decisive. The corporation remains predominantly investor-owned and fully exposed to market pricing, activist engagement, and potential acquisition bids. Unlike cooperative or majority employee-owned firms, it retains the advantages of liquid equity markets.

Finally, skeptics may claim that fifteen percent is too small to matter. In practice, a shareholder constituency of that size can materially influence contested elections, say-on-pay votes, and governance debates. Even when dispersed, a group of that scale alters director incentives. Directors must persuade not only institutional investors but also a large, economically invested workforce.

Shared Capitalism and Democratic Resilience

Shared capitalism is not only an economic design; it is a democratic one. Modern corporations shape wages, communities, supply chains, and even public discourse. Yet most citizens experience them as hierarchical institutions governed by distant actors. When ownership is narrowly concentrated, economic power and civic voice diverge. When ownership is broadened, participation becomes habitual rather than episodic.

Political economists have long recognized that corporate governance and democratic institutions evolve together. Mark Roefamously argued that “to fully understand governance and authority in the large corporation, one must attend to politics,” because corporate power and political power influence one another over time. Our internal allocation of ownership inside firms is not neutral with respect to democracy. It shapes expectations about voice, accountability, and legitimacy.

Broad-based employee ownership embeds democratic practice within one of society’s most powerful institutions. When employees hold meaningful equity and vote in director elections, they are not merely consulted; they exercise property-backed governance rights. As Joseph Blasi, Douglas Kruse, and Richard Freeman argue in The Citizen’s Share, broad-based ownership “can expand economic citizenship” by giving workers a tangible stake in capital formation and firm success. Ownership tied to participation encourages what they describe as a more inclusive form of capitalism, in which employees are not simply inputs but co-investors.

This matters because democratic habits are learned through repeated participation. Carole Pateman, in her classic work on participatory democracy, emphasized that participation in workplace governance can cultivate civic capacities that extend beyond the firm. When individuals experience agency in the institutions that shape their daily lives, they are more likely to expect accountability elsewhere.

Shared capitalism, properly structured:

• Reinforces both economic and democratic legitimacy

• Narrows the gap between those who create value and those who govern capital

• Expands the shareholder electorate without fragmenting fiduciary duty

• Aligns incentives so participation is rational rather than symbolic.

Conclusion

The debate over employee ownership often forces boards to choose between embracing stakeholder governance with its attendant doctrinal concerns and rejecting employee ownership altogether. That binary is false. By capping collective employee ownership below control thresholds, preserving one-share-one-vote governance, and avoiding constituency-based board seats, corporations can treat employees as genuine investors without fragmenting fiduciary duty or limiting capital access. The capped trust model preserves liquidity, price discovery, and scalable external investment while broadening ownership and entrepreneurial initiative within that framework.

Partial employee ownership without control capture modernizes shareholder capitalism rather than abandoning it. It strengthens incentives, improves resilience, and maintains doctrinal clarity. For companies seeking to align those who create value with those who hold residual risk, employee ownership without control capture offers a durable path forward.

Democracy is not sustained solely by elections to public office. It is sustained by repeated experiences of accountability in powerful institutions. By turning employees into meaningful shareholders within a disciplined, market-based framework, corporations can supercharge both economic growth and democratic practice. Broadening ownership does not weaken capitalism; it strengthens its social foundations.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Texas Raising the Bar: At Stake for Shareholder Voice and Democracy

The recent corporate-law reforms in Texas are not just a technical tweak, raising the bar. They reframe who gets to put business before shareholders and who can credibly challenge management.

Texas Business Organizations Code § 21.373 (adopted via S.B. 1057, effective Sept. 1, 2025) set out a regime under which certain “nationally listed corporations” may require that a shareholder (or group) satisfy steep conditions to submit a shareholder proposal for approval at a shareholders’ meeting under Texas law—namely:

• $1 million in market value or 3% of voting shares,

• six months of continuous ownership (and through the meeting), and

• solicitation of holders representing at least 67% of the voting power entitled to vote on the proposal. (Jackson Walker)

Two clarifications are essential:

1. The 67% element is framed as a solicitation obligation, not as a requirement to obtain 67% “yes” votes in advance. It raises cost and logistical barriers. It does not literally demand pre-assembled supermajority support.

2. These requirements address state-law. They do not amend federal Rule 14a-8.

But the point of § 21.373 is not subtle. It makes shareholder-submitted matters expensive, time-consuming, and—practically speaking—more accessible to the largest holders and professional activists than to retail “gadflies” or even socially responsible, religious-based funds.

The Big Four have never used shareholder proposals or proxy contests to target their portfolio companies. Instead, they exert influence by voting, behind‑the‑scenes engagement, and support (or opposition) to other filers and activists. Large managers like the Big Four often run 401(k) and pension plans for the same companies whose stock they vote, so aggressive activism against management can jeopardize lucrative business relationships. Instead, they exert influence by voting, behind‑the‑scenes engagement, and support (or opposition) to other filers and activists. Such passivity does little to foster innovation. That leaves activists.

Not Just a Boardroom – Music for a Democratic Corporate Governance

Washington: Rule 14a-8 Under Sustained Attack

At the federal level, Rule 14a-8 continues to provide the low-cost agenda-setting channel that has shaped U.S. corporate governance for decades. Yet, that channel is now under direct pressure from at least three developments heading in the same direction:

Raising the Bar on Proper Subjects

SEC Chair Paul Atkins publicly advanced an argument at the Weinberg Center in Delaware that could take a wrecking ball to the modern proposal ecosystem. Even precatory (nonbinding) shareholder proposals may not be a “proper subject” for shareholder action under Delaware law unless the company’s governing documents create that right. He told the audience of attorneys that he had “high confidence” the SEC staff would honor a Delaware law opinion stating that precatory proposals are not a proper subject for shareholder action and can be excluded under Rule 14a-8(i)(1). (Atkins, SEC)

Companies to Police Themselves

Second, soon after that speech, the SEC’s Division of Corporation Finance announced it would not issue substantive no‑action responses to companies seeking to exclude shareholder proposals under Rule 14a‑8, except for exclusions under Rule 14a‑8(i)(1) involving state‑law or proper‑subject issues. This temporary shift was reportedly prompted by resource limits after the government shutdown and a heavy filing workload. Companies must still file Rule 14a‑8(j) notifications 80 days before their proxy filing, but are not required to seek staff views. If a company still wants a response, it must include an unqualified statement that it has a reasonable basis for exclusion, in which case the Division may issue a non‑objection letter without assessing the merits. (CorpFin)

Closing the Door

Third, the “repeal, don’t mend” position is moving from the margins toward the center of debate by elites and their defenders. On February 16, 2026, former SEC Commissioner Joseph Grundfest argued in the Wall Street Journal that Rule 14a-8 should be repealed outright. He claims it lacks a statutory foundation, intrudes into state internal affairs, and risks compelled speech issues, especially in a post-Loper Bright world where courts may be less deferential to agencies. (The Wall Street Journal)

Taken together, these moves create a plausible near-term pathway. Shrink Rule 14a-8 by state-law “proper subject” challenges. Then, argue that the whole system should be replaced with “private ordering.” Texas has already built a ready-made template for what “private ordering” can look like: $1 million/3%, six months, and a 67% solicitation burden, as discussed above.

Collision Course: § 21.373 as an i(1) No-action Strategy

The most important practical question isn’t academic. It’s procedural: how will issuers and the SEC Staff treat a proposal that satisfies Rule 14a-8 but not Texas § 21.373?

Law-firm commentary has been explicit that § 21.373 is likely designed to tee up this conflict. Companies may attempt to use state-law restrictions as a foundation for exclusion arguments. (Jackson Walker)

Historically, the SEC treated Rule 14a-8 as a federal inclusion mechanism subject to enumerated exclusions, with state law informing certain boundaries (e.g., illegality, improper subject). Atkins’s speech—plus subsequent practice notes and client alerts—signals a more receptive environment for i(1) challenges, especially those backed by counsel opinions.

If the SEC Staff begins honoring broad i(1) theories—particularly those that convert “state law permits restrictions” into “federal inclusion must yield”—the economic gating of shareholder voice could accelerate quickly, with Texas functioning as a proof-of-concept jurisdiction.

The “Governance Facilitator” Ecosystem Would be Lost

My 2021 post on The Giant Shadow of Corporate Gadflies (reviewing Nili & Kastiel) made a point that the policy debate still routinely misses: individuals who repeatedly file proposals often function as governance facilitators—translating general principles into company-specific reforms, testing new ideas, and catalyzing mainstream adoption. The academic work itself acknowledges that “a handful of gadflies” account for a large share of proposals and that their governance proposals tend to receive substantial support.

Bebchuk, for example, treats gadflies as important democratic catalysts whose ability to place proposals on the ballot is essential to shareholder empowerment.

If Texas-style gating spreads (and/or Rule 14a-8 is narrowed or repealed), several less-visible but crucial functions are at risk:

1) Agenda-setting by diversified owners (not just concentrated capital). Rule 14a-8 is one of the few scalable tools that lets small holders put an issue on the ballot without first assembling a war chest. Replacing it with high-cost solicitation requirements predictably shifts agenda-setting toward large institutions and professional activists.

