Proposed Rule2026-19260
Rescission of Rule 14a-8's Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4
Primary source
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Published
September 21, 2026
Effective
September 21, 2026
Issuing agencies
Securities and Exchange Commission
Abstract
The Securities and Exchange Commission ("Commission") is proposing to rescind Rule 14a-8 under the Securities Exchange Act of 1934 ("Exchange Act") and leave determinations about the role of shareholder proposals to State law and company governing documents. The Commission also is proposing to amend Rule 14a-4 under the Exchange Act to expand the circumstances under which a company may exercise, with respect to proxies it receives, discretionary voting authority on proposals that will be presented at a shareholder meeting but not included in the company's proxy materials. At the same time, the proposed amendments to Rule 14a-4 would provide shareholders with the means to elect to prevent the company from exercising such authority with respect to their individual shares.
Full Text
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<title>Federal Register, Volume 91 Issue 181 (Monday, September 21, 2026)</title>
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[Federal Register Volume 91, Number 181 (Monday, September 21, 2026)]
[Proposed Rules]
[Pages 59904-59967]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2026-19260]
[[Page 59903]]
Vol. 91
Monday,
No. 181
September 21, 2026
Part III
Securities and Exchange Commission
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17 CFR Parts 200, 229, 232, et al.
Rescission of Rule 14a-8's Federal Regulation of Shareholder Proposals
and Amendments to Rule 14a-4; Proposed Rule
Federal Register / Vol. 91 , No. 181 / Monday, September 21, 2026 /
Proposed Rules
[[Page 59904]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 200, 229, 232, 240, and 249
[Release No. 34-106383; File No. S7-2026-32]
RIN 3235-AN47
Rescission of Rule 14a-8's Federal Regulation of Shareholder
Proposals and Amendments to Rule 14a-4
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is
proposing to rescind Rule 14a-8 under the Securities Exchange Act of
1934 (``Exchange Act'') and leave determinations about the role of
shareholder proposals to State law and company governing documents. The
Commission also is proposing to amend Rule 14a-4 under the Exchange Act
to expand the circumstances under which a company may exercise, with
respect to proxies it receives, discretionary voting authority on
proposals that will be presented at a shareholder meeting but not
included in the company's proxy materials. At the same time, the
proposed amendments to Rule 14a-4 would provide shareholders with the
means to elect to prevent the company from exercising such authority
with respect to their individual shares.
DATES: This release was published in the Federal Register on September
21, 2026. Comments should be received on or before November 20, 2026.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/comments/s7-2026-32/rescission-rule-14a-8s-federal-regulation-shareholder-proposals-amendments-rule-14a-4">https://www.sec.gov/comments/s7-2026-32/rescission-rule-14a-8s-federal-regulation-shareholder-proposals-amendments-rule-14a-4</a>).
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#740601181159171b1919111a0007340711175a131b02"><span class="__cf_email__" data-cfemail="dcaea9b0b9f1bfb3b1b1b9b2a8af9cafb9bff2bbb3aa">[email protected]</span></a>. Please include
File Number S7-2026-32 on the subject line.
Paper Comments
<bullet> Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.
All submissions should refer to File Number S7-2026-32. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method of submission. The Commission will post all
submitted comments on the Commission's website (<a href="https://www.sec.gov/rules-regulations/public-comments/s7-2026-32">https://www.sec.gov/rules-regulations/public-comments/s7-2026-32</a>). Do not include
personally identifiable information in submissions; you should submit
only information that you wish to make available publicly. The
Commission may redact in part or withhold entirely from publication
submitted material that is obscene or subject to copyright protection.
Studies, memoranda, or other substantive items may be added by the
Commission or staff to the comment file during this rulemaking. A
notification of the inclusion in the comment file of any such materials
will be made available on the Commission's website. To ensure direct
electronic receipt of such notifications, sign up through the ``Stay
Connected'' option at <a href="http://www.sec.gov">www.sec.gov</a> to receive notifications by email. A
summary of the proposal of not more than 100 words is posted on the
Commission's website (<a href="https://www.sec.gov/rules-regulations/2026/09/s7-2026-32">https://www.sec.gov/rules-regulations/2026/09/s7-2026-32</a>).
FOR FURTHER INFORMATION CONTACT: Jenny J. Choi, Special Counsel, or
Matt McNair, Senior Adviser to the Chief Counsel, Office of Chief
Counsel, at (202) 551-3500, David M. Plattner, Special Counsel, or
Blake M. Grady, Special Counsel, Office of Mergers and Acquisitions, at
(202) 551-3440, Division of Corporation Finance, U.S. Securities and
Exchange Commission, 100 F Street NE, Washington, DC 20549.
SUPPLEMENTARY INFORMATION: The Commission is proposing to rescind 17
CFR 240.14a-8 (``Rule 14a-8'') and amend the following rules and forms:
[GRAPHIC] [TIFF OMITTED] TP21SE26.072
Table of Contents
I. Introduction
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\1\ 17 CFR 229.10 through 229.1610.
\2\ 17 CFR 229.10 through 232.501.
\3\ 15 U.S.C. 78a et seq.
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II. Discussion of Proposed Amendments
A. Proposed Rescission of Rule 14a-8
1. Rule 14a-8 Exceeds the Commission's Statutory Authority
2. Policy Reasons for Rescinding Rule 14a-8
3. Investment Company Considerations
B. Proposed Amendments to Rule 14a-4(c)
1. Overview of Current Rules Related to Discretionary Voting
Authority
[[Page 59905]]
2. Historical Background
3. Proposed Rule Amendments
C. Other Proposed Amendments
D. General Request for Comment
III. Other Matters
IV. Economic Analysis
A. Introduction
B. Baseline
1. Current Regulatory Framework
2. Affected Parties
3. Current Practices
C. Benefits and Costs
1. Proposed Rescission of Rule 14a-8
2. Proposed Amendments to Rule 14a-4(c)
3. The Benefits and Costs for Proxy-Related Service Providers
4. Aggregate Monetized Benefits and Costs
D. Effects on Efficiency, Competition, and Capital Formation
1. Efficiency
2. Competition
3. Capital Formation
E. Reasonable Alternatives
1. Alternative to Rescinding Rule 14a-8
2. Switch the Default Choice of Check Box in Proposed Rule 14a-
4(c)(2) Amendment
3. Require a Separate Check Box for Each Proposal
F. Request for Comment
V. Paperwork Reduction Act
A. Summary of the Collection of Information
B. Estimated Paperwork Burden Effects of the Proposed Amendments
C. Incremental and Aggregate Burden and Cost Estimates for the
Proposed Amendments
D. Request for Comment
VI. Congressional Review Act
VII. Initial Regulatory Flexibility Act Analysis
A. Reasons for, and Objectives of, the Proposed Action
B. Legal Basis
C. Small Entities Subject to the Proposed Amendments
D. Projected Reporting, Recordkeeping, and Other Compliance
Requirements
E. Duplicative, Overlapping, or Conflicting Federal Rules
F. Significant Alternatives
G. Request for Comment
Statutory Authority
I. Introduction
``Corporations are creatures of state law.'' \4\ Because
``regulation of corporate governance is regulation of entities whose
very existence and attributes are a product of state law,'' ``[n]o
principle of corporation law and practice is more firmly established
than a State's authority to regulate domestic corporations, including
the authority to define the voting rights of shareholders.'' \5\
Shareholder voting rights are generally exercised at shareholder
meetings, where proposals are put before the shareholders for a
vote.\6\ The conduct of shareholder meetings, including how proposals
are presented, is governed by State law.\7\
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\4\ Cort v. Ash, 422 U.S. 66, 84 (1975). Foreign issuers, as
that term is defined in 17 CFR 240.3b-4(b), are not creatures of
State law. Accordingly, to the extent this release refers to State
law, the corresponding reference for foreign issuers would be to the
applicable foreign law. Foreign private issuers, as defined in 17
CFR 240.3b-4, are exempt from the Commission's proxy requirements
with respect to solicitations of their own security holders, 17 CFR
240.3a12-3(b); Regulation 14A (17 CFR 240.14a-1 through 240.14b-2).
