What are "shareholder proposals," and why is this such an important topic for business leaders to understand?

Shareholder proposals are a fascinating tool of corporate governance. They provide shareholders with an opportunity to have their voices heard and nudge companies to change their business practices. They can be important mechanisms to enhance transparency and the accountability of boards and management to shareholders — and ultimately, all stakeholders.

The right to bring a shareholder proposal is not reserved for ‘big players’ only. Even small shareholders can bring an issue to a management team and board, so long as they meet the ownership threshold of $2,000 or one per cent of the company for at least six months.

Shareholder proposals are important because they can lead to broader, systemic change in market practice, and even changes to statutes and regulations. ‘Say on pay’ votes are a good example of this. These are advisory votes where shareholders vote for or against the company’s executive compensation policies. This originated as shareholder proposals directed at the major banks. At first there wasn’t enough shareholder support to pass a resolution, but within a few years, as shareholder support for these proposals grew, the banks agreed to consider exploring what a ‘say on pay’ vote could look like. Today, it is common practice not just for banks, but for many larger Canadian public companies. Indeed, over 80 per cent of TSX 60 issuers had say-on-pay votes in the 2024 proxy season.

Describe the nature of your current research.

I have analyzed data on shareholder proposals from 2014 to 2024, with a focus on Canada and the United States. In total, my dataset has about 700 Canadian proposals and about 6,500 American ones.

My goal is to identify trends over this period, look at how the two jurisdictions compare, and then assess how the subjects and the themes have changed over time. I am examining how voting results have changed and whether regulatory or institutional changes can result from a critical mass of shareholder proposals on a certain topic. I am particularly interested to see if there are cross-border trends, such as American proposal themes that make their way north a year or two later.

Is the number of shareholder proposals increasing?

Generally speaking, the number of shareholder proposals is increasing in Canada, with a dip during COVID-19 (2020 and 2021). The yearly totals in the U.S. have been a bit steadier. What is changing over time are the areas of focus. Early in the study period, many of the proposals were about remuneration, but more recently, a growing number are focused on environmental and social issues.

Where do shareholder proposals fit in the broader context of shareholder engagement and activism?

Shareholder proposals are part of the broader shareholder engagement framework, serving as one tool in the larger governance toolbox that shareholders have at their disposal. Shareholders can use these proposals to get the attention of boards and management teams, and a proposal can lead to negotiations.

However, there can be plenty of opportunities for companies to engage with shareholders before any proposals are submitted — and perhaps avoid a proposal altogether. Therefore, while shareholder proposals are part of the shareholder engagement framework, companies may benefit from engaging shareholders on particular issues well before a proposal is ever submitted.

Another important point is that shareholder proposals can lead to engagement over multiple years. Resubmissions of prior proposals are allowed, though they are subject to resubmission voting thresholds. For example, if a proposal was voted on once before and received less than three per cent support, it can’t be resubmitted. These thresholds — which escalate to six per cent if it’s been voted on twice and 10 per cent thereafter — are pretty low, however.

Even if they ‘pass’ by getting more than 50 per cent support—and my study shows that few do—shareholder proposals are not generally binding. But whether they pass or not, they can be a powerful engagement tool between a company and its shareholders. Proposals create reputational pressure for a company, since they require management to take a public position on the matter in their proxy materials and at the company’s AGM. They also attract the attention of other shareholders and proxy advisory firms.

Many believe that Canada’s regulatory regime for shareholder proposals is ripe for modernization. If it were up to you, what initial steps would you take?

My research is in part focused on this very question: should the regime in Canada be amended? Historically, Canadian legislative reforms to the Bank Act and the Canada Business Corporations Act have come after changes to the U.S. regime. That said, this trend did not follow through in 2020, when a number of significant reforms to the American shareholder proposal framework came into effect. A higher share ownership submission threshold of $25,000 and a higher resubmission threshold (five per cent if voted on once before, 15 per cent if voted on twice and 25 per cent thereafter) were two of the key changes.

So far, Canada has not followed suit by increasing its thresholds, nor has it introduced a ‘one proposal per shareholder rule,’ as the 2020 reforms in the U.S. did. The

U.S. and Canadian regimes have other long-standing differences, beyond just the threshold reforms. In the U.S., the Securities and Exchange Commission plays a much more direct role in the process. If management chooses to exclude the proposal from its meeting materials, the SEC reviews that decision. It may decide not to intervene — issuing a so-called ‘no action letter.’ The idea is that the SEC brings a greater degree of accountability of boards and management because the regulator signs off (or doesn’t) on the company’s decision with an independent, public-interest lens.