2) The negotiation channel that never shows up in datasets. A major portion of the proposal’s “value” comes from withdrawals and negotiated reforms—often more efficiently than litigation or other forms of contest. For example, I often reach agreements on over a third of my proposals. I even have companies ask me, “What’s next?” so they can consider if I even need to bother filing. That quiet settlement pipeline shrinks if retail proponents cannot credibly file in the first place.

3) The innovation pipeline. New governance norms often start “idiosyncratic” and later become standard. Nili & Kastiel’s own framing of gadflies as market-wide catalysts implicitly describes an R&D function; throttling it narrows experimentation.

4) Civic participation in corporate life. The shareholder proposal mechanism is one of the last widely available “civic” channels inside the corporate state—imperfect, but real.

In other words, what disappears is not merely “noise.” It is a set of low-cost accountability and norm-setting pathways that compensate for institutional passivity. Consider the well-known reluctance of the largest index managers to file proposals, even when their own voting guidelines support the reforms. That “void” is central to the need for gadflies and for socially responsible investors to consider externalities.

Right to Cure

My right to cure bylaw proposals illustrates why process rights matter more as enforcement narrows, illustrating the practical stakes of this transition.

In a Delaware-centric world, a board that weaponizes advance-notice technicalities risks equitable scrutiny. In a Texas world where (a) state-law shareholder-submitted matters can be conditioned on high thresholds and a 67% solicitation obligation, and (b) the SEC is openly inviting state-law “proper subject” exclusions, procedural fairness must be built into the bylaws up front. After-the-fact review will be harder, especially for retail holders who have traditionally been the most innovative.

That is the deeper pattern: as ex post accountability channels get gated, ex ante governance architecture becomes the main line of defense.

Conclusion: Raising the Bar or Closing the Door Impacts American Democracy, Not Just Corporate Governance

It is tempting to treat all of this as niche proxy plumbing. It isn’t. Texas raises the cost of shareholder participation while SEC leadership and influential commentators question the legitimacy of Rule 14a-8 itself. The direction of travel implicates democratic resilience in at least three ways.

1) Concentrated economic power and concentrated political power reinforce each other

Political-economy scholarship on corporate governance emphasizes that corporate structures and political institutions co-evolve: governance arrangements inside firms are both products of politics and contributors to future political outcomes. Mark Roe’s classic framing is blunt: to understand corporate authority, you must attend to politics—because power inside firms and power in government push on each other over time.

For example, in Corporate Governance and Its Political Economy, Mark Roe argues that corporate governance and political institutions co‑evolve, insisting that “to fully understand governance and authority in the large corporation, one must attend to politics” because “politics can and does determine core structures of the large corporation.” Roe emphasizes that causation runs in both directions: “a simple map from politics to economics to corporate governance cannot be written because causation is bidirectional,” such that “the present corporate governance structure is the consequence of past politics and is also a cause of future politics and economic institutions.” In his framing, corporate authority is inseparable from political power because “the principal players inside the firm… can themselves project power into the polity,” creating a dynamic in which governance arrangements are simultaneously products of political forces and contributors to future political outcomes. (laweconcenter.law.harvard.edu)

Meanwhile, modern work on economic concentration warns of “dual threats” to democracy: concentrated private power can erode democratic processes directly (through influence) and becomes a tool in democratic backsliding (by making capture easier). (ProMarket) If shareholder voice mechanisms are weakened, constraints on managerial and concentrated-owner power soften. This is precisely what scholars warn can destabilize democratic institutions: concentrated economic power.

2) Workplace governance spills into civic governance

Empirical evidence from Germany suggests “workplace democracy” has political spillovers: institutions like works councils are associated with increased political interest and participation. (Wiley Online Library)

From Carole Pateman’s Participation and Democratic Theory, I learned long ago that meaningful participation by the masses is essential in developing individuals with political competence, autonomy, and a sense of civic responsibility. The workplace is the most formative institution for lifelong learning. Some form of industrial democracy is necessary if we want democracy to be robust in everyday life, not just in the few minutes it takes to vote in political elections.

The inference for the U.S. corporate context is uncomfortable but important. When major institutions systematically reduce voice and normalize “management decides,” it doesn’t stay inside the firm. It shapes expectations about voice, participation, and accountability beyond the workplace.

3) Corporations increasingly function as political institutions—so internal autocracy has public consequences

As corporations play a more overt role in shaping public agendas, governance decisions inside firms increasingly operate like political decisions, but without democratic procedures. Contemporary commentary on the “overstory” of business and politics highlights the risks and opportunities created by corporations’ expanding political footprint.

Political choices are increasingly made by a smaller and more insulated managerial elite. Shareholders continue to lose accessible mechanisms to raise issues, demand explanations, and force deliberation. As a consequence, “democracy” without democratic procedures migrates from private boardrooms back to public institutions.

That is the democratic cost of the current drift: not merely fewer proposals, but fewer venues where dispersed owners can practice collective self-governance—and fewer counterweights against concentrated corporate power that can, over time, become concentrated political power.

The shareholder proposal mechanism has never been perfect. But the system I described in 2021—the ecosystem in which gadflies, institutions, proxy advisors, and negotiated withdrawals together produce a steady ratchet toward baseline governance reforms—has functioned as a low-cost, widely distributed accountability infrastructure.

Texas’s thresholds and solicitation burdens, combined with a federal turn toward state-law exclusion theories and outright repeal arguments, point toward a world where shareholder voice is increasingly reserved for those with scale. Academic research gives us a sober warning about that trajectory: autocratic governance structures, once normalized in the economy, do not remain quarantined from politics. They become part of the soil in which democratic erosion can grow.

If this is where Texas and the SEC are heading, the key question for investors—and for citizens—becomes the one that Rule 14a-8 quietly answered for decades: Will corporate governance remain a participatory institution of American capitalism, or become a gated system of private ordering—by and for the already powerful?

Addendum: Atkins in Dallas — Texas, as the Model for Raising the Bar

SEC Chair Paul Atkins’ recent remarks at Texas A&M sharpen the trajectory described above. He framed Texas as a deliberate alternative to Delaware for companies seeking “less politicization, abusive litigation, and overall drama”—explicitly linking state competition to shareholder proposals and litigation reform.

Beyond § 21.373’s ownership and solicitation thresholds, Atkins praised Texas Senate Bill 29 for limiting fee awards in disclosure-only suits and highlighted new authority for Texas exclusive-forum provisions and jury-trial waivers in internal-affairs claims. He even floated fee shifting (“English Rule”) as a possible next step. The message is broader than proposals: Texas is redesigning the entire shareholder-enforcement ecosystem.

Most consequentially, Atkins emphasized the SEC’s recent stance that mandatory arbitration provisions are not inherently inconsistent with federal securities laws and asked, pointedly, “What will Texas do?” If Texas embraces arbitration for corporate disputes, accountability would move further from public courts into private forums—raising the stakes for retail shareholders already facing higher state-law thresholds.

He closed by signaling openness to further Texas reforms next session. Combined with the SEC’s increasing reliance on state-law “proper subject” exclusions, the Dallas remarks suggest that Texas is not just experimenting. Atkins encourages Texas to position itself as the blueprint for a more economically gated model of shareholder voice.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Fiduciary duty did not begin as a doctrine about abstraction. It began as a response to vulnerability.

In its equitable origins, fiduciary obligation emerged in the English Court of Chancery to restrain those who exercised discretionary power over the property or interests of another. Trustees, agents, guardians, and partners were bound not because they managed entities, but because they controlled assets belonging to identifiable human beneficiaries who could not adequately protect themselves.

Equity intervened when power and vulnerability diverged.

Justice Cardozo captured that tradition in Meinhard v. Salmon, 249 N.Y. 458 (1928), describing fiduciaries as bound by “the punctilio of an honor the most sensitive.” The language was not ornamental. It reflected equity’s suspicion of discretionary authority and its insistence that those who wield it do so meticulously for others.

Modern corporate fiduciary doctrine retains the vocabulary of loyalty and care — but much of its original relational force has thinned. Fiduciary law migrated from chancery’s protection of vulnerable persons to corporate governance’s protection of non‑human organizations such as corporations, partnerships, and associations. The ultimate beneficiary became abstract, separated from the juridical entity.

The duty survived. The human faded.

• Fiduciary Duty Restored – Music for a Democratic Corporate Governance

From Entrusted Property to Corporate Personhood

Nineteenth-century corporate opinions routinely described directors as trustees of shareholder capital. The animating premise was straightforward: investors contributed capital but ceded control. Fiduciary duties prevented opportunism.

Over time, courts emphasized instead that directors owe duties “to the corporation and its stockholders.” See Aronson v. Lewis, 473 A.2d 805 (Del. 1984). In practice, the derivative procedure makes clear that the corporation is the primary right-holder.

This conceptual shift matters.

The corporation is a legal person. It does not experience vulnerability, retire, rely on dividend income, or depend on portfolio performance for medical security.

Humans do.

When fiduciary duty becomes framed primarily as loyalty to the corporate entity, enforcement transforms from protecting vulnerable beneficiaries to preserving managerial authority within organizational structures.

Institutional Reinforcement of Fiduciary Drift

The drift from relational constraint to managerial insulation has not occurred by accident. It has been reinforced doctrinally and institutionally.