Foreign private issuers also are not subject to information
statement requirements. See Regulation 14C (17 CFR 240.14c-1 through
240.14c-101).
\5\ CTS Corp v. Dynamics Corp. of Am., 481 U.S. 69, 89 (1987);
see also e.g., 8 Del. C. sections 211, 212.
\6\ If permitted under State law, and in accordance with any
applicable provisions in a company's governing documents, action may
be taken by written consent without a meeting and without a vote.
See, e.g., 8 Del. C. section 228.
\7\ See, e.g., 8 Del. C. section 212; Model Bus. Corp. Act
sections 7.01 through 7.08.
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The manner in which shareholders exercise their rights to vote at
shareholder meetings has evolved over time. Historically, shareholders
exercised their rights by attending the shareholder meeting and voting
in person. However, the development of large corporations with widely
dispersed shareholders led to the rise of proxy voting, which permits
shareholders to vote through a representative without being present at
the shareholder meeting.\8\ Before 1934, State law governed the manner
in which proxies to cast shareholders' votes were solicited, but
``[t]oo often proxies [were] solicited without explanation to the
stockholder of the real nature of the questions for which authority to
cast his vote [was] sought.'' \9\ In response, when it passed the
Exchange Act in 1934, Congress included section 14 \10\ to give the
Commission authority to regulate the proxy solicitation process.\11\
Section 14(a) \12\ makes it unlawful to solicit any proxy or consent or
authorization in respect of any security ``in contravention of such
rules and regulations as the Commission may prescribe as necessary or
appropriate in the public interest or for the protection of
investors.'' \13\ Relying on its authority under section 14(a), the
Commission in 1942 adopted the predecessor of Rule 14a-8 to require a
company to include certain shareholder proposals in its proxy statement
and identify the proposal in its form of proxy.\14\
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\8\ See Jill E. Fisch, From Legitimacy to Logic: Reconstructing
Proxy Regulation, 46 Vand. L. Rev. 1129, 1134-38 (1993) (``Fisch
1993'') (explaining that ``proxy voting developed as a means of
giving dispersed shareholders an opportunity to vote.'').
\9\ S.Rep. No. 792, 73d Cong., 2d Sess. (1934) at 12; see also
H.R. Rep. No. 1383 at 13-14, 73 Cong., 2d Sess. (1934) (``Insiders
have at times solicited proxies without fairly informing the
stockholders of the purposes for which the proxies are to be used
and have used such proxies to take from the stockholders for their
own selfish advantage valuable property rights.'').
\10\ 15 U.S.C. 78n (``section 14'').
\11\ See H.R. Rep. No. 1383 at 13-14, 73d Cong., 2d Sess. (1934)
(``the proposed bill gives the Commission power to control the
conditions under which proxies may be solicited with a view to
preventing the recurrence of abuses which have frustrated the free
exercise of the voting rights of stockholders.'').
\12\ 15 U.S.C. 78n(a) (``section 14(a)'').
\13\ 15 U.S.C. 78n(a)(1). See also, section II.A.3, discussing
the Commission's authority under Section 20(a) of the Investment
Company Act of 1940 (``Investment Company Act'').
\14\ See Release No. 34-3347 (Dec. 18, 1942) [7 FR 10655 (Dec.
22, 1942)] (adopting Rule X-14A-7, 17 CFR 240.14a-7) (``1942
Adopting Release''). In 1947, the Commission renumbered the rule to
its present designation, 17 CFR 240.14a-8. See Adoption of Revised
Proxy Rules, Release No. 34-4037 (Dec. 16, 1947) [12 FR 8768 (Dec.
24, 1947)]. A reference in this release to ``Rule 14a-8'' includes
Rule X-14A-7 unless stated otherwise. In addition, we use the terms
``companies,'' ``registrants,'' and ``issuers'' interchangeably in
this release. Unless otherwise specified, these terms are intended
to be broadly inclusive and encompass not only corporations, but
also other types of entities, such as partnerships and other
business organizations, that may be subject to our proxy rules and
regulations. The use of different terms in different places is not
meant to connote a substantive difference.
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As explained by then-Chairman Ganson Purcell, Rule 14a-8 was
adopted to facilitate shareholders' ability under State law \15\ to
present certain proposals for consideration at a company's annual or
special meeting,\16\ and to facilitate the ability of all shareholders
to consider and vote by proxy on such proposals.\17\ Specifically,
shortly after the rule was adopted, Chairman Purcell stated that the
purpose of the rule was to ``assure to the stockholders . . . those
rights that [the stockholder] has traditionally had under State law, to
appear at the meeting; to make a proposal; to speak on that proposal at
appropriate length; and to have [the] proposal voted on.'' \18\ The
rule originally required a company to include a shareholder proposal
that is
[[Page 59906]]
``a proper subject for action by the security holders,'' as long as the
shareholder proponent \19\ provided ``reasonable notice'' to the
company.\20\ Although the rule did not specify that State law provides
the standard for determining what was ``a proper subject for action by
the security holders,'' the Commission subsequently issued a release
containing a letter from the then-Director of the Division of
Corporation Finance clarifying \21\ that State law provided the
applicable standard. The Commission later amended the text of Rule 14a-
8 to make this point explicit by providing that a proposal could be
excluded from a company's proxy materials if ``the proposal as
submitted is, under the laws of the issuer's domicile, not a proper
subject for action by security holders.'' \22\
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\15\ We refer to State law to mean a State's legislative
enactment and judicial interpretations of such enactment, as well as
State common law.
\16\ See, e.g., 8 Del. C. section 211; Model Bus. Corp. Act
section 7.01. Throughout this release, when discussing State
corporate law, we frequently refer to Delaware law because of the
large percentage of public companies incorporated under that State's
law. The Delaware Division of Corporations reports that over 50% of
publicly traded companies listed on U.S. stock exchanges are
incorporated in Delaware. See Delaware Dep't of State, Facts and
Myths, Delaware Corporate Law (n.d.), <a href="https://corplaw.delaware.gov/facts-and-myths/">https://corplaw.delaware.gov/facts-and-myths/</a>. We also frequently refer to the Model Business
Corporation Act (``MBCA'') because the corporate statutes of many
States adopt or closely track its provisions.
\17\ See Securit[ies] and Exchange Commission Proxy Rules:
Hearings on H.R. 1493, H.R. 1821, and H.R. 2019 Before the House
Comm. on Interstate and Foreign Commerce, 78th Cong., 1st Sess. 172
(1943) (Statement of the Hon. Ganson Purcell, Chairman, Securities
and Exchange Commission) (``Statement of Chairman Purcell'').
\18\ Id.
\19\ Throughout this release, references to ``shareholder
proponent'' and ``proponent'' generally refer to shareholders who
submit proposals under Rule 14a-8, and references to ``shareholder
proposal'' and ``proposal'' generally refer to proposals submitted
under Rule 14a-8, unless the context otherwise requires, such as
when discussing proposed amendments to Rule 14a-4 in the context of
discretionary voting authority for proposals submitted outside the
Rule 14a-8 process.
\20\ See 1942 Adopting Release in which the predecessor of
current Rule 14a-8, Rule X-14A-7, provided that ``[i]n the event
that a qualified security holder of the issuer has given the
management reasonable notice that such security holder intends to
present for action at a meeting of security holders of the issuer a
proposal which is a proper subject for action by the security
holders, the management shall set forth the proposal and provide
means by which security holders can make a specification'' on such
matter; see also infra section II.A.1.b.
\21\ See Release No. 40-375, 34-3638 (Jan. 3, 1945) [Letter of
Division of Corporation Finance Director published at 11 FR 10988,
10995 (Sept. 27, 1946)] (``1945 Release'') (stating that Rule 14a-8
pertains to matters that ``are proper subjects for stockholders'
action under the laws of the state under which [the company] is
organized''). In a subsequent release, the Commission stated that it
had previously adopted as its own the view that ``State law is the
standard'' for determining what is a proper subject for shareholder
action. See also Adoption of Amendments to Proxy Rules, Release No.
