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The purpose and importance of shareholder proposals

| Aug 28, 2020 | Civil Litigation |

Some investors make a full-time income from the shares they own in companies, which might even include their own business. Smart investors spread shares out across various industries and even competitors to diversify their portfolios. There are also many investors who hone in on one company or industry and amass enough wealth to turn the tide in their favors. 

However, there are also millions of small investors who may have power in a company. These investors not only have the right to vote; they also have the right to make shareholder proposals. CNN explains that this power allows shareholders to advocate for social change and more responsible leadership. 

The importance of proposals

Proposals have the power to change a company for the better and set it on a path that can define its place in history. This is especially important when proposals involve social change. Here are some examples: 

  • Ending Walmart’s sale of assault rifles 
  • Causing General Motor to withdraw from apartheid South Africa 
  • Phasing out styrofoam cups at McDonald’s 

How proposals work

Whether someone is a big or small investor, there are some recommendations to follow when making a proposal. Cornell Law School advises that investors state proposals as clearly as possible. It should dictate the course of action investors want the company to take. If the recommendation makes it to the proxy card, shareholders get the opportunity to vote on the proposal. 

Unfortunately, not all investors have the opportunity to make proposals. Investors must meet the lower requirement of either 1% or $2,000 in company shares. Current securities laws also require holding that investment for at least a year before submitting a proposal.