The Business Judgment Rule

The business judgment rule (BJR) presumes directors act on an informed basis, in good faith, and in the best interests of the corporation. See Shlensky v. Wrigley, 237 N.E.2d 776 (Ill. App. Ct. 1968); Aronson, supra.

Originally designed to prevent hindsight bias, the BJR has evolved into a powerful shield. Unless plaintiffs plead particularized facts showing bad faith, disloyalty, or gross negligence, courts defer.

The result: care claims rarely survive dismissal.

Exculpation and §102(b)(7)

After Smith v. Van Gorkom, 488 A.2d 858 (Del. 1985), Delaware enacted 8 Del. C. §102(b)(7), permitting corporations to eliminate monetary liability for breaches of the duty of care. Nearly all public Delaware corporations adopted such provisions.

In 2022, Delaware extended exculpation to certain officers. Care remains a doctrinal duty — but often without meaningful exposure to damages.

Demand Futility and Procedural Barriers

Because fiduciary duties run primarily to the corporation rather than to the beneficiaries, shareholders must proceed derivatively. That requires either making a demand on the board or pleading demand futility under Aronson or the refined standard in United Food & Commercial Workers v. Zuckerberg, 262 A.3d 1034 (Del. 2021).

Special litigation committees may seek dismissal under Zapata Corp. v. Maldonado, 430 A.2d 779 (Del. 1981). Commentary on derivative litigation routinely notes that strict procedural requirements are “the most common” grounds for dismissal, especially failure to meet the demand‑futility standard or to plead with particularity. Academic work on derivative suits emphasizes that relatively few cases lead to plaintiff recoveries and that many are resolved through dismissals or committee‑recommended terminations, which are largely procedural/business‑judgment determinations rather than adjudications of substantive fiduciary breach.

Procedure, not substance, frequently determines outcome.

Indemnification and D&O Insurance

8 Del. C. §145 authorizes indemnification and advancement of expenses. Combined with widespread D&O insurance, personal financial exposure is rare outside fraud or self-dealing.

The cumulative architecture — BJR deference, §102(b)(7), demand futility, indemnification — does not abolish fiduciary duty. However, it certainly narrows its practical bite.

Shareholder Primacy and Its Misuse

The “maximize shareholder value” mantra is often traced to Dodge v. Ford Motor Co., 170 N.W. 668 (Mich. 1919), although modern doctrine is more nuanced.

The narrow sale-of-control context, Revlon, Inc. v. MacAndrews & Forbes, 506 A.2d 173 (Del. 1986), requires directors to seek the highest value reasonably available.

Outside Revlon, boards retain broad discretion.

Yet rhetoric shapes expectations. When fiduciary duty is equated with firm-specific share price maximization, the systemic externalities borne by diversified investors are excluded from doctrinal consideration.

Universal owners internalize externalities across portfolios. A doctrine focused solely on firm-level extraction misaligns with long-term human investor welfare. Today, with our collective or individual pension accounts, we are almost all prudent universal owners using some framework derived from Harry Markowitz’s modern portfolio theory. See Moving Beyond Modern Portfolio Theory: Reflections.

Steinberg: Directors as “Discretionaries,” Not Fiduciaries

Marc Steinberg’s Corporate Director and Officer Liability: “Discretionaries” Not Fiduciaries sharpens the critique. (buy the book)

Despite longstanding rhetoric, corporate directors and officers are not true “fiduciaries” in the sense of being strictly required to act with robust duties of loyalty and care for identifiable human beneficiaries. Instead, Steinberg contends they should be called “discretionaries,” because Delaware law, the Model Business Corporation Act, and various state statutes impose only limited, highly deferential liability standards in most settings.

For core duty of care claims, plaintiffs must prove gross negligence, deliberate disregard, or reckless indifference. The business judgment rule is so protective that it can be harder to rebut than it is for prosecutors to win criminal negligence convictions. Further, exculpation statutes often require proof of intentional misconduct to recover damages and can even shield some loyalty breaches, while mechanisms such as special litigation committees or informed board approval can insulate self‑dealing or the diversion of corporate opportunities from meaningful judicial review.

While genuine fiduciary standards do appear in narrow contexts (such as entire fairness review of certain conflicted or going‑private transactions), these are exceptions that highlight the gap between “fiduciary” rhetoric and day‑to‑day liability rules. The persistence of the fiduciary label misleads investors and the public into overestimating the legal constraints on directors and officers. Misapplying the term fiduciary undermines legal transparency, investor expectations, and trust in financial markets. Abandoning the “fiduciary” label in favor of the more accurate, neutral term “discretionaries” would better reflect actual doctrine and strengthen the rule of law.

The rhetoric of loyalty persists.
The enforcement reality is constrained.

If fiduciary law originally existed to constrain discretionary power exercised over another’s property, then the gap between language and liability deserves attention.

McRitchie v. Zuckerberg and the Incidental Human

Vice Chancellor Laster observed in McRitchie v. Zuckerberg (Del. Ch. 2024):

The fact that shares are freely alienable by default means that, from the directors’ standpoint, the ultimate human beneficiaries of that value are incidental.

The observation is descriptive — and revealing.

When fiduciary duty is conceptualized as loyalty to freely alienable shares rather than to identifiable beneficiaries, humans recede from view.

Re-Humanizing Fiduciary Power: Jill Fisch and Informed Intermediation

Steinberg exposes how “fiduciary” overstates the constraints on directors. Jill Fisch exposes how the same term understates the obligations of institutional intermediaries.

In Corporate Democracy and the Intermediary Voting Dilemma Fisch and Jeff Schwartz argue that modern stewardship, particularly ESG engagement, implicates contested values. When fund managers vote on climate disclosure, workforce diversity, or political spending, they are not merely optimizing firm value. They are making normative judgments.

Fiduciary law does not permit such judgments to float free of beneficiary interests.

Under both trust principles and ERISA’s “solely in the interest” mandate (29 U.S.C. §1104(a)(1)), fund managers must act in beneficiaries’ best interests.

Fisch’s central claim: fiduciary duty requires fund managers to make reasonable efforts to identify and evaluate beneficiary preferences before exercising voting authority on their behalf.

She rejects rigid pass-through voting. In Standing Voting Instructions: Empowering the Excluded Retail Investor, Fisch shows that retail voting participation is structurally suppressed by regulatory and technological design, not by inherent apathy.

Instead, she proposes “informed intermediation.”

Elements of Informed Intermediation:

• Fund managers must seek beneficiary input.

• They must incorporate that input into stewardship.

• They must disclose how they do so.

• Regulators—not private plaintiffs—should oversee compliance.

Intermediaries retain discretion, but discretion becomes relational. This restores a core fiduciary principle: delegated authority arises from trust placed in those intermediaries by informed beneficial owners — people.

Voting Choice as a Partial Correction

Recent voting-choice initiatives at BlackRock, Vanguard, and State Street respond to both market forces (client demand, differentiation) and intense political/regulatory scrutiny of their proxy voting power. The political angle plays at least a major catalytic role.

Each firm frames these programs as empowering clients, responding to asset‑owner demand to express their own preferences on issues like climate, DEI, and executive pay. At the same time, commentators and academic work describe the rise of “pass‑through” or voting choice as driven by public and political concern that the Big Three wield too much centralized voting power and are shaping policy on contested ESG questions.

Voting choices and policy option menus (including explicitly “wealth-focused”/non-ESG policies via Egan‑Jones) allow the firms to deflect accusations of one‑sided “ESG activism” or political bias by saying they are simply executing client choices, which can reduce pressure from both anti‑ESG and pro‑ESG critics.

These programs allow institutional clients—and, increasingly, retail investors—to select from among stewardship frameworks. SEC guidance confirms that advisers retain fiduciary duties when exercising proxy authority. See SEC Release No. IA-5248 (2019).

Voting choice documents beneficiary preference. It does not eliminate intermediary responsibility. That documentation matters. When asset managers engage issuers, they can increasingly ground stewardship positions in expressed client mandates rather than internal ideology. In doing so, they reintroduce a relational element that has long been absent from corporate fiduciary doctrine.

The Throughline: From Chancery to Abstraction — and Back

Fiduciary law originated to protect vulnerable humans from opportunistic power. Corporate doctrine reframed duty as loyalty to a juridical entity.

Institutional architecture reinforced managerial insulation. Steinberg reveals the erosion of constraint in the director context. Fisch reveals the unfulfilled relational obligations in the intermediary context. Together, they expose fiduciary drift in two directions:

• Overstated constraint (directors).

• Under-enforced relational inquiry (intermediaries).

If fiduciary duty is to retain legitimacy as a legal concept in the corporate governance context, it must reconnect authority to the humans whose capital and vulnerability justify its existence.

The premise should be explicit: Fiduciary duty exists to protect people, not abstractions.