34-4979 (Jan. 6, 1954) [19 FR 246 (Jan. 14, 1954)] (``1954 Adopting
Release'') (citing 1945 Release).
\22\ 1954 Adopting Release. The rule's current language--``If
the proposal is not a proper subject for action by shareholders
under the laws of the jurisdiction of the company's organization''--
was adopted in 1998. See Amendments to Rules on Shareholder
Proposals, Release No. 34-40018 (May 21, 1998) [63 FR 29106, 29120
(May 28, 1998)] (``1998 Adopting Release'').
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As discussed in greater detail in section II.A.1.b, however, the
Commission has amended Rule 14a-8 multiple times in ways that
incrementally have increased the Commission's role in defining and
interpreting standards that implicate core State law corporate
governance matters, such as shareholder voting rights. As a result,
despite the Commission's prior statements asserting that Rule 14a-8 was
not ``intended to supplant [S]tate law but . . . to reinforce [it] with
a sturdy [F]ederal disclosure and proxy solicitation regime,'' \23\
numerous observers have expressed the view that Rule 14a-8 effectively
has evolved to function as a Federal common law as to what constitutes
a proper subject for shareholder action.\24\ But Congress's grant of
authority to the Commission in the Exchange Act does not authorize such
evolution. Section 14 does not purport to displace State law with
respect to shareholder governance rights. As discussed below, only
Congress can authorize the Commission to intervene in matters
traditionally left to State law.
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\23\ See, e.g., Shareholder Proposals, Release No. 34-56160
(July 27, 2007) [72 FR 43466, 43467 (Aug. 3, 2007)] (``2007 Proxy
Access Long Release'') (explaining that ``the federal proxy
authority is not intended to supplant state law, but rather to
reinforce state law rights with a sturdy federal disclosure and
proxy solicitation regime,'' and noting as an example that ``Rule
14a-8, the shareholder proposal rule, explicitly provides that a
shareholder proposal is not required to be included in a company's
proxy materials if it `is not a proper subject for action by
shareholders under the laws of the jurisdiction of the company's
organization''' (citing 17 CFR 240.14a-8(i)(1))).
\24\ See, e.g., Jill Fisch et al., Stockholder Proposals--Law
and Policy Considerations, Harv. L. Sch. F. Corp. Governance (Dec.
9, 2025), available at <a href="https://corpgov.law.harvard.edu/2025/12/09/stockholder-proposals-law-and-policy-considerations/">https://corpgov.law.harvard.edu/2025/12/09/stockholder-proposals-law-and-policy-considerations/</a> (``Yet, by
regulating proxy access, the SEC determines what matters are proper
or improper for stockholder meetings, often restricting stockholder
rights beyond the contours of state law.''); Fisch 1993 at 1151
(``[B]oth in determining appropriate criteria for excluding
shareholder proposals and in applying those criteria, the SEC does
not replicate passively the annual meeting process by applying state
law principles, but creates a Federal common law as to what
constitutes a proper subject for shareholder action''); Kevin W.
Waite, Note, The Ordinary Business Operations Exception to the
Shareholder Proposal Rule: A Return to Predictability, 64 Fordham L.
Rev. 1253, 1259-60 (1995) (``Because little state law was developed
discussing what was a proper subject for action by security holders,
the SEC staff developed its own common law regarding what was a
proper subject for shareholder action. While the SEC claimed to be
relying on state law in determining what was a proper subject for
shareholder action, the SEC more accurately appeared to be deciding
what the state law was and influencing state courts in deciding the
rare case that arose regarding what was a proper subject for
shareholder action.'') (citations omitted).
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Accordingly, as discussed in more detail in the sections that
follow, we propose to rescind Rule 14a-8 in its entirety because the
rule exceeds the Commission's statutory authority under section 14(a)
by improperly intruding into State law without express authorization
from Congress.\25\ Moreover, even if the rule or aspects of it were
within the Commission's statutory authority, there are independent
policy reasons to rescind Rule 14a-8 in its entirety and leave
decisions regarding the appropriate role of shareholder proposals in
the corporate governance process to the States or, if permitted by
State law, to companies. In reaching this determination, we note that:
(i) many of the justifications that were originally provided to support
adoption of Rule 14a-8 either have not been substantiated in practice
or are less compelling today; (ii) Rule 14a-8 has had, and will
continue to have, certain unintended consequences that further
undermine any justification for retaining the rule; and (iii) retaining
any version of Rule 14a-8--assuming the Commission were authorized to
do so--is unwarranted and unlikely to avoid those unintended
consequences.\26\ Nevertheless, to better understand the potential
impact of rescinding Rule 14a-8, we are seeking comment on the proposed
rescission, potential reliance interests in the current rule, and
alternative approaches within the scope of the Commission's
authority.\27\
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\25\ See infra section II.A.
\26\ See infra section II.A. President Donald J. Trump issued an
executive order titled, ``Protecting American Investors from
Foreign-Owned and Politically-Motivated Proxy Advisors'' on Dec. 16,
2025. This order, among other things, ordered the ``SEC Chairman . .
. [to] consider revising or rescinding all rules, regulations,
guidance, bulletins, and memoranda relating to shareholder
proposals, including Rule 14a-8 (17 CFR 240.14a-8), that are
inconsistent with the purposes of [such executive order].'' Exec.
Order No. 14366, Protecting American Investors from Foreign-Owned
and Politically-Motivated Proxy Advisors, 90 FR 58503 (Dec. 16,
2025).
\27\ The Commission has recently received several rulemaking
petitions requesting to preserve or amend, but largely retain, Rule
14a-8. See, e.g., Ceres et al., Petition Regarding Amendments to
Rule 14a-8 Under the Securities Exchange Act of 1934 (July 23,
2026), available at <a href="https://www.sec.gov/files/rules/petitions/2026/petn4-917.pdf">https://www.sec.gov/files/rules/petitions/2026/petn4-917.pdf</a>; Shareholder Rights Group et al., Defend Shareholder
Rights Petition (July 20, 2026), available at <a href="https://www.sec.gov/files/rules/petitions/2026/petn4-918.pdf">https://www.sec.gov/files/rules/petitions/2026/petn4-918.pdf</a>; Bruce A. Burkey et al.,
Americans for Financial Reform (July 20, 2026), available at <a href="https://www.sec.gov/files/rules/petitions/2026/petn4-918.pdf">https://www.sec.gov/files/rules/petitions/2026/petn4-918.pdf</a>. We will
consider these petitions, together with any comments received in
response to this release, when considering whether to finalize the
proposed rescission of Rule 14a-8.
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We are also proposing amendments to 17 CFR 240.14a-4(c) (``Rule
14a-4(c)''), which addresses when a proxy card submitted by a
shareholder may confer discretionary voting authority on the proxy
holder with respect to a matter that is not included on the proxy card.
The proposed amendments to Rule 14a-4(c) are intended to provide
companies with greater flexibility, and shareholders with greater
control, regarding proposals for which a company may seek discretionary
voting
[[Page 59907]]
authority. Occasions for seeking such authority may become more
frequent if Rule 14a-8 is rescinded, as proposed. While our proposed
amendments to Rule 14a-4(c) are aligned with our proposed rescission of
Rule 14a-8, there are independent justifications for the proposed
amendments to Rule 14a-4 even if the proposed rescission of Rule 14a-8
is not adopted.
Finally, we are proposing certain other amendments to facilitate
implementation of the proposed changes to the proxy rules and
conforming amendments to our rules and forms.
II. Discussion of Proposed Amendments
A. Proposed Rescission of Rule 14a-8
We are proposing to rescind Rule 14a-8 because the rule exceeds the
Commission's statutory authority. We also believe there are independent
policy reasons to rescind Rule 14a-8. Under the proposed rescission,
the Federal proxy rules would no longer require companies to include in
their proxy materials shareholder proposals on the basis that they
satisfy procedural and substantive requirements established under
Federal law. Instead, State law or, if permitted by State law, a
company's governing documents would determine whether a shareholder
proposal would be required to be included in a company's proxy
materials.