This type of role does not exist for Canadian securities regulators, though there has been some conversation about whether that power should exist. I am reviewing the benefits and drawbacks of this approach in my research.

If management declines to include a shareholder proposal in its annual proxy, what recourse do shareholders in Canada currently have?

If management decides to reject a shareholder proposal, a shareholder can go to court to get it reviewed. The court then decides whether the proposal was improperly rejected. There are two main problems with this. First, courts can take more time than a shareholder has. And second, courts are expensive to navigate.

As you indicate, few shareholder proposals pass. Are there other measures of success?

A 50 per-cent-plus-one vote is likely not the only measure of success for a proponent — though success is of course in the eye of the beholder. Besides a positive vote, shareholder proposals can give the shareholder the opportunity to force a discussion on the issue, gain media attention and maybe even negotiate changes to company practice with management.

I am researching the voting trends around resubmitted proposals and I have found that if a proposal gets at least 10 per cent support, it is a pretty good indicator to the proponent that there may be even more interest in it, and that it would be worthwhile to pursue it again the following year.

Are there examples where a shareholder proposal has influenced a company’s strategic direction?

Even though passing a vote isn’t essential for a shareholder proposal to be a success, one of the best examples of this influence is from a proposal that did receive majority approval. The target company was TMX Group, which runs the Toronto Stock Exchange and other exchanges. The proposal focused on Indigenous reconciliation and was a response to the Truth and Reconciliation Commission. It called on TMX Group to create internal diversity programs, review procurement from Indigenous-owned business and engage with Indigenous organizations. Crucially, this proposal was supported by the TMX Group management. This support may be, in part, why the proposal received 98 per cent of the vote at the AGM. The proposal led TMX Group to embrace the requests made of it and commit to implementing the changes. In my view, this was a ‘win-win-win,’ because the proponent, management and shareholders all supported it.

In Canada, shareholder proposals mainly target large financial institutions. Why is that?

My research shows that financial institutions represent six out of the top 10 recipients of shareholder proposals. The reason? For one thing, these organizations are consumer-facing, with broadly dispersed shareholder bases. Also, financial institutions play a significant role in corporate Canada, and I think the number of shareholder proposals they receive reflects their strong presence in our economy.

 This high profile also means that when the big banks receive shareholder proposals, they are more likely to receive media attention — increasing the benefits for the proponents, who want to maximize pressure and draw out interest from other stakeholders as well, including members of the general public, even if they’re not shareholders. Unless there are structural changes to our economy and financial regulation, I don’t see this focus on large financial institutions changing any time soon.

Recently there has been a rise in anti-ESG proposals. Why is this happening?

This is another trend I am seeing. In the U.S., in recent years, there has been an explosion of pro-ESG and pro-DEI-related shareholder proposals. Investors have been asking corporations to examine everything from hiring policies to employee demographics, and to conduct environmental audits and implement bold net-zero pledges. These proposals grabbed media attention in many cases.

Now, investors and groups that are critical of ESG and DEI programs have noticed those trends and have started using shareholder proposals for their own purposes. Last year, for example, John Deere was a high-profile target of one such anti-ESG shareholder proposal demanding an audit of its DEI policies, arguing that these policies went against meritocracy. The proposal failed — but it still led to John Deere terminating some of its DEI programs due to the backlash from its more conservative consumers. Now we’re seeing more and more anti-ESG proposals emerging in the U.S. And with the Trump administration’s policy positions on DEI programs and ESG more broadly, I anticipate even more momentum behind anti-ESG shareholder proposals.

As you weigh all of these trends in your research, do you have other thoughts on how we should look at shareholder proposal regulation and reform?             

It depends on what we’re prioritizing from a policy perspective. Legislative or regulatory reform has to strike the right balance between, one, the promotion of shareholder voice, including through thoughtful shareholder proposals that will enhance or advance governance, accountability and transparency of a company; and two, the rightful focus that we delegate to management on pursuing corporate strategy, operations and value creation with the insights of its shareholders and other stakeholders.

Ultimately, our model of governance is ‘management manages, the board oversees, and shareholders vote and provide input.’ Do we want to shift that balance at all? Do we want shareholders to provide more input or less? At the same time, we need to let management do its work, as well. That’s the broader framework that I am working through.

This article originally appeared in the Spring 2025 issue of Rotman Management magazine. If you enjoyed this article, consider subscribing to the magazine or to the Rotman Insights Hub bi-weekly newsletter.