When doctrine renders people incidental, reform is not ideological. It is restorative. If individuals care enough to demand reforms, fiduciary duty could, once again, protect vulnerable people who entrust power to others in the context of corporate governance.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
X (formerly Twitter)

Rule 14a-8: A Cautionary Tale About Abandoning Shareholder Voice

Alan Palmiter’s recent essay, Rule 14a-8: A Failed Experiment in Merit Regulation (Still), offers a troublesome critique of the SEC’s long-standing role as arbiter of shareholder proposal “merits.” His diagnosis will resonate with many who have spent time in the trenches of Rule 14a-8. We have all experienced decades of staff-level line-drawing, doctrinal flip-flops, and politicized uncertainty. Lately, this has been most visible around ESG and social proposals. Moreover, political differences around materiality have strained the no-action process. This has weakened confidence in the ability of bipartisan SEC commissioners to unify around the role of Rule 14a-8.

Palmiter is right about one thing. The SEC is ill-suited to act as a substantive censor of the shareholder–management dialogue. The agency’s recent decision to step back from most no-action determinations implicitly concedes that point. However, his essay becomes more controversial—and caution is warranted—when he proposes a remedy. Scrapping Rule 14a-8 entirely and relying instead on state corporate law, private ordering, and Rule 14a-9 antifraud disclosure to govern shareholder proposals is not a viable solution.

That proposal risks mistaking a deeply flawed implementation for a dispensable institution. Eliminating Rule 14a-8 would not liberate shareholder voice. It would radically weaken it. This is particularly true for long-term, diversified, and retail shareholders. Modern corporate governance theory increasingly recognizes these shareholders as central actors.

Merit Regulation Is the Problem—But Access Is the Asset

Palmiter’s core critique targets merit regulation: the SEC’s attempt to decide which topics are sufficiently important, relevant, or non-operational to justify inclusion in the company proxy. On this point, the record is damning. The “ordinary business,” “relevance,” and “micromanagement” exclusions have functioned less as principled doctrines. Instead, they act as pressure valves, expanding and contracting with political winds.

But Rule 14a-8 is not coextensive with merit regulation. At its core, the rule provides something far more basic and valuable. It provides a clear, enforceable right of access to the company’s proxy machinery. That access right is conditional but at least somewhat predictable. As a result, it has enabled shareholders to coordinate, signal preferences, and discipline boards. This coordination happens in ways neither exit nor private engagement can facilitate.

The historical record matters here. Governance reforms that are now mainstream—annual director elections, majority voting standards, proxy access, board declassification—did not originate in boardrooms or courts. These reforms emerged through repeated, often losing shareholder proposals that nonetheless shaped norms. As time passed, they attracted institutional support and created reputational pressure. None of this would have been feasible without a rule guaranteeing inclusion absent a valid exclusion.

The Illusion of Rule 14a-9 as a Substitute

Palmiter argues that Rule 14a-8 is unnecessary because antifraud Rule 14a-9 already requires disclosure of all “material” matters to be voted on at the shareholder meeting, including shareholder proposals that are “proper” under state law. In theory, this is elegant. In practice, it collapses under institutional reality.

Rule 14a-9 is enforced, if at all, ex post, through litigation that is expensive, slow, and asymmetric. It provides no front-end entitlement to access, no predictable timetable, and no meaningful protection for individual proponents facing a determined issuer. For a large public company, litigating whether a proposal was “material” or “proper” is a cost of doing business. In contrast, for an individual shareholder—or even a small institutional fund—it is a prohibitive expense.

Replacing Rule 14a-8 with Rule 14a-9 does not preserve access; it transforms access into a litigation privilege enjoyed primarily by the well-resourced few. The likely behavioral response is not more robust shareholder engagement. Instead, it will lead to fewer proposals, narrower proposals, and more preemptive withdrawals.

Rule 14a-8: State Law Is Not a Neutral Backstop

Palmiter’s proposal rests heavily on confidence in state corporate law—especially Delaware—as a neutral forum for resolving “proper subject” disputes. That confidence is only partially justified.

Delaware law is sophisticated, but it is also board-centric by design, and increasingly so in an era of jurisdictional competition. Recent developments in Texas, Nevada, and other states illustrate the clear risk. Expect higher ownership thresholds, restrictions on proposal topics, and statutory hostility to shareholder-initiated governance reforms. Without a federal baseline like Rule 14a-8, states can—and will—compete to offer management greater insulation from shareholder voice. It will accelerate a race to the bottom on shareholder rights.

For shareholder advocates, this is not a hypothetical concern. It is already visible in reincorporation trends and legislative experimentation. Eliminating Rule 14a-8 would accelerate this dynamic. In turn, it would fragment shareholder rights by charter and domicile and erode the national market’s shared governance infrastructure.

The Advocacy Ecosystem Matters

Perhaps the most underappreciated consequence of abolishing Rule 14a-8 is its effect on the ecosystem of shareholder advocacy. The rule does not merely facilitate voting; it sustains:

• Agenda setting across thousands of issuers

• Coalition formation among dispersed investors

• Iterative learning across proxy seasons

• Public accountability through disclosure and debate

These functions are especially important for retail shareholders, public pension funds, and values-based proponents. Their influence depends on repetition, visibility, and norm development—not on one-off litigation victories.

A governance system that relies primarily on private engagement and state-court adjudication will inevitably privilege large asset managers and corporate insiders. This system will marginalize the smaller voices that have historically driven reform.

Rule 14a-8: Reform, Don’t Repeal

Palmiter’s essay performs a valuable service by exposing the costs, instability, and incoherence of SEC merit regulation under Rule 14a-8. But abolition is neither the only nor the best response. A more constructive path would preserve the rule’s core function—a reliable guarantee of access to the corporate ballot. Alongside that, it would sharply constrain discretionary exclusions, clarify doctrinal standards, and restore a strong presumption of inclusion.

The SEC’s recent retreat from aggressive no-action policing presents an opportunity to recalibrate rather than abandon the federal role in safeguarding shareholder voice. Thoughtful reform could acknowledge the realities of institutional ownership and respect the boundaries of state corporate law. Furthermore, it could preserve the democratic infrastructure that has quietly but profoundly shaped U.S. corporate governance over the past three decades.

The real cautionary tale, then, is not that Rule 14a-8 failed. It is that, at the very moment when shareholder voice is most needed to discipline complex, systemically important corporations, policymakers may be tempted to dismantle the only scalable mechanism that has made that voice audible in practice.

I do not expect a Commission whose membership reflects only one political party to undertake such constructive reform. But that institutional reality strengthens—rather than weakens—the case against repeal. Eliminating Rule 14a-8 would not depoliticize corporate governance. On the contrary, it would entrench managerial power, fragment shareholder rights across jurisdictions, and weaken the democratic foundations on which a resilient market economy ultimately depends.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)

“Shareholder primacy is good for companies, employees, and even for other stakeholders,” Nell Minow recently said in a recent Keynote Address to ICGN. She also referenced an old, but still timely, “New Yorker cartoon with a woman raising her hand at an annual shareholder meeting, and one of the executives whispering to another, ‘This is the part of capitalism I hate.’”

It was funny then because shareholder questions were treated as an annoying but basically harmless, rare intrusion into an otherwise closed, management‑dominated system, so executives openly resenting “this part of capitalism” read as exaggerated, self‑aware satire rather than a realistic threat.

It is harder to laugh now because we have 30 more years of evidence that many insiders really do work systematically to mute, manage, or bypass shareholder voice—through dual‑class structures, dark‑money lobbying, anti‑ESG backlash, and procedural barriers—so the joke lands less as cartoonish discomfort and more as a candid statement of how power actually operates.

I miss conversations I used to have with the late Robert Monks on such issues. See The Appearance of Legitimacy: Board Elections. Over the course of many such conversations, I came to believe in shareholder primacy, but with the proviso that the number and voice of shareholders must be vastly expanded. Employees should earn many more shares than executives, shareholders should be able to vote their shares automatically through systems like iconik, and beneficial owners should at least be consulted concerning how the stock they “own” is voted. For more on that last point, read Remarks by Jill Fisch Before the Investor Advisory Committee of the U.S. Securities and Exchange Commission)

• The Board Took It All Without Shareholder-Primacy - Music for a Democratic Corporate Governance

Shareholder Primacy: Summary of Findings

The erosion of shareholder primacy in U.S. corporate law—epitomized by Nevada’s 2017 Senate Bill 203 (SB203)—poses an existential threat not only to investor protection but also to effective corporate governance and stakeholder outcomes. In their rigorous empirical study, The Costs of Weakening Shareholder Primacy Bennett, Stulz, and Wang (2025) offer compelling evidence that when boards are legally permitted—and functionally encouraged—to disregard shareholder interests, the consequences for firms, investors, and society are uniformly negative.

The authors examine the adoption of Nevada SB203 as a quasi-natural experiment in stakeholder governance. The statute explicitly removed shareholder primacy from Nevada corporate law, affirming that boards need not prioritize shareholder welfare and shielding them from fiduciary duty litigation. Bennett, Stulz, and Wang deploy a difference-in-differences methodology to evaluate the law’s impact over time on Nevada-incorporated public firms relative to firms incorporated elsewhere.

Their findings are damning:

• Governance deteriorated: Boards became more entrenched, independent oversight declined, and nepotism increased.

• Firm value declined: Tobin’s q fell, stock returns worsened, and the cost of capital rose.

• Investment quality degraded: Firms made more acquisitions but of lower quality and with declining q-sensitivity in investment.