1. Rule 14a-8 Exceeds the Commission's Statutory Authority
Although section 14(a) authorizes the Commission to regulate proxy
solicitations, the question of whether the vote that is the subject of
such a solicitation is permissible in the first instance--i.e., whether
shareholders have a right to present a matter for other shareholders to
vote on--is distinct and is determined by State law or, if permitted by
State law, a company's governing documents. Because section 14(a) does
not authorize the Commission to regulate the scope of matters presented
to shareholders for a vote, the Commission lacks the power to override
State law on this threshold question.\28\ To the contrary, it has long
been understood that section 14(a) empowers the Commission to
facilitate--not alter--State law rights by regulating the manner in
which the proxy solicitation is made and the information that the
soliciting party must disclose.\29\ As explained below, the rule has
come to operate not as a procedural mechanism to facilitate
shareholders' rights under State law through the proxy process, but as
a substantive Federal overlay that improperly intrudes into matters of
State law by dictating that companies include (or allowing them to
exclude) certain shareholder proposals in the companies' proxy
materials. Because Congress has not expressly authorized such an
intrusion, Rule 14a-8 exceeds the scope of the Commission's authority.
We therefore propose to rescind the rule in its entirety.
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\28\ Congress requires that certain matters be presented to
shareholders for a vote. See, e.g., 15 U.S.C. 78n-1 (requiring
advisory say-on-pay, say-on-frequency, and golden parachute
arrangements to be submitted for shareholder vote) and section
II.A.3 (discussing provisions of the Investment Company Act that
require certain matters to be presented to shareholders for a vote).
The fact that Congress has established Federal voting rights in
these instances does not alter the scope of the Commission's
authority over the solicitation of proxies under section 14. Nor
does the discussion in this release of the Commission's authority
under section 14 address the legal status of these other provisions.
\29\ See infra note 58.
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a. Scope of Section 14(a) Authority
Section 14(a) makes it unlawful ``to solicit any proxy or consent
or authorization in respect of any security'' ``in contravention of
such rules and regulations as the Commission may prescribe as necessary
or appropriate in the public interest or for the protection of
investors.'' \30\ The statutory text limits the Commission's regulatory
authority to proxy solicitation--the request for the power to vote on a
shareholder's behalf--which encompasses the manner in which that
solicitation is made (e.g., the timing and form of proxy) and the
information that the soliciting party must disclose in the request. The
Commission therefore is authorized to regulate the form of proxy
solicitation and the means by which shareholders are asked to express
their voting position in response to the solicitation. We construe ``in
the public interest or for the protection of investors'' in light of
the statutory context to authorize the Commission to prohibit false or
misleading statements in a proxy solicitation and to promulgate
disclosure requirements ensuring that shareholders are adequately
informed of the proposals on which they may vote under State law and
the voting positions for which their proxies would be used.\31\ This
authority is consistent with other grants of authority provided to the
Commission under the Exchange Act, which focus on ensuring that
investors receive accurate disclosure of material information.\32\
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\30\ 15 U.S.C. 78n(a)(1). We discuss section 14(a)'s references
to ``the public interest'' and ``the protection of investors'' in
more detail below.
\31\ See, e.g., Virginia Bankshares, Inc. v. Sandberg, 501 U.S.
1083 (1991) (applying Rule 14a-9 to allegedly misleading disclosures
by directors seeking shareholder approval of a merger).
\32\ See 15 U.S.C. 78j, 78l, 78m.
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While section 14(a) provides authority to facilitate shareholders'
exercise of State law rights by regulating the proxy solicitation
process, nothing in section 14(a) authorizes the Commission to regulate
the scope of the voting or other rights shareholders may have under
State law, such as the right to propose a matter for a shareholder
vote.\33\ Rather, by focusing on the solicitation of a shareholder's
vote, the text makes clear that Congress's purpose was to ensure that
shareholders are fully informed as to the use of the proxy being
solicited and to protect them from being denied the fair exercise of
their State law voting rights.\34\
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\33\ But see supra note 28.
\34\ Cf. Bus. Roundtable v. SEC, 905 F.2d 406, 410 (D.C. Cir.
1990) (``Proxy solicitations are, after all, only communications
with potential absentee voters. The goal of federal proxy regulation
was to improve those communications and thereby to enable proxy
voters to control the corporation as effectively as they might have
by attending a shareholder meeting.'' (italics in original)).
---------------------------------------------------------------------------
Section 14(a)'s grant of authority to regulate solicitations of the
power to vote on a shareholder's behalf presupposes that the
shareholder already has a right to vote on particular proposals. The
scope of those rights has traditionally been governed by State law, and
section 14(a) does not purport to disturb that allocation.\35\ If
Congress had intended section 14(a) to displace State law on the
subject of shareholder voting, presumably it would have referred to
shareholder voting in section 14(a). For example, the Public Utility
Holding Company Act (``PUHCA''), enacted by Congress in the year after
the Exchange Act,\36\ directed the Commission to oversee the allocation
of voting power in public utility companies. Section 11(b)(2) of that
law authorized the Commission ``[t]o require by order . . . that the
corporate structure . . . does not . . . unfairly or inequitably
distribute voting power among security holders.'' \37\ No
[[Page 59908]]
comparable language appears in section 14(a).\38\
---------------------------------------------------------------------------
\35\ See supra notes 5, 7, 23, and 28.
\36\ Public Law 74-333 (Aug. 26, 1935), 15 U.S.C. 79 et seq.,
repealed by Public Law 109-58, title XII, section 1263, Aug. 8,
2005, 119 Stat. 974.
\37\ 15 U.S.C. 79k(b)(2) (2004); see also PUHCA section 7(c)(1)
(granting the Commission authority to prohibit the sale of common
stock unless it has ``at least equal voting rights with[ ] any
outstanding security of the declarant'') and (e) (barring the
exercise of voting rights if ``the Commission finds that such
exercise of such privilege or right will result in an unfair or
inequitable distribution of voting power among holders of the
securities of the declarant'') [15 U.S.C. 79g(c)(1), (e) (2004)];
supra note 28.
\38\ But see supra note 28.
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Therefore, the Commission's authority under section 14(a) to
regulate the proxy solicitation process does not permit the Commission
to displace State law regarding shareholder voting rights.\39\ By
establishing standards not found in State law for when a shareholder
proposal must be included in, or may be excluded from, a company's
proxy materials, the Commission effectively dictates the scope of
shareholder voting rights and, therefore, exceeds its authority.
---------------------------------------------------------------------------
\39\ Cf. Bus. Roundtable, 905 F.2d at 411 (stating that section
14(a) was not intended to authorize the Commission to ``step beyond
control of voting procedure and into the distribution of voting
power'').
---------------------------------------------------------------------------
To the extent legislative history is considered, it only
underscores the limitations on the Commission's authority that are
inherent in the statutory text and structure. That history indicates
that Congress's purpose in enacting this provision was to empower the
Commission to facilitate ``fair corporate suffrage'' on the proxy by
regulating the ``conditions under which proxies may be solicited.''
\40\ It also suggests an intent to authorize regulations that would
protect ``free exercise of the voting rights'' of shareholders,\41\
require ``adequate disclosure'' of the matters to be decided at the
shareholder meeting,\42\ and prevent ``irresponsible outsiders'' and
``unscrupulous corporate officials'' from ``concealing and distorting
facts'' in their proxy solicitations.\43\ Courts have thus interpreted
section 14(a) as bearing ``almost exclusively on disclosure,'' with a
``central concern'' that proxies not be obtained through ``deceptive or
inadequate disclosure in proxy solicitation.'' \44\
---------------------------------------------------------------------------
\40\ H.R. Rep. No. 1383 at 13-14, 73d Cong., 2d Sess. (1934);
see also, e.g., Virginia Bankshares, Inc. v. Sandberg, 501 U.S.
1083, 1103 (1991).
\41\ H.R. Rep. No. 1383 at 14, 73d Cong., 2d Sess. (1934); see
also, e.g., Virginia Bankshares, 501 U.S. at 1103.
