The ability of many shareholders to influence the policies of publicly traded companies could be hobbled if the Financial Choice Act, designed to roll back Obama-era regulations, passes the Senate and becomes law.

Currently, any shareholder with either $2,000 or 1 percent of a company's shares, held for at least a year, can put a prosposal up for vote at a corporate annual meeting.  

But the Choice Act, in a bow to corporate CEOs, would drop the $2,000 threshold and keep the 1 percent requirement, while extending the time frame for holding the stock to three years.  

"This proposal would virtually eliminate the ability of shareholders to bring resolutions to the attention of companies," says Anne Sheehan, director of corporate governance at the California State Teachers' Retirement System, the nation's largest teachers' pension fund.

The overall bill, which passed the House Thursday and now heads to the Senate, would roll back many of the consumer protections established by the Dodd-Frank Financial and Consumer Protection Act of 2010.

Limiting who can make shareholder proposals would undercut an ability even small investors have had since the 1940s to make their voices heard at major companies. While companies are not required to follow shareholder proposals that pass, many of those initiatives have led to significant changes.

Three years ago, for example, John Chevedden, a small activist investor, submitted a proposal that would require elections of directors of Neustar, Inc., a data analysis company, to take place annually instead of over several years. By doing this, Chevedden believed that the board would be more responsive to shareholder needs. His proposal passed and elections are now held annually.

In 2008, People for the Ethical Treatment of Animals (PETA) bought just enough shares in Chipotle, the Mexican restaurant chain, to make a proposal. According to a study published by Harvard Business School, What Else Do Shareholders Want? Shareholder Proposals Contested by Firm Management, PETA called on the company to purchase chicken from suppliers that followed more humane policies than its current supplier. Chipotle didn't place the proposal on the proxy, but did change suppliers, according to the study.

And last month a shareholder proposal for Exxon Mobile to report annually how technological changes and climate change affect its portfolio of reserves and resources was approved. It had been proposed by the New York State Common Retirement Fund, which owned about $900 million in Exxon stock.

Under the Choice Act, the proposal at Exxon Mobile would likely have gone nowhere. New York’s retirement fund would've been required to own more than $3.4 billion in Exxon Mobile stock.

Indeed, shareholders would need to own stock worth millions or billions of dollars in order to make a proposal at the annual meeting of major U.S. corporations. To make a proposal at Apple, for example, you would need more than $8 billion in stock. At Wells Fargo, the figure would be about $2.6 billion.

The upshot of the shareholder provision is that only investors with seriously deep pockets would be able to make proposals. Such investors would include Warren Buffett's Berkshire Hathaway, BlackRock, Fidelity and Vanguard, says Ken Bertsch, executive director of the Washington, D.C.-based Council of Institutional Investors, a not-for-profit representing employee benefit plans, foundations and endowments. 

Why Limit Proposals?

Proponents of the change say the new rules would prevent a large number of frivolous proposals from being made year after year.

"The question is whether you should be able to have $6,000 in stock and make the same proxy proposal for 11 years in a row,” says James Copland, senior fellow and director of legal policy at the Manhattan Institute, a not-for-profit conservative think tank. "The process ought not to be a place for tiny shareholders to gripe about what corporations are doing."

Copland says a few big activist investors and their families, including Chevedden, invest a few thousand dollars in dozens of major companies and then lobby for change. Their proposals account for about one-third of all proposals made, says Copland, and often are about social issues, which he contends don’t have a place at the annual meeting unless they positively affect shareholder wealth.

In addition, addressing the proposals distracts corporate executives and staff from focusing on more strategic tasks, says Copland.

Critics of the Financial Choice Act argue it would prevent positive corporate change, much of which often rises from the grassroots level.

“The Financial Choice Act, if enacted, would weaken critical shareholder rights that investors need to hold management and boards of public companies accountable,” Bertsch recently told lawmakers at a hearing about the bill.