• ESG performance worsened: Environmental, social, and governance metrics all declined.

• Managerial agency problems increased: CEO pay rose and became less tied to performance, suggesting rising private benefit extraction.

These findings directly contradict stakeholderism advocates’ claims that broader fiduciary discretion benefits all constituencies. Rather than helping workers, communities, or the environment, the legal slack appears to benefit insiders at the expense of everyone else.

The Risks of Eliminating Shareholder Primacy

These findings carry weighty implications for both corporate governance and economic policy:

• Reincorporation risk: The precedent set by Nevada—and echoed by Texas and other states seeking to attract incorporations by insulating management—invites similar declines in governance and value.

• Capital misallocation: The empirical drop in investment efficiency threatens long-term productivity, especially in R&D-intensive sectors.

• ESG regression: Far from enabling sustainability, weaker shareholder oversight leads to tangible ESG backsliding.

• Credit market impact: Higher costs of debt and increased auditor concerns signal rising systemic risks.

In aggregate, if such laws proliferate, they risk eroding the very foundations of efficient capital markets and responsible capitalism.

Shareholder Primacy: Prior Support

The Nevada experiment aligns with a growing literature critical of unaccountable stakeholder capitalism. Bebchuk and Tallarita (2020) persuasively argue that stakeholder governance is often a rhetorical shield for managerial discretion. More recent evidence by Eldar and Magnolfi (2022) also find that large firms eschew jurisdictions with weaker shareholder protections, anticipating the especially sharp value declines observed in larger Nevada-incorporated firms.

Not prior to Bennett, et al., Values Primacy and Total Corporate Governance Through Activism by Carliss N. Chatman and Sergio Alberto Gramitto Ricci is also informative on the issues discussed. They present a nuanced framework that critiques traditional shareholder primacy while offering a roadmap for integrating broader stakeholder concerns through structured, value-aligned shareholder activism. Rather than rejecting shareholder primacy outright, it proposes evolving it to support more inclusive governance goals. Building values-primacy governance requires institutionalizing stakeholder values so they become durable features of corporate decision-making rather than reversible rhetoric.

Values-primacy governance thus transforms stakeholder engagement from episodic pressure into an ongoing civic dialogue that stabilizes corporate identity across political and market cycles, anchoring legitimacy in broad public participation rather than short-term shareholder primacy. Corporations shape our social reality. Values-primacy governance offers a draft blueprint for reconstructing that reality. Instead of corporations imposing reality, it can be co-created by the people it affects.

Shareholder Primacy: Defending Shareholder Rights

Despite the power of corporate insiders and friendly legislatures, individual shareholders and beneficial owners are not powerless. The following actions can bolster shareholder primacy across institutional, state, and federal arenas. The simplest yet most underutilized tool is proxy voting. Individual investors should:

• Utilize platforms like Proxy Preview and Portfolios on the Ballot to identify proxy proposals coming up for a vote (the 2026 season will be posted soon).

• Sign up for low-cost or free automated voting of your entire portfolio through As You Vote or Iconik.

• Vote against entrenched directors and excessive CEO pay.

• Support ESG and governance proposals that enhance transparency and accountability.

Align with Advocacy Organizations

Coalitions amplify individual voices. Key partners include:

• Shareholder Rights Group – Defends SEC Rule 14a-8 and shareholder proposal rights.

• As You Sow – Actively files proposals and provides voting tools.

• Interfaith Center on Corporate Responsibility (ICCR) – Coordinates ESG-focused shareholder engagement.

• InvestorRightsForum.com – Tracks anti-shareholder tactics and educates investors.

• The Shareholder Commons (TSC) – Prioritizes protecting long-term, diversified returns by addressing system-level risks.

These organizations frequently submit SEC comment letters, coordinate voting strategies, and offer infrastructure to challenge overreach.

Engage Asset Managers

Most shareholders are indirect investors via ETFs or retirement funds. They should:

• Demand transparency from fund managers like Vanguard, BlackRock, and Fidelity. Participate in their Proxy Voting Choice Revolution, while asking them to expand their choices. Ask them to offer tailor-made options like Iconik or group voting with a trusted group, such as Minerva, As You Sow, Stand.Earth, Third Act, Sierra Club Foundation, The National Center for Public Policy Research, or iconikapp.

• Consider reallocating to funds with robust voting practices, such as Calvert, Domini, or Trillium.

• Ask whether their managers support ESG disclosure, oppose reincorporations, and align with fiduciary duty.

Participate in SEC Comment Processes

Public comment remains a vital channel whenever the current administration wants to change regulations. Shareholders can:

• Respond to rulemakings that impact proxy access, ESG disclosure, or shareholder proposal rules.

• Use templates from Shareholder Rights Group or As You Sow to craft submissions.

• Advocate for mandatory ESG disclosure, universal proxy access, and restrictions on reincorporation without shareholder approval.

Apply Public Pressure

Corporate behavior is influenced by reputation. Shareholders can:

• Use media or shareholder forums to challenge reincorporations into Nevada or Texas.

• Pressure companies to explain ESG stances and reincorporation rationales.

• Collaborate with coalitions like Ceres or US SIF to raise visibility.

Shareholder Primacy: Conclusion:

The Bennett, Stulz, and Wang study is a landmark contribution to corporate governance research. It offers hard evidence that weakening shareholder rights harms not just investors, but also corporate efficiency and stakeholder outcomes. The findings warn against complacency. As more firms consider Nevada-style reincorporations and as the SEC falters in defending shareholder voice, vigilance is critical.

Beneficial owners—especially those whose retirement savings are at stake—must recognize that the battle for corporate accountability is not theoretical. It affects valuations, environmental outcomes, national productivity, and even the likelihood that our democracy survives.

Shareholder primacy remains the best mechanism for aligning managerial incentives with sustainable, long-term value. To abandon it in favor of discretionary stakeholderism is to invite opacity, entrenchment, and inefficiency. The law should protect investors, not shield insiders. It is time for a recalibration—one driven by informed and organized shareholder action.

However, as long as 84% of corporate stock is owned and controlled by 10% of Americans, corporations will not be trusted. As noted by the president and CEO of the U.S. Chamber of Commerce,“Despite overall economic gains nationwide, “many Americans have lost faith in core institutions—public and private alike. They don’t believe that government or business understands the challenges they face, or are willing or able to address them.”

A one percentage point increase in the Gini index for income inequality leads to a fall of two percentage points in the share of individuals who believe that ‘most people can be trusted. [Inequality and Prosperity in the Industrialized World: Addressing a Growing Challenge]

For capitalism to be compatible with democracy, we need most American families to participate in share ownership. We need workers to own more shares than managers and to vote those shares. That should be part of the mission of every corporate director, every fund, and the SEC if our economic system is to maintain legitimacy.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)

I’m not raising the Costco–Walmart comparison as an abstract exercise. It stems from decades of practical engagement with corporate governance. Especially, executive compensation, and the repeated defense of our growing inequality as an economic inevitability rather than an acknowledged design choice.

• We All Do Better When We All Do Better - Music for a Democratic Corporate Governance

Costco-Walmart: Recent Insights

Rosanna (Landis) Weaver recently posted a link to The business strategies that make Walmart a ghoul and Costco a mensch, by Mark Sumner. Rosanna is famous for developing a methodology to identify the most overpaid CEOs. Her reports also tracked how funds voted on pay for As You Sow. Unfortunately, contributions directly tied to that work dried up. Those with the money to fund such work have turned to other concerns. If you think hers was a worthwhile effort and can fund it, contact Rossana, As You Sow, or both. I would love to see the return of her annual assessment of the 100 most overpaid CEOs.

Back to the Costco-Walmart comparison. Rosanna wrote:

I’ve always believed high road companies deliver better returns, and this (the Costco-Walmart comparison) has always been my example. This article talks about general pay philosophy: “Walmart isn’t actually paying out less in overall salary than Costco; it’s just choosing to distribute that salary in a very different way.”

I first became aware of the differential in CEO pay probably more than 20 years ago, when I was looking at McDonald’s proxy. IIRC, McDonald’s removed Costco from its peer group, citing differences in pay philosophies. I tipped off Footnoted & they did a piece on this back in the days when people had blogs.

By the way, Rossanna, Michelle Leder, and I still have blogs.

More recently, two experiences brought these threads together for me. The first was finally meeting Ellen Quigley at the Fall Council of Institutional Investors Conference in San Francisco. Quigley’s work—frequently cited by The Shareholder Commons—has been central to articulating what universal owners already know intuitively: diversified, long-term investors cannot escape the systemic costs of inequality, environmental degradation, or social instability. When those costs are externalized by individual firms, they reappear elsewhere in the portfolio.

The second prompt came from a recent episode of one of my favorite podcasts, Capitalisn’t, where Luigi Zingales and Bethany McLean interviewed Ray Madoff about her book The Second Estate: How the Tax Code Made an American Aristocracy. The discussion underscored how the U.S. tax system now allows wealth to opt out of shared civic obligation—much as low-road corporate models allow firms to offload labor and social costs onto workers and the public.

Taken together, these moments clarify why the Costco–Walmart comparison matters so much—and why extending it to France versus the United States, and then further through the lens of universal ownership, is not merely illustrative but diagnostic. They all point to the same conclusion: inequality is not an unavoidable outcome of markets or scale; it is the predictable result of governance systems that permit cost externalization and elite exit. Follow my quick and painless logic.