\42\ H.R. Rep. No. 1383 at 13-14, 73d Cong., 2d Sess. (1934);
S.Rep. No. 792 at 12, 73d Cong., 2d Sess. (1934); S.Rep. No. 1455 at
75, 73d Cong., 2d Sess. (1934).
\43\ S.Rep. No. 1455 at 77.
\44\ Bus. Roundtable, 905 F.2d at 410.
---------------------------------------------------------------------------
These limitations are also consistent with the Commission's
longstanding understanding that its authority under section 14(a) is
limited to promulgating ``federal proxy rules [that] facilitate
shareholders' exercise of [S]tate law rights,'' \45\ such that the
corporate proxy process ``functions, as nearly as possible, as a
replacement for an actual, in-person gathering of security holders.''
\46\ As the Commission has acknowledged, section 14(a) does not grant
it authority to ``alter those [State law] rights.'' \47\
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\45\ 2007 Proxy Access Long Release at 43478.
\46\ Id. at 43467 n.19 and accompanying text (citing Bus.
Roundtable, 905 F.2d at 410); see also Facilitating Shareholder
Director Nominations, Release No. 33-9046 (June 10, 2009) [74 FR
29024 (June 18, 2009)].
\47\ Id. at 43478.
---------------------------------------------------------------------------
Interpreting section 14(a)(1) more broadly would not only lack any
basis in the statutory text and structure but would inappropriately
interfere with matters traditionally reserved to the States. As the
Supreme Court explained in Santa Fe Industries, Inc. v. Green,
``[a]bsent a clear indication of congressional intent, we are reluctant
to federalize the substantial portion of the law of corporations that
deals with transactions in securities, particularly where established
State policies of corporate regulation would be overridden.'' \48\ The
approach taken by the Supreme Court in Santa Fe accords with a
substantial body of precedent establishing a clear statement rule for
laws tilting the balance of federalism.\49\ For example, in Business
Roundtable, the U.S. Court of Appeals for the District of Columbia
Circuit found that section 14(a)(1) did not express an intention by
Congress to override State law with respect to ``corporate
governance.'' \50\ To the contrary, the court explained, those
advocating for the Exchange Act in Congress expressly disclaimed any
intent to confer upon the Commission authority to interfere in
corporate management: opponents had raised concerns that the bill would
confer ``power to interfere in the management of corporations,'' and
the Senate Committee on Banking and Currency responded that it had ``no
such intention'' and that the bill ``furnish[ed] no justification for
such an interpretation.'' \51\ Similarly, neither the text nor
legislative history of section 14(a) contains any indication that the
statute authorizes the Commission to interfere with shareholder rights
established by State law. More generally, members of Congress have
repeatedly proposed bills to create a ``federal corporation law,'' but
none has been enacted.\52\ On the rare occasions when Congress has
intended for the Commission to intervene directly in the governance of
public companies, it has done so through clear statutory mandates.\53\
---------------------------------------------------------------------------
\48\ 430 U.S. 462, 479 (1977); see id. (rejecting an
interpretation of Exchange Act Rule 10b-5 that ``would overlap and
quite possibly interfere with state corporate law''); see also Bus.
Roundtable, 905 F.2d at 408 (``[T]he Exchange Act cannot be
understood to include regulation of an issue that is so far beyond
matters of disclosure . . . and that is concededly a part of
corporate governance traditionally left to the states.''). In
section II.A.1.c below, we discuss how the structure and conditions
of current Rule 14a-8, including its various eligibility criteria
and bases for exclusion, can act to supplant State law voting
rights.
\49\ Ala. Ass'n of Realtors v. Dep't of Health & Hum. Servs.,
594 U.S. 758, 764 (2021) (``Our precedents require Congress to enact
exceedingly clear language if it wishes to significantly alter the
balance between federal and state power . . . .'') (quoting U.S.
Forest Serv. v. Cowpasture River Pres. Ass'n, 590 U.S. 604, 621-622
(2020)).
\50\ 905 F.2d at 408.
\51\ Id. at 411 (citing S.Rep. No. 792, 73d Cong., 2d Sess. 12
(1934)).
\52\ Manuel Cohen, Federal Legislation Affecting the Public
Offering of Securities, 28 Geo. Wash. L. Rev. 119, 124 n.18 (1959)
(``For some years after the passage of Securities Act of 1933, bills
were introduced in the Senate proposing federal incorporation. None
of these were enacted.''); Joel Seligman, The Transformation of Wall
Street: A History of the Securities and Exchange Commission and
Modern Corporate Finance 205-10 (3d ed. Aspen Publ'rs 2003)
(describing efforts by the Roosevelt administration to regulate
corporate governance and its eventual abandonment); Symposium:
Federal Chartering of Corporations: A Proposal, 61 Geo. L.J. 89, 89
n. 1 (1972) (collecting bills that would have established federal
corporate chartering from the 1930s).
\53\ See, e.g., Exchange Act section 10A(m) (directing the
Commission to adopt rules requiring national securities exchanges to
prohibit the listing of any security of an issuer that does not meet
certain specified requirements related to audit committee procedures
and independence) [15 U.S.C. 78j-1(m)]; Exchange Act section 14A
(requiring public companies, among other things, to conduct a
separate shareholder advisory vote to approve the compensation of
executives, as disclosed pursuant to Item 402 of Regulation S-K) [15
U.S.C. 78n-1].
---------------------------------------------------------------------------
Nor do the references to the ``public interest'' and ``protection
of investors'' in section 14(a) provide a basis for the Commission to
intrude into shareholder voting rights or corporate management. Courts
have consistently recognized that ``public interest'' is not an open-
ended delegation of power; rather, such language ``must be limited to
the purposes Congress had in mind when it enacted the legislation.''
\54\ Those statutory purposes are discerned from the text and context
of the statute, which in turn cabin what is ``necessary or
appropriate'' under the Commission's
[[Page 59909]]
rulemaking authority.\55\ In the context of section 14(a), this means
that rules adopted under this provision must focus on the statute's
core concern with regulating the proxy solicitation process and the
disclosures within the solicitations--not on defining or reshaping the
substantive scope of shareholder voting rights. The phrase ``protection
of investors'' likewise cannot reasonably be construed to authorize the
Commission to engage in such intrusions into State law.\56\ To read
these terms otherwise would permit the Commission to use the Federal
securities laws to supplement or override ``firmly established'' State
law authority over shareholder rights--an approach that the Supreme
Court has rejected absent explicit congressional authorization.\57\
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\54\ Bus. Roundtable, 905 F.2d at 413 (quoting NAACP v. Fed.
Power Comm'n, 425 U.S. 662, 670 (1976)); see generally FCC v.
Consumers' Research, 606 U.S. 656, 690 (2025) (explaining that the
Supreme Court has ``long held that the words `public interest' in a
regulatory statute do not encompass the general public welfare but
rather take meaning from the purposes of the regulatory
legislation'') (quotation marks and citation omitted). See also
Acceleration of Effectiveness of Registration Statements of Issuers
with Certain Mandatory Arbitration Provisions, Release No. 33-11389
(Sept. 17, 2025) [90 FR 45125 (Sept. 19, 2025)] (noting that courts
have considered the scope of the public interest and investor
protection standard in the context of the Federal securities laws
and determined that, when applying this standard, it is only
permissible to consider those matters over which the Commission has
authority under the Federal securities laws).
\55\ See Davis v. Mich. Dep't of Treasury, 489 U.S. 803, 809
(1989) (explaining that ``statutory language cannot be construed in
a vacuum,'' but rather ``the words of a statute must be read in
their context and with a view to their place in the overall
statutory scheme'').
\56\ See id.
\57\ See, e.g., CTS Corp. v. Dynamics Corp. of Am., 481 U.S. 69,
89 (1987).
