Natalia Renta
It’s been one year since the Securities and Exchange Commission radically changed its policy to allow forced shareholder arbitration clauses in initial public offering filings, but more than 99% of companies coming to market have rejected them.
There have been more than 330 IPOs in the last year, and only one company—SpaceX—included such provisions.
SEC Chair Paul Atkins championed the new policy as part of his “Make IPOs Great Again” agenda, but while IPOs are up in 2026 compared with recent years, the new arbitration policy evidently had little impact on the increase. If anything, the staggering numbers may prove that companies see such clauses as risky and bad for business.
Policy Change, 1 Year On
Without public comment, on September 17, 2025, the SEC reversed its decades-old practice that protected investors’ right to band together and hold corporations publicly accountable for securities fraud through class action litigation. Backlash from investors, legal experts and former regulators was intense—and for good reason. In the past 30 years, investors have recovered approximately $100 billion in losses using securities class action litigation to hold corporations liable for violating the law.
The SEC’s policy change effectively allows companies to avoid public accountability for fraud and misconduct. Public companies that include arbitration clauses can force shareholders into private, individual, mandatory arbitration, barring investors from using the court system to recover losses and to expose corporate misconduct when companies break the law. Accountability and transparency are critical for the integrity of public markets and for enabling U.S. corporations to be competitive globally. Perhaps it is not surprising, then, that even without a regulatory guardrail in place, new IPOs have stayed away from forced arbitration provisions.
Overwhelmingly Unpopular
Since September 2025, more than 330 companies went public without forced arbitration clauses. The one exception was SpaceX’s June IPO, the largest ever brought to market. It was also the most scrutinized public offering in decades—one which some pension fund investors labeled “reckless,” and which Senator Elizabeth Warren, D-Massachusetts, warned would provide “no accountability measures for [SpaceX Founder] Mr. [Elon] Musk or company leadership.” SpaceX’s stock turbulence and corporate governance controversies, such as multi-class shares and an onerous stock ownership threshold for bringing shareholder lawsuits against insiders, have led some to view its market debut as “a cautionary tale for the two other mega-cap IPOs coming down the pipeline, Anthropic and OpenAI.”
Forced shareholder arbitration provisions are unpopular with investors because they favor corporations at the expense of shareholder rights, investor confidence and public accountability. Various public companies have rejected proposals to put forced shareholder arbitration provisions into their bylaws over the years, and the SEC consistently sided with those determinations.
In 2020, software company Intuit presented a shareholder proposal that would have sent all shareholder cases to individual forced arbitration, but it received just 2.4% of shareholder support. Retirement savers, workers and other retail investors have understood that forced arbitration clauses shield corporations from accountability when they break the law, because only the largest institutional investors can afford the high cost of arbitrating claims. Everyone else is priced out of justice.
Can SpaceX Be Avoided?
The conventional approach to a problematic stock like SpaceX would be simply to stay away from it, but because of new fast-entry rules adopted by several indexes, it is extremely difficult for many passive investors to avoid it. Once invested in a fund that tracks a particular index, investors have no choice over what the fund buys or sells, and SpaceX stock has already been added to portfolios, including retirement accounts tracking the indexes that opted to include SpaceX, whether those investors wanted it or not. Unfortunately, by fast-tracking SpaceX’s inclusion, these index providers have enabled Musk and his board to further erode shareholder rights.
S&P is the notable exception: The provider of the S&P 500 Index initiated a consultation period regarding potential fast-entry rules and then scrapped it following opposition from investor advocates, labor and policymakers. According to Ann Lipton, a law professor and corporate governance expert who co-chairs the business law department at the University of Colorado Law School, “shareholders have three rights: to vote, to sue and to sell. All three are either limited or eliminated in the SpaceX IPO.”
Much-Needed Guardrail
The good news is that 99% of other companies that have gone public since the rule change have maintained standards that allow shareholders their day in court. Corporations seem to be keenly aware of the risks inherent in adopting forced shareholder arbitration policies, and they are broadly avoiding them. But the danger of normalizing crackdowns on fundamental investor rights has not passed.
SpaceX looks like an outlier today, but even a small number of new IPOs that attack shareholder rights could deal a significant blow to investor confidence and undermine the value and security of U.S. capital markets.
We call on the SEC to reverse course and reinstate this important guardrail, and for companies to continue rejecting its invitation to undermine the rights of their regular investors.
Natalia Renta is the associate director of corporate governance and power at the Americans for Financial Reform Education Fund.
This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author does not necessarily reflect the stance of ISS STOXX or its affiliates.
Tags: arbitration, investor activism, Securities and Exchange Commission, securities regulation, SpaceX