Costco and France: Internalization as Governance Design

Costco shows that a firm can be highly profitable while paying higher wages, offering broad benefits, maintaining low turnover, and compressing internal pay ratios. Its business model—anchored by membership fees rather than labor extraction—means the firm internalizes labor and community costs rather than externalizes them. From a governance perspective, Costco practices predistribution. It prevents inequality from being generated inside the firm, rather than pushing it off on society to fix after the fact.

France applies the same logic at the national scale. Through sectoral bargaining, universal healthcare, social insurance, and fewer tax loopholes, France embeds shared responsibility directly into its economic architecture. Inequality is reduced before taxes and transfers because wages, benefits, and risks are collectively structured. The result is not the absence of markets, but markets with countervailing power and fewer avenues for elite exit.

In contrast, Walmart and the United States rely on a strategy of apparent “efficiency” achieved by shifting costs out and/or downward. Walmart’s low prices are partly subsidized by public assistance to workers; the U.S. economy’s “flexibility” is subsidized by household precarity, medical debt, student debt, and underinsurance. In both cases, the system looks cheap because costs are shifted, not eliminated.

Costco-Walmart: Universal Ownership Changes the Meaning of Fiduciary Duty

Universal ownership is not an ESG preference, as politicians in Texas, Florida, Oklahoma, West Virginia, Kentucky, Indiana, Kansas, Idaho, Utah, Wyoming, Arkansas, Missouri, Ohio, Arizona, and North Carolina seem to believe. Conservative policy groups driving anti‑ESG laws are heavily funded by wealthy donors and foundations tied to fossil‑fuel, extractive, and other regulated industries, aligning their campaigns with those businesses’ interests in weakening scrutiny of climate and social risks. Politicians and the public are being “taken for a ride.” The destination looks much bleaker than it could be.

ESG is a structural condition of modern capital markets. Large pension funds, index funds, and diversified asset managers do not own isolated companies—they own the economy. As Quigley’s work emphasizes, these investors cannot diversify away from wage stagnation, demand shortfalls driven by inequality, political instability, or climate risk. When one firm suppresses wages or externalizes costs, those harms reappear elsewhere in the portfolio as higher public spending, weaker consumption, and lower long-term returns.

From this vantage point, what appears to be firm-level value maximization also results in portfolio-level value destruction. Walmart-style cost externalization is not just socially harmful. It is irrational for universal owners whose beneficiaries depend on a stable, prosperous economy. This reality strains traditional interpretations of fiduciary duty that treat firms as isolated profit centers. (McRitchie v Zukerberg)

Costco-Walmart: Predistribution as Fiduciary Logic

Costco’s pay philosophy and France’s social-market institutions illustrate what universal ownership theory predicts. Internalizing costs upstream beats redistributing losses downstream. Both models reduce inequality before taxes and transfers. Both support stability, demand, and legitimacy—outcomes that universal owners disproportionately benefit from.

This insight should reframe the debate. Internalization is not altruism. It is risk management. In an economy owned broadly and held for the long term, externalization is self-harm.

Human Capital Governance: What the Evidence Adds

Recent research summarized on the Harvard Law School Forum on Corporate Governance—What CHRO Compensation Tells Us About a Firm’s Human Capital Strategy—adds an evidence-based bridge between universal ownership and boardroom decisions. Charles G. McClure and the other authors show that how firms compensate their Chief Human Resource Officer (CHRO) reliably signals whether human capital is strategic or merely rhetorical.

Key findings matter for fiduciary duty:

• Relative pay signals authority: CHRO pay closer to CEO pay indicates real influence over strategy.

• Better workforce outcomes: Higher CHRO pay ratios correlate with improved employee sentiment on compensation, culture, career opportunities, and work-life balance.

• Innovation and returns: These workforce improvements are associated with greater intangible asset creation and higher future abnormal returns.

• Markets can tell the difference: Investors respond more positively when CHRO appointments come with real authority, not symbolic titles.

This evidence undercuts a familiar defense of inequality—that investing in workers is “soft” or inconsistent with shareholder returns. It is neither. Human capital governance is value-relevant, and universal owners have a direct interest in it. We all do better With All the Brains in the Room, or as Paul Wellstone used to say, “we all do better when we all do better.”

Costco-Walmart: Fiduciary Duty, Reframed

Taken together, universal ownership theory and human-capital evidence should point to a modern understanding of fiduciary duty:

• Duty of care should require boards to consider systemic risks arising from inequality and workforce degradation.

• Duty of loyalty should require fiduciaries to prioritize beneficiaries’ long-term economic welfare over short-term extraction.

• Executive compensation—including how authority is distributed across the management team—is a primary mechanism by which these duties are either honored or violated.

• Costco’s model passes this test. Walmart’s does not.

Costco-Walmart: Looping Back to Executive Pay

This brings the argument back to where we began—with Rosanna Weaver’s observation and that long-ago McDonald’s proxy. When companies exclude Costco from peer groups due to “different pay philosophies,” they are quietly admitting the truth: pay philosophy is governance philosophy.

Executive compensation is not merely about incentives for one individual. It encodes how value is distributed, which functions are empowered, whose interests are prioritized, and which costs are internalized versus externalized. The CHRO pay ratio shows boards already understand this logic. They just apply it unevenly.

For universal owners—and for anyone serious about both corporate and civic governance—the implication is unavoidable:

If inequality is a systemic risk, then executive pay structures that entrench it are fiduciary failures, not neutral market outcomes.
Costco and France show what internalization looks like in practice. Universal ownership explains why it is now unavoidable. The choice is no longer between efficiency and equity. It is between internalizing costs now or paying for systemic collapse later. Of course, many people will be dead by then, so they may not care, resulting in many more deaths or discomfort for those left behind.

Collaborate with CorpGov.net on Social Media

Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)

In Question 126.06, of an interpretative bulletin issued on January 23, 2026, the SEC’s Division of Corporation Finance clarified that only shareholders who beneficially own more than $5 million of a class of securities may file Notices of Exempt Solicitation under Exchange Act Rule 14a-6(g)(1). While the SEC staff has for decades permitted all shareholders to voluntarily submit such materials to EDGAR, the new guidance prohibits this practice going forward for those holding less than $5 million in the subject company’s stock. This action will severely impact shareholder proposals and “vote-no campaigns.” It reinforces the autocratic direction of both American politics and many American companies. The change harms shareholder rights, good corporate governance, and democratic accountability. Should we file for injunctive relief? Please suggest a course of action.

• $5 Million Wall (We All Belong) – Music for a Democratic Corporate Governance

Voluntary Exempt Solicitations Prohibited: Key Regulatory Change

• The Notice of Exempt Solicitation is now limited strictly to large shareholders (owning over $5 million).

• Voluntary filings by shareholders below that threshold will no longer be accepted on EDGAR, ending a decades-long practice.

• The staff justified this change by stating that many voluntary submissions appeared to be aimed at generating publicity, rather than fulfilling the original intent of the rule—to provide public notice of large shareholders’ solicitations.

Voluntary Exempt Solicitations Prohibited: Harms Shareholder Rights and Democratic Accountability

1. No Meaningful Way to Rebut Management’s Opposition

Under Rule 14a-8, shareholder proponents are limited to 500-word proposals, while companies may include unlimited-length opposition statements in their proxy materials. These opposition statements often:

• Heavily frame the issue from management’s perspective, and

• May include biased or misleading narratives about the shareholder’s proposal or intent.

Without the ability to file exempt solicitation materials on EDGAR, small shareholders have no effective way to rebut these statements before votes are cast.

2. Rebuttals at Annual Meetings Are Illusory

While shareholders technically can speak at annual meetings, this is not a meaningful substitute:

• Shareholder proponents are typically given only one or two minutes to speak.

• Most votes are cast by proxy before the meeting, often by the day prior, making any rebuttal too late to impact outcomes.

• As a result, the core dialogue occurs through the proxy process—and that process is now effectively one-sided.

3. Silences Retail and Small Institutional Shareholders.

Text Highlights Rinterpretation of Rule 14a-6(g)(1) to Further Autocracy

This change disproportionately impacts:

• Retail investors, activists, and ESG advocates, who often own far less than $5 million in shares.

• Small funds and mission-driven investors, who have used exempt solicitations to amplify underrepresented views and build coalitions.

4. Emboldens Autocratic Corporate Governance

By cutting off a primary method for shareholder communication, this interpretation:

• Tilts the balance of communication power even further toward corporate boards.

• Enables management to frame proposals without public rebuttal, discouraging dissent.

• Undermines the deliberative function of the proxy process, weakening the accountability mechanisms central to U.S. corporate governance.

Voluntary Exempt Solicitations Prohibited: Contrary to Legal Purpose of Proxy Voting

Under Section 14(a) of the Securities Exchange Act of 1934, the SEC regulates proxy solicitations to ensure that shareholders receive full and fair disclosure when voting without attending meetings in person.
The SEC’s proxy rules (e.g., Regulation 14A) were created to ensure that proxy voting closely replicates in-person voting, where:

• Shareholders can hear arguments for and against proposals, and

• Make an informed decision before casting their vote.