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b. Evolution of Rule 14a-8
The earliest versions of the Commission's proxy rules enacted under
section 14(a) focused on disclosure and providing shareholders with the
means to specify the action to be taken pursuant to their proxies.\58\
In 1942, the Commission adopted Rule 14a-8's predecessor, Rule X-14A-7,
which established a requirement that management include in the
company's proxy materials a shareholder proposal that ``is a proper
subject for action by the security holders.'' \59\ Although the
Commission did not define ``proper subject'' in the rule, it issued a
release in 1945 that contained a letter from Division of Corporation
Finance Director Baldwin B. Bane explaining that the term referred to
``such matters . . . as are proper subjects for stockholders' action
under the laws of the [S]tate under which [the company] is organized.''
\60\
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\58\ Release No. 34-378 (Sept. 24, 1935) 1935 WL 29270
(requiring a ``brief description'' of the matters to be considered,
together with the proposed action to be taken by the proxy holder,
requiring the mailing of proxy materials to record owners at the
requesting shareholder's expense, and prohibiting materially false
or misleading statements under a general anti-fraud provision);
Release No. 34-1823 (Aug. 11, 1938) [3 FR 1991 (Aug. 13, 1938)]
(introducing the concept of the proxy statement that must be given
to each person solicited, and requiring that each matter to be
considered be subject to a separate yes or no vote).
\59\ RuleX-14A-7 provided in pertinent part: ``In the event that
a qualified security holder of the issuer has given the management
reasonable notice that such security holder intends to present for
action at a meeting of security holders of the issuer a proposal
which is a proper subject for action by the security holders, the
management shall set forth the proposal and provide means by which
security holders can make a specification as provided in [the proxy
rules].''17 CFR 240.14a-7 (1943). The 1942 rule also introduced the
requirement that management, if it opposed the shareholder's
proposal, include in its proxy materials the name and address of the
proponent and a 100-word statement in support of the proposal, if
requested by the proponent. Id. The maximum length of a proponent's
supporting statement under Rule 14a-8 has been revised by the
Commission on several occasions and is currently 500 words,
inclusive of the proposal text.
\60\ See 1945 Release.
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The letter responded to a company that sought exclusion of
proposals relating to matters of a ``general political, social or
economic nature'' and asked whether such proposals were a proper
subject for shareholder action under Rule X-14A-7. Without referencing
the laws of the State under which the company was organized, Director
Bane stated that ``[i]t is my conclusion that the proposals which have
been presented to you are not `proper subjects for action' by your
company's stockholders within the meaning of that phrase as used in
Rule X-14A-7. Consequently, it will be unnecessary for you to include
the proposals in the management's proxy statement if you do not wish to
do so.'' \61\ Director Bane also stated that ``[it] was not the intent
of Rule X-14A-7 to permit stockholders to obtain the consensus of other
stockholders with respect to matters which are of a general political,
social or economic nature. Other forums exist for the presentation of
such views.'' \62\ Whether intentionally or not, Director Bane's letter
effectively positioned Rule X-14A-7 as a new Federal common law for
shareholder voting rights, and the letter's informal understanding of
whether a matter was ``a proper subject for action'' does not appear to
have been based on the law of any particular State, let alone the State
under which the company was organized.
---------------------------------------------------------------------------
\61\ Id.
\62\ Id.
---------------------------------------------------------------------------
In the years that followed, the Commission repeatedly amended what
is now Rule 14a-8 in ways that progressively expanded the Commission's
role in determining, interpreting, and effectively shaping matters
traditionally governed by State law. As discussed above, the 1942 rule
relied substantially on the concept of ``proper subject for action'' to
determine which proposals must be included on the company's proxy. Due
to a lack of relevant State laws to provide guidance on what was a
``proper subject,'' as questions arose about the content of shareholder
proposals, proponent conduct, and management objections, the Commission
increasingly inserted Federal criteria in place of State law
standards.\63\
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\63\ See Medical Committee for Human Rights v. SEC, 432 F.2d
659, 677 (D.C. Cir. 1970), vacated, 404 U.S. 403 (1972) (noting that
``the paucity of applicable state law giving content to the concept
of `proper subject' led the Commission to seek guidance from
precedent existing in jurisdictions which had a highly developed
commercial and corporate law and to develop its own `common law'
relating to proper subjects for shareholder action''); see also
Hearings on Problems in Enforcing the Securities Laws Before a
Subcommittee of the Senate Committee on Banking and Currency, 85th
Cong., 1st Sess. 117-118 (1957) (``In the absence of a State statute
establishing that a proposal is a proper subject for stockholder
action, the Commission will rely on the common law if this can be
ascertained. It will also consider other sources such as the
corporate law of other States, particularly of the leading
commercial States, as well as the decisions of the Federal courts,
textbooks, law journals, and other similar material where the
question may be discussed.'').
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Through a series of amendments adopted in 1947 and 1948, the
Commission required issuers to provide an explanation to the Commission
when asserting that shareholder proposals were improper or untimely
\64\ and introduced new bases for excluding such proposals.\65\ These
amendments provide an early example of how the proxy rules began to
delineate the limits of shareholder voting rights independent of State
law. In particular, adding new exclusionary bases that went beyond
whether a proposal was a ``proper subject for action'' under State law
opened the door for more grounds for exclusion to be added, sometimes
on a seemingly ad hoc basis in response to emergent issues. As a result
of these and subsequent amendments, it became possible--as remains the
case today--for there to be circumstances under which a shareholder's
proposal is a ``proper subject for action'' and thereby permissible
under State law but eligible for exclusion from the proxy materials
under Rule 14a-8.\66\
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\64\ See Adoption of Revised Proxy Rules, Release No. 34-4037
(Dec. 16, 1947) [12 FR 8768 (Dec. 24, 1947)].
\65\ See Adoption of Amendments to Proxy Rules, Release No. 34-
4185 (Nov. 5, 1948) [13 FR 6678 (Nov. 12, 1948)] (``1948 Adopting
Release'').
\66\ See 1948 Adopting Release. For example, the 1948 amendments
added provisions permitting exclusion on the basis of, among other
things, a personal grievance or resubmission of a proposal. Thus, a
proposal that may have been a proper subject for shareholder action
under State law but that (1) could be characterized as submitted
``primarily for the purpose of enforcing a personal claim or of
redressing a personal grievance against the issuer or its
management'' or (2) was substantially the same proposal as was
submitted for a vote of shareholders at the previous annual meeting
(or any subsequent special meeting) that received less than three
percent of votes cast could be excluded from a company's proxy
materials. Id. at 6679. These exclusions remain, as subsequently
revised, in the current rule. See 17 CFR 240.14a-8.
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[[Page 59910]]
Later amendments, including the 1952 exclusion for proposals
promoting ``general economic, political, racial, religious, social or
similar causes'' \67\ and the 1954 ``ordinary business'' exclusion,\68\
further entangled Federal criteria with State law requirements. The
application of these criteria often required judgments about matters of
boards' authority and shareholders' role in corporate decision-making.
The 1954 amendments also restructured Rule 14a-8 such that the ``proper
subject for action'' criterion was no longer a threshold qualification
for the inclusion of a shareholder proposal; instead, it was re-framed
as a basis permitting an issuer to exclude a proposal if it was not a
proper subject for action under State law.\69\ Moreover, ``the burden
of proof'' to make that showing was placed ``upon the management.''
\70\
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\67\ See Amendment of Proxy Rules, Release No. 34-4775 (Dec. 11,
1952) [17 FR 11431 (Dec. 18, 1952)]. In 1972, the Commission revised
the existing ``social policy'' exclusion relating to ``general
economic, political, racial, religious, social or similar causes''
to eliminate the formulation that focused on whether a proposal was
submitted ``primarily for the purpose of'' promoting a particular
cause. Solicitations of Proxies, Release No. 34-9784 (Sept. 22,
1972) [37 FR 23178 (Oct. 31, 1972)]. In its place, the Commission
adopted a broadened standard that turned on the relationship between
the issuer and the subject matter of the proposal. Id. at 23179
(permitting exclusion of a matter that is ``not significantly
related to the business of the issuer or is not within the control
of the issuer''). As the adopting release explained, the amendment
sought ``to replace the subjective terms of the provision with
objective standards to the extent feasible and thereby create
greater certainty in the application of the rule.'' Id. at 23178.
