SEC Steps Back on Shareholder Proposals

For decades, companies have relied on Rule 14a-8 as a stabilizing force in an otherwise unpredictable part of the proxy season, allowing companies to seek informal guidance on excluding shareholder proposals.

The Securities and Exchange Commission’s informal but influential no-action process provided a rare roadmap in corporate governance. Each time a shareholder proposal raised questions involving issues such as timeliness or ordinary business, issuers could count on getting an answer from the staff of the SEC’s Division of Corporation Finance, which is commonly known as CorpFin. This process lent a familiar rhythm to the proxy-season routine.

This year, the beat changed. On November 17, CorpFin announced it would stop issuing substantive responses to almost all no-action requests for the 2025–26 proxy season. With limited exceptions for state-law issues under Rule 14a-8(i)(1), companies will no longer receive staff guidance from the SEC on whether a proposal may be excluded. Instead, if a company represents that it has a “reasonable basis” for exclusion, the SEC will acknowledge receipt and move on, without evaluating the merits.

Some executives will likely view the SEC’s new stance as a godsend. Shareholder proposals tend to be fodder for activist investors to prompt companies to take positions on socially or politically sensitive issues, which plenty of C-suite executives would prefer to avoid.

In the bigger picture, the procedural shift brings outsized implications. Freed from the choreography of the traditional no-action process, issuers now have more latitude to decide how to handle shareholder proposals that fall within governance gray areas. As such, companies can tailor their strategies for addressing the proposals to fit their own priorities, as opposed to the standards of SEC staff members.

SEC chair Paul Atkins is not a fan of the role of shareholder proposals in corporate governance, which he and his staff have sought to limit this year. Might this policy be a preview of that approach? Regardless, the agency’s decision generated predictable concern from critics such as SEC commissioner Caroline Crenshaw. In a statement commenting on the move, she described it as “an act of hostility toward shareholders.”

However, the SEC’s new position may not change much about how companies vet shareholder proposals. They already spent decades refining these internal review processes, incorporating best practices like multidisciplinary analyses, governance-committee oversight, input from external counsel and structured documentation. They built such systems to withstand scrutiny from investors, proxy advisors and courts.

In that sense, preparing exclusion analyses with the same rigor as before can still serve companies well – even with the SEC playing a lighter role in the process. They can ensure the record is clear and complete if a proposal becomes contentious. Also, bear in mind that including a shareholder proposal for a proxy vote can represent a strategic decision if a company’s management team wants to address a particular issue at hand.

Going forward, companies will still have legal risks to manage when it comes to shareholder proposals. That means documenting their reasoning carefully when they reach a decision to exclude or include a proposal. Moreover, management teams still have to consider how proxy advisors and institutional investors will react to their decisions. There is also the matter of anticipating whether a particular proponent might challenge an exclusion. In fact, more proposals may make it into proxy statements this year, given that companies will lack an explicit OK from the SEC to remove them.

All of which leads to a final note on vetting shareholder proposals: Management teams should reckon with the reality that their responses to these proposed measures give insight into their own views of their companies. Investors probably have little interest in seeing how companies engage with non-germane proposals. However, companies should consider whether they can use substantive proposals as springboards to better communicate with stakeholders regarding their outlooks on pressing issues and objectives. With the SEC no longer vetting proposals in detail, management engagement with shareholder submissions may carry greater weight and scrutiny.

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