The SEC itself has stated:

The federal proxy rules are designed to promote fair corporate suffrage by ensuring that shareholders receive material information in advance of voting and can make informed decisions, even if they do not attend the meeting in person.
— SEC Final Rule, “Proxy Disclosure Enhancements” (Release No. 33-9089, Dec. 16, 2009)

Voluntary Exempt Solicitations Prohibited: Impact on Vote-No Campaigns

Vote-No campaigns are shareholder-driven efforts to oppose the re-election of directors, the ratification of auditors, or other management-backed initiatives. Traditionally, these campaigns have been a low-cost but effective tool for:

• Signaling dissatisfaction with corporate governance.

• Pressuring companies to address ESG, diversity, or executive pay issues.

• Building momentum for longer-term activist campaigns.

Vote-No campaigns were expected to become increasingly important because of recent and upcoming attacks on shareholder proposals. According to ISS, 23 companies were targeted in 2025, up from 16 in 2024. Even more were expected for 2026.

Key Impacts on Vote-No Campaigns

For decades, shareholders below the $5M threshold could use the EDGAR system to file exempt solicitations under Rule 14a-6(g)(1), getting their message into the public record. Now, such filings will be rejected, removing a primary vehicle for reaching other shareholders and the media with rebuttals or opposition messages. Small campaigns will lose credibility, reach, and visibility—particularly on platforms like Bloomberg or FactSet that rely on EDGAR feeds.

Exempt solicitation filings are public signals that allow like-minded investors to coordinate, aggregate their holdings, or build informal voting coalitions. The ban isolates smaller investors and makes it harder to create the perception of momentum—often key to influencing ISS/Glass Lewis or institutional votes.

Media outlets, ESG analysts, and even other shareholders monitor EDGAR for campaign developments. Vote-No messages from retail or small institutional investors are now likely to be buried on blogs, subreddits, or social media, without the automated reach of SEC-hosted documents.

Without dissenting views in the official proxy record, directors facing justified opposition may face less accountability. Boards are now more likely to frame opposition as “uninformed,” “fringe,” or “misguided” without rebuttal.

Voluntary Exempt Solicitations Prohibited: Conclusion

The SEC staff’s decision to block voluntary EDGAR filings of exempt shareholder solicitations under the $5 million threshold marks a significant setback for shareholder democracy. It eliminates the only effective pre-vote platform small shareholders had to counter biased opposition narratives, leaving them with no real-time voice in the most consequential corporate governance forum: the proxy statement. This shift silences dissent, empowers entrenched management, and erodes the foundational principle that public company shareholders—regardless of size—should have a meaningful say in the governance of the companies they own.

The legal and historical purpose of proxy voting is to serve as a functional equivalent of in-person voting — including debate and rebuttal — not just to gather pre-meeting votes. The new SEC staff position undermines that purpose by stripping small shareholders of a key tool for meaningful participation, effectively silencing them before the vote is cast.

Additionally, the reinterpreted rules will cut off exempt solicitations in support of Vote-No campaigns, which will lose credibility, reach, and visibility—particularly on platforms like Bloomberg or FactSet that rely on EDGAR feeds.

The change moves the proxy system away from its democratic roots and toward one in which only management and large holders can meaningfully influence outcomes. And larger holders are often conflicted by either running or hoping to run the corporation’s retirement program. Essentially, this is another consolidation of power by oligarchs. Your loss of voice and agency puts your investments and our democracy at risk.

The question we now face is what to do about it. One possibility is to file a preliminary injunction. Here’s a quick AI draft.

MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION

I. INTRODUCTION

For more than two decades, the Securities and Exchange Commission (“SEC”) accepted voluntary exempt solicitation filings from shareholders owning less than $5 million in issuer securities under Rule 14a-6(g)(1). These filings were submitted via EDGAR under a designated submission type (PX14A6G) and served as a crucial vehicle for shareholder engagement during the proxy season.

Without notice or opportunity for public comment, the SEC has now abruptly reversed that long-standing practice through Compliance and Disclosure Interpretation (“C&DI”) 126.06. This new staff interpretation prohibits small shareholders from making those same filings, stating that such submissions are “not consistent with the rule’s purpose.”

This case does not challenge the SEC’s discretion to interpret its own rules. It challenges the method by which the agency enacted a significant change in policy with real-world consequences—without complying with the notice-and-comment requirements of the Administrative Procedure Act (“APA”), 5 U.S.C. § 553. The SEC’s action is not interpretive; it is legislative in substance, binding in effect, and unlawful in process.

Plaintiff seeks a preliminary injunction to preserve the regulatory status quo and protect the integrity of shareholder participation during the 2026 proxy season.

II. BACKGROUND

Rule 14a-6(g)(1) requires that certain persons or groups who engage in proxy solicitations and own more than $5 million of securities file a notice with the SEC. The rule does not expressly prohibit shareholders below that threshold from voluntarily filing exempt solicitation materials.

Since the rule’s adoption, shareholders holding below the threshold routinely filed exempt solicitation materials on EDGAR, particularly in connection with director “vote-no” campaigns and coordinated shareholder advocacy. These materials were submitted under the PX14A6G filing type, reviewed and published by the SEC, and cited widely by investors, proxy advisors, and the media.

In late 2023, the SEC issued C&DI 126.06, stating that such voluntary filings by holders below the threshold are inconsistent with the rule and will no longer be accepted. The SEC provided no notice, no rationale grounded in rulemaking, and no opportunity for affected stakeholders to comment.

III. ARGUMENT

A. The SEC’s Reversal Constitutes a Legislative Rule Requiring Notice and Comment

Under the APA, an agency may not implement a legislative rule—a rule that has the force and effect of law—without notice-and-comment rulemaking. See 5 U.S.C. § 553(b)-(c).

A rule is legislative when it:

1. Creates new rights or duties or alters existing legal standards;

2. Binds regulated parties or the agency itself in practice;

3. Has a substantive effect on the regulated community.

— See American Mining Congress v. Mine Safety & Health Admin., 995 F.2d 1106, 1109 (D.C. Cir. 1993);
— See also Appalachian Power Co. v. EPA, 208 F.3d 1015, 1021–22 (D.C. Cir. 2000) (“It is well-established that an agency may not escape the notice-and-comment requirements by labeling a substantive change as merely an interpretation.”).

Here, the SEC’s shift in policy meets all of these elements:

• Eliminates formerly permitted conduct: For decades, the SEC accepted PX14A6G filings from sub-$5 million holders. C&DI 126.06 now prohibits that practice outright.

• Binds parties and the agency in practice: Filings inconsistent with C&DI 126.06 are now rejected by EDGAR, and filers are instructed that the practice is no longer allowed.

• Substantively affects shareholder rights and strategy: Small shareholders are now barred from participating in pre-vote proxy discourse in the only SEC-recognized platform for such communications.

The SEC cannot circumvent its procedural obligations by adopting a binding change in the form of a staff interpretation. As the D.C. Circuit has made clear:

“When the agency applies the guidance as binding in practice, it is legislative.”
— Appalachian Power, 208 F.3d at 1021.

B. Decades of Consistent Practice Created Serious Reliance Interests the SEC Cannot Disregard

The Supreme Court has held that agencies must consider and address reliance interests when changing policy:

“An agency must provide a more detailed justification when its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account.”
— FCC v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009).

Here, the SEC:

• Facilitated and encouraged PX14A6G filings by small shareholders for over 20 years;

• Publicly maintained a submission pathway and accepted thousands of such filings;

• Permitted institutional investors, media outlets, and proxy advisors to rely on these filings for governance decision-making and transparency; and

• Never previously indicated that such filings were improper or inconsistent with Rule 14a-6(g)(1).

Investors and advocates planned communications strategies around this long-standing practice. That reliance is not incidental—it is systemic. The agency’s abrupt reversal, without transitional mechanisms or explanation, is arbitrary and capricious under 5 U.S.C. § 706(2)(A).

C. EDGAR Is Not “Just a Filing System”—It Is the SEC’s Exclusive Proxy Communication Forum

The SEC downplays the consequences of its reversal by arguing that EDGAR is merely an administrative filing portal. But that view ignores the functional role of EDGAR in the proxy voting regime.

Under Section 14(a) of the Exchange Act, proxy voting is the modern substitute for in-person shareholder meetings. In this context:

• Management’s opposition statements face no length limits and are automatically disseminated;

• Shareholder proposals are capped at 500 words, with no opportunity for rebuttal in the official proxy materials;

• EDGAR is the only official, accessible, and authoritative venue through which exempt solicitations—especially rebuttals—can be published during the voting period.

For small shareholders, PX14A6G filings were the only cost-effective method to rebut management’s opposition in real time. C&DI 126.06 removes this mechanism entirely, leaving small shareholders no functional path to participate in pre-vote discourse.

While EDGAR may not be a First Amendment forum, its design and administration cannot be manipulated to systematically suppress dissenting viewpoints. Courts have repeatedly recognized that government control over access to procedural mechanisms—when exercised to favor one class of participants over another—raises serious questions of fairness and lawfulness under the APA.