The Commission also made a corresponding revision to the personal
grievance exclusion, removing similar language so that the two
exclusions no longer required inquiry into a proponent's
motivations. See id. at 23179.
\68\ See 1954 Adopting Release.
\69\ See id. Through this amended language, the 1954 amendments
included in Rule 14a-8 for the first time an express reference to
State law, which was previously referenced only in the 1945 Release.
\70\ See id.
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In 1976, the Commission reorganized the rule into the modern
structure of 13 substantive exclusions.\71\ In doing so, the Commission
made inclusion of shareholder proposals in the company's proxy
materials dependent on, among other things, whether proposals relate
significantly to an issuer's business or implicate areas of board and
management discretion.\72\ Some of these exclusions were based on the
Commission's interpretation of State law allocations of authority
between shareholders and management, and the rest lacked any connection
to State law.\73\ The Commission also added a note to Rule 14a-8(i)(1)
explaining that the propriety of a shareholder proposal under State law
may depend on whether the proposal is precatory or mandatory, signaling
broader Federal takeover in the purported application of State law
concepts.\74\ The note, as discussed further in section II.A.1.c below,
effectively created a presumption that precatory proposals are proper
based on the Commission's own interpretation of State law, as opposed
to deferring to States to resolve the question.
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\71\ See Adoption of Amendments Relating to Proposals by
Security Holders, Release No. 34-12999 (Nov. 22, 1976) [41 FR 52994
(Dec. 3, 1976)] (``1976 Adopting Release''). The 1976 amendments
significantly changed the approach to the existing ``social policy''
exclusion. Specifically, the Commission removed from the exclusion
the express references to ``economic, political, racial, religious,
social, or similar causes.'' In the adopting release for the
amendments, the Commission stated that those ``illustrative
references'' to various causes were ``superfluous and unnecessary''
and that, in revising the provision, the ``substance'' of the
existing exclusionary basis was retained. Id. at 52997.
\72\ See, e.g., id. at 52998 (discussing the adoption of
subordinate (i)(7) of Rule 14a-8--permitting exclusion of proposals
dealing with a ``matter relating to the conduct of the ordinary
business operations of the issuer''--and stating that matters that
have ``significant policy, economic or other implications inherent
in them'' were to be ``considered beyond the realm of an issuer's
ordinary business operations'' and therefore not excludable under
that subordinate).
\73\ For example, the Commission adopted Rule 14a-8(i)(11) [17
CFR 240.14a-8(i)(11)] to permit the exclusion of a proposal that
substantially duplicates one previously submitted by another
shareholder. The Commission explained that this rule was adopted
``in order to eliminate the possibility of shareholders having to
consider two or more substantially identical proposals submitted to
an issuer by proponents acting independently of each other,''
without citing any connection to State law. See 1976 Adopting
Release.
\74\ See id. at 52996; 17 CFR 240.14a-8, Note to subordinate
(c)(1) (1977).
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The Commission again modified the regulatory framework for
shareholder proposals in 1983.\75\ The adopted amendments (including
revisions to the relevance, resubmission, and personal grievance
exclusions) and Commission interpretive guidance on the ordinary
business and mootness exclusions largely preserved the central role
that the Commission's understandings of shareholder authority and
corporate decision-making--traditionally the province of State law--
played in the administration of the Commission's rule. Similarly,
revisions made in 1998, while primarily structural and intended to
improve readability by recasting the rule in a question-and-answer
format, carried over the existing exclusionary framework.\76\
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\75\ See Amendments to Rule 14a-8 Under the Securities Exchange
Act of 1934 Relating to Proposals by Security Holders, Release No.
34-20091 (Aug. 16, 1983) [48 FR 38218 (Aug. 23, 1983)]; see also
Proposed Amendments to Rule 14a-8 Under the Securities Exchange Act
of 1934 Relating to Proposals by Security Holders, Release No. 34-
19135 (Oct. 14, 1982) [47 FR 47420 (Oct. 26, 1982)] (``1982
Proposing Release'') (proposing three alternative approaches to Rule
14a-8).
\76\ See 1998 Adopting Release.
---------------------------------------------------------------------------
Subsequent amendments--frequently relating to shareholder-proponent
eligibility, resubmission thresholds, and procedural requirements--have
continued to revise a Federal overlay that either constrains or expands
the rights of shareholders to present a matter for a vote without any
grounding in State law.\77\ Taken together, the evolution of Rule 14a-8
demonstrates a consistent trend: over time, through rulemaking, the
Commission has increasingly assumed responsibility for defining and
interpreting standards that implicate core State law concepts of
corporate governance.
---------------------------------------------------------------------------
\77\ See, e.g., Procedural Requirements and Resubmission
Thresholds Under Exchange Act Rule 14a-8, Release No. 34-89964
(Sept. 23, 2020) [85 FR 70240 (Nov. 4, 2020)] (``2020 Adopting
Release'') (amending requirements under the rule including
resubmission thresholds and security ownership amounts for
shareholder-proponent eligibility).
---------------------------------------------------------------------------
As this history illustrates, the evolution of current Rule 14a-8
has taken the Commission from its original 1942 posture of deferring to
State law on the scope of which matters are a proper subject for
shareholder action to a regime in which the rule now purports to
prescribe the ``few specific circumstances'' under which a company is
``permitted to exclude'' a shareholder proposal, including a
presumption that precatory proposals are ``proper unless the company
demonstrates otherwise.'' \78\ Throughout this evolution, there has
been little meaningful analysis of State law to justify the
Commission's line drawing. Instead, the Commission has relied on
generalized impressions of what State law requires or on inferences
drawn from its own experience administering the Federal proxy rules to
construct what is, in substance, a Federal standard governing when a
shareholder proposal is a proper subject for shareholder action.
Nothing in the text or context of section 14(a) supports the
Commission's authority to prescribe such a standard. Indeed, the plain
and best reading of section 14(a) confirms that Congress did not grant
the Commission such authority.
---------------------------------------------------------------------------
\78\ 17 CFR 240.14a-8.
---------------------------------------------------------------------------
c. Rule 14a-8 Exceeds the Commission's Authority Under Section 14(a)
As discussed above, Rule 14a-8 dictates when a company ``must
include'' a shareholder proposal in its proxy materials. The rule
prescribes eligibility and procedural requirements that a shareholder
must satisfy to have
[[Page 59911]]
a proposal included. It then identifies the bases on which a company
may exclude a proposal. It also sets forth certain steps that a company
must follow if it seeks to rely on one of those bases.\79\
Collectively, these provisions effectively operate as a Federal
standard governing when a matter is properly put before shareholders
for a vote through the proxy.\80\ Because section 14(a) empowers the
Commission to regulate the proxy solicitation process--not codify its
own understanding of State law rights as a matter of Federal law--Rule
14a-8 exceeds the Commission's authority under section 14(a).
---------------------------------------------------------------------------
\79\ See supra section II.A.1.b.
\80\ See Fisch 1993 at 1149-50 (``Many of the restrictions
imposed by the proxy rules can be attributed to a pragmatic effort
by the SEC to limit the number of shareholder proposals and to
restrict use of the proxy statement to issues of general importance
to shareholders. Although such limits may be desirable, they have no
foundation in state or common-law restrictions regarding proper
subjects to be raised at a shareholders' meeting. The SEC's
authority to impose these restrictions on the use of the proxy
mechanism is therefore unclear.'').
---------------------------------------------------------------------------
In its current form, Rule 14a-8(i) contains 13 substantive bases
for exclusion. Of these, only Rule 14a-8(i)(1) and Rule 14a-8(i)(2)
directly refer to State law by permitting exclusion when a proposal
``is not a proper subject for action by shareholders under the laws of
the jurisdiction of the company's organization,'' \81\ or when a
proposal ``would, if implemented, cause the company to violate any
[S]tate . . . law to which it is subject.'' \82\ The remaining
exclusion bases codify criteria developed by the Commission--often
evolving over time--regarding what matters are appropriate for
inclusion in a company's proxy materials, some of which derived from
the Commission's own interpretation of State law and the rest of which
lacked any identified connection to State law.\83\ These criteria
include the proposal's subject matter (such as matters relating to
ordinary business operations, the director election process, or
dividend amount determinations) and other considerations (such as the
motivation of the proponent, economic relevance, duplication,
substantial implementation, or the level of past shareholder
support).\84\ Although some of these exclusion bases may intersect with
concepts found in State law, they are not derived from, and do not
consistently track, State law frameworks governing shareholder rights
to present a proposal at a meeting for a vote by their fellow
shareholders.
