Shareholder proposal rule is on the chopping block

Shareholder proposals? Let the states sort that one out.

That’s the stance the SEC has taken in a proposed rescission of Rule 14a-8, the “shareholder proposal rule” of the Securities Exchange Act of 1934. The rule, which stipulates when companies must include shareholder proposals in their proxy statements, “exceeds the scope of the Commission’s statutory authority and intrudes into matters of state law,” the SEC argued in a press release.

If Rule 14a-8 were eliminated, states could set the conditions under which companies would be required to include shareholder proposals. Companies’ governing documents could also dictate which proposals are heard, if permitted by state law, Chair Paul Atkins wrote in a statement.

“The Commission has no authority to determine which matters are a proper subject for a shareholder vote,” Atkins wrote.

Messy state. But leaving shareholder proposal matters up to the states could sow confusion. States’ regulations aren’t uniform, Tim Smith, senior policy adviser at the Interfaith Center on Corporate Responsibility, told Reuters. “Across the investor community there will be a response to the questionable legal ⁠arguments he (Atkins) is making about the authority of the SEC,” Smith said. The change could also cause companies “to reincorporate in states that are more ‘company friendly’ and less ‘shareholder friendly,’” Charles Lewis Sizemore, CIO of Sizemore Capital Management, wrote in Kiplinger.

And there’s a risk that in some states, smaller investors may find themselves without a voice. Currently, the SEC allows proposals from shareholders who have held as little as $2,000 in a company’s stock for at least three years. But in Texas, for instance, an investor or group of investors must own at least 3% or $1 million worth of a company’s stock, to submit proposals at a shareholder meeting.

Cheers and boos. The proposed change has drawn both criticism and praise. The US Chamber of Commerce called it a “long-term solution” to investors’ using proxy votes to “advance their own agendas at the expense of public companies and their shareholders,” Bloomberg reported.

Glenn Davis, executive director of the Council of Institutional Investors, said that his organization supported Rule 14a-8, which he said was “about preserving broad shareholder expression as a vital part of robust capital markets.”

Eliminating Rule 14a-8 might be part of a broader goal on Atkins’ part to crack down on what he views as politicized shareholder proposals, particularly those dealing with sustainability, ESG Today posited. Atkins has singled out ESG proposals, in particular, as burdensome for companies to deal with, stating in an October 2025 speech that they “consume a significant amount of management’s time and impose costs on the company.”

Out with the glossy. The SEC also proposed other amendments to rules around shareholder proposals, which it says would “provide companies with greater flexibility and shareholders with greater control” in deciding which proposals to hear. It recommended eliminating the annual report to shareholders, which, Atkins noted in his statement, often duplicates information found in Form 10-K. Not having to prepare what’s sometimes called the “glossy report” would reduce burdens on companies, he argued.

The entire proposal will be open for public comment for 60 days after it’s published in the Federal Register.