D. Plaintiff Faces Ongoing, Irreparable Harm

The SEC contends that Plaintiff’s harm is speculative. It is not. The 2026 proxy season is already underway. Plaintiff, like many small shareholders, seeks to file PX14A6G materials to support a vote-no campaign. Under the new guidance:

• Such filings are now barred;

• The opportunity to influence voting outcomes will expire with the proxy season;

• No alternative forum provides the same credibility, reach, or timing as EDGAR.

Courts have long held that the loss of participation in an agency-administered process constitutes irreparable harm:

“The loss of a meaningful opportunity to comment or participate in a government decision-making process is an injury that cannot be remedied after the fact.”
— Open Communities Alliance v. Carson, 286 F. Supp. 3d 148, 178 (D.D.C. 2017).

Once votes are cast, they cannot be undone. The harm is time-sensitive, ongoing, and irreversible without immediate judicial intervention.

E. The Public Interest and Equities Favor Injunctive Relief

The balance of equities and public interest favor restoring the long-standing practice of accepting voluntary exempt solicitations from small shareholders.

• The SEC administered this practice without disruption for over two decades.

• Reinstating it maintains the regulatory status quo.

• Denying access to EDGAR during the proxy season skews governance discourse in favor of management, in direct conflict with Section 14(a)’s purpose of facilitating informed shareholder voting.

The public interest is served by maintaining an open, participatory, and procedurally sound proxy system—not by permitting unreviewed agency reversals that disenfranchise a segment of stakeholders.

IV. CONCLUSION

C&DI 126.06 does not merely interpret Rule 14a-6(g)(1); it fundamentally alters it. By prohibiting long-accepted shareholder conduct, binding both staff and filers, and doing so without public input, the SEC has promulgated a legislative rule in violation of the APA.

The Court should grant the motion for a preliminary injunction to prevent irreparable harm and preserve the integrity of the 2026 proxy season.

Other ideas? Let me know.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)

Many companies use supermajority voting requirements to keep shareholders from changing corporate bylaws. Majority voting should be the standard for shareholders to amend bylaws at all companies. Companies run by entrenched authoritarians oppress workers, externalize costs, and support presidents who act like dictators.

To ensure a harmonious society and a salubrious environment, support the movement to democratize corporations. Eliminating supermajority vote requirements is key. Get that right, and shareholder majorities can amend the bylaws to elect directors who care about growing our companies and our wealth by engaging employees and operating sustainably.

• End Supermajority Shareholder Voting Standards (Sing out with Music for a Democratic Corporate Governance)

End Supermajority Requirements: Win a Threshold Right

Eliminating supermajority standards is a threshold right that ensures shareholders have at least some degree of say over those who direct the corporations they invest in. This right could become increasingly important in a world where shareholders’ ability to file precatory (advisory) resolutions or to sue their own companies over alleged mismanagement and other director/officer decisions is increasingly restricted. Rules are being tightened for shareholder proposals and derivative lawsuits, and are being codified in very protective business judgment rules. Our governments are pushing for more autocratic rule by executives, from CEOs to the President.

For example, Texas took the action I warned against. Other states are contemplating similar measures. I’ve been filing shareholder proposals for 25 years. It’s been a rewarding activity. As I approach my eighties, I realize it’s time for a younger generation to take over. In the post below, I discuss the importance of ending supermajority vote requirements. Then I’ll provide an example proposal on this topic that I recently submitted to Marriott International Inc. (McRitchie MAR – SMV). Finally, I’ll list more than 500 companies where such proposals could be filed and where companies could be transformed by using all the brains in the room.

Not Easy

In my experience, this is one of the more difficult shareholder proposals to win. If you are a novice, start with one of the others in this series of “Become a Shareholder Advocate.” For example, if your company doesn’t have a majority-vote requirement to elect directors or shareholders’ right to call special meetings, start there. If you win a majority vote on one of those proposals but the company’s bylaws require a supermajority vote for shareholders to make such changes, at least you will have tested the waters.

Filing proposals to end supermajority vote requirements could set you on a course of getting to know the companies you invest in and learning how to shape their corporate governance. Again, earning such skills could become increasingly important as shareholder rights come under attack. See, for example, The SEC, Delaware, and the High Stakes for Investors on Advisory Shareholder Proposals and Investor Rights at Risk. It can also be profitable as you learn more about the companies in your portfolio and adjust your investments accordingly.

End Supermajority Requirements: Why Important

Supermajority voting requirements are not just technical barriers—they are structural tools of entrenchment. These provisions prevent shareholders from exercising even the most basic right in corporate governance – the right to amend bylaws by majority vote. That is why eliminating supermajority requirements is one of the most important reforms a shareholder advocate can pursue.

Supermajority thresholds—often two-thirds or more of outstanding shares—are difficult to meet, especially considering that many retail investors do not vote, and institutional votes are often split or constrained by internal policies. This effectively blocks shareholder-initiated reforms, even when a clear majority supports them. In such cases, the supermajority requirement acts as a veto point for the status quo, shielding entrenched management and boards from accountability.

Both Institutional Shareholder Services (ISS) and Glass Lewis agree: supermajority provisions are a barrier to shareholder rights and should be eliminated unless there is a compelling, company-specific rationale to retain them. For example, supermajority thresholds may protect minority holders from such a large shareholder.

Positive Trend at Risk

The trend in corporate governance is clear. In 2010, 58% of S&P 500 companies had supermajority requirements; by 2024, that number fell to 35% (ISS Governance Insights, 2024). In the 025 proxy season alone, 75% of shareholder proposals to eliminate these provisions passed, with average support exceeding 70% (Alliance Advisors, 2025 Proxy Season Review).

The academic case is just as compelling. A foundational study by Bebchuk, Cohen, and Ferrell (Harvard Law School) shows that companies with fewer entrenching governance provisions—like classified boards, poison pills, and supermajority rules—have significantly higher firm valuations, as measured by Tobin’s Q. You can access the full study here: Bebchuk et al “What Matters in Corporate Governance.“

For over 80 years, these proposals have offered investors a structured, cost-effective way to communicate concerns about governance, compensation, sustainability, and systemic risk. On October 9, 2025, Chair Atkins proposed a sharp departure from this framework during a keynote address at the John L. Weinberg Center for Corporate Governance.

Today Even More Important

In a climate where shareholders face mounting obstacles—from narrowed SEC interpretations of Rule 14a-8, to state-level rollbacks of shareholder rights, to judicial doctrines like the business judgment rule that defer heavily to boards—it is essential to preserve and expand what few tools we have left. Ending supermajority requirements does exactly that: it opens the door to further reforms. Without this foundational change, even majority-supported proposals (like board declassification or special meeting rights) may languish without implementation, as the bylaws cannot be amended without meeting artificially high voting thresholds.

This is why ending supermajority requirements is not just a governance prefereit’sit’s a threshold right. If shareholders cannot govern the rules by which they govern, then they are not truly participants in corporate oversight, but passive financiers. And as more capital is controlled by index funds that cannot easily exit positions, meaningful governance rights are more important than ever.

Ultimately, removing these barriers allows shareholders to align corporate practices with long-term value creation, sustainability, and workforce engagement. It reclaims the corporation as a social institution—not one run by unaccountable insiders, but one directed by its true owners.

End Supermajority Requirements: Marriott International

My wife and I have previously submitted proposals to Marriott to reduce their supermajority requirements in 2014, 2015, and 2016; to allow shareholders to call special meetings in 2018; to allow shareholders to act by written consent in 2019; and to require more recent reporting on pay equity. The AFL-CIO and others have also filed to end supermajority requirements and other topics at Marriott. They won more votes than we did.

At least we had email addresses for staff at Marriott and knew our proposal wouldn’t get lost in the ether. Over the years, we have made some progress, but it has been difficult. I’m not sure this proposal is the right one for this season, so I may discuss other options with them. We will see.

End Supermajority Requirements: Some Companies in Need of a Shareholder Proposal

Here is the promised spreadsheet of more than 500 companies that I believe maintain supermajority vote standards for shareholders seeking to amend bylaw provisions. (companies with supermajority vote standards: End Supermajority Requirements.) The list doesn’t include the largest or smallest companies. I have ranked them by size, with larger companies at the top. You may want to make a copy and sort it alphabetically.

Keep in mind, while you may win a majority vote on overturning supermajority standards, it will take 67% or more to actually win the vote. Be sure to double-check the bylaws of any company you select from the list, since the company may have updated them… or I could have gotten it wrong. Again, check the latest proxy to learn where to send your proposal after you use my template.

You can find these filings on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system. I find CapEdge more user-friendly. Both are free. Let me know if you find even better free sites for SEC filings.

Filing Tips

For tips on transmittal letters, broker letters, and more, see the initial post in this series, Declassify Boards: Become an Advocate. You can also find additional helpful information in our Shareowner Action Handbook. I see some material there, like Corporate Governance for the 99% is over 10 years old. If you start filing proposals and can’t find the answers to your questions in this series on becoming a shareholder advocate or in the Handbook, contact me. I’ll try to help, and you might just motivate me to update the Handbook.

Collaborate with CorpGov.net on Social Media (or Leave a Reply at the bottom)

Linkedin
BlueSky
Facebook
Mastodon
Substack
X (formerly Twitter)