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\81\ 17 CFR 240.14a-8(i)(1).
\82\ 17 CFR 240.14a-8(i)(2).
\83\ See, e.g., 1982 Proposing Release at 47428-29 (discussing
the origin of 17 CFR 240.14a-8(i)(7), the ordinary business
exclusion).
\84\ 17 CFR 240.14a-8(i)(3) through 240.14a-8(i)(13).
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Even where Rule 14a-8 incorporates State law considerations in Rule
14a-8(i)(1), the rule conditions that reference with a Commission-
created presumption that non-binding, precatory proposals are proper
subjects for shareholder action under State law.\85\ This presumption,
grounded in prior Commission staff ``experience,'' effectively places a
thumb on the scale in favor of inclusion. A company bears the burden to
overcome the presumption, but meeting that burden, in practice, is
often difficult. State law is frequently undeveloped, ambiguous, or
fact-specific with respect to shareholder proposals, and the company is
required to submit an opinion of counsel supporting its views on State
law, which may be particularly difficult to obtain when State law is
silent on the subject. In these situations, companies could lack a
meaningful pathway to meet their burden to rebut the presumption. As a
result, what is framed as a presumption operates in substance as a
mandate. Rather than looking or deferring to State law, the Commission
has, instead, substituted its own judgment for which proposals are
proper under State law.
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\85\ The current Note to Rule 14a-8(i)(1) reads as follows:
``Depending on the subject matter, some proposals are not considered
proper under state law if they would be binding on the company if
approved by shareholders. In our experience, most proposals that are
cast as recommendations or requests that the board of directors take
specified action are proper under state law. Accordingly, we will
assume that a proposal drafted as a recommendation or suggestion is
proper unless the company demonstrates otherwise.''
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Beyond the 13 substantive bases for exclusion and the presumption
regarding precatory proposals, the overall structure of Rule 14a-8
underscores its function as a de facto Federal standard for shareholder
voting rights by specifying which shareholder proposals are appropriate
for inclusion in company proxy materials. Rule 14a-8 has, over time and
through successive revisions, evolved into a detailed framework that
identifies the ``few specific circumstances'' in which a company is
``permitted to exclude'' a shareholder proposal. As an illustration of
how Rule 14a-8 has expanded in complexity over time, the predecessor to
Rule 14a-8 was a little over 200 words whereas the current provision is
over 3,000 words. Companies seeking to exclude a proposal must explain
the basis for exclusion--often by citing one or more of the 13
substantive grounds noted above--and, where the basis relies on State
or foreign law, provide a supporting opinion of counsel.\86\ The rule
also imposes numerous requirements that a shareholder must satisfy to
require inclusion of a proposal in the company's proxy materials,
including eligibility criteria based on the amount and duration of
share ownership; a requirement that the shareholder (or a qualified
representative) personally attend the meeting to present the proposal;
and limits on the number and length of proposals.\87\ None of these
requirements is grounded in State law.\88\
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\86\ 17 CFR 240.14a-8(j)(1), (j)(2)(iii).
\87\ 17 CFR 240.14a-8(b)(1)(i), (b)(1)(iv), (c).
\88\ While the procedural and eligibility requirements may have
been intended to foster an orderly process for the inclusion of
proposals, because the Commission is not authorized by section 14(a)
to interpose Federal criteria on shareholders' or companies' State
law rights, these requirements similarly are not supported by our
statutory authority.
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Despite the Commission's stated goal of ``facilitat[ing]
shareholders' exercise of [S]tate law rights'' \89\ and making the
proxy process ``function[ ], as nearly as possible, as a replacement
for an actual in-person gathering of security holders,'' \90\ these
conditions and exclusions--which constitute the vast majority of Rule
14a-8's provisions--bear little or no connection to whether the
proposal is proper for a shareholder vote at the shareholder meeting
under State law. Instead, these requirements create a complex Federal
regime governing the rights of shareholders to present proposals for
shareholder action that functionally supplants State law.\91\ Section
14(a) does not empower the Commission to create such a regime.
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\89\ 2007 Proxy Access Long Release at 43478.
\90\ Id. at 43467.
\91\ See Fisch 1993 at 1151 (``[B]oth in determining appropriate
criteria for excluding shareholder proposals and in applying those
criteria, the SEC does not replicate passively the annual meeting
process by applying state law principles, but creates a federal
common law as to what constitutes a proper subject for shareholder
action. The SEC has thereby thrust itself into the role of
determining the proper balance of power between management and
shareholders.'') (citing Louis Loss, Fundamentals of Securities
Regulation 537-38 (1983) (``Inevitably the Commission (normally its
staff), while purporting to find and apply a general[ly] nonexistent
state law, has been building a `common law' of its own as to what
constitutes a `proper subject' for shareholder action.'')).
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It might be argued that Rule 14a-8 does not dictate the scope of
proposals submitted by one shareholder to be voted on by other
shareholders but rather defines the conditions under which a
shareholder may take advantage of the opportunity provided by Federal
law to have a proposal included in the company's proxy materials.\92\
But, as
[[Page 59912]]
described above, by establishing standards not found in State law for
whether a shareholder proposal must be included in a company's proxy
materials, the Commission effectively dictates the scope of shareholder
voting rights and, therefore, exceeds its authority. Because voting by
proxy has largely replaced attendance at the shareholder meeting as the
primary means of corporate suffrage, applying the Commission's
determinations of whether and what shareholder proposals may properly
appear on a company's proxy materials effectively alters the corporate
voting process.\93\
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\92\ See, e.g., Dyer v. SEC, 266 F.2d 33 (8th Cir. 1959)
(stating that Rule 14a-8 ``affords a privilege [to have a proposal
included in the company's proxy statement], which does not otherwise
ordinarily exist in favor of stockholders. Necessarily, the
Commission could properly impose reasonable conditions and
limitations on the scope and manner of enjoyment of the privilege,
in relation to the other elements of holding stockholder meetings
and conducting corporate affairs.'').
\93\ See Fisch 1993 at 1170 (``[T]he SEC's proxy rules are not
passive attempts to implement shareholders' state law rights in an
increasingly large and impersonal voting system. Instead, the rules
change the voting process, both by determining issues upon which
shareholder democracy is appropriate and by structuring the way in
which such democracy can be exercised.'').
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By way of contrast, in the context of director elections, the
Commission has facilitated the ability of shareholders to exercise the
voting rights they have under State law. In 2021, the Commission
adopted rules requiring the use of a universal proxy card in non-exempt
solicitations involving director election contests.\94\ The foundation
for the universal proxy rules is the right of shareholders--explicit in
State law--to vote for the election of directors.\95\ Accordingly, the
predicate question of whether under State law the proposal (i.e., the
election of directors) is proper for a shareholder vote at the
shareholder meeting is clearly answered by State law.\96\ To ensure
that shareholders voting by proxy are able to participate in the
election of directors in the same manner they could if voting in person
at a shareholder meeting, the rule requires that a proxy card include
the names of all duly nominated \97\ director candidates presented for
election,\98\ thereby allowing shareholders voting by proxy in
contested elections to replicate the vote they could cast if they voted
in person. Such an exercise of the Commission's rulemaking authority
under section 14(a) works in conjunction with State law.
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\94\ See Universal Proxy, Release No. 34-93596 (Nov. 17, 2021)
[86 FR 68330 (Dec. 1, 2021)] (``Universal Proxy Release''). The
universal proxy rules do not apply to solicitations involving
director election contests for registered investment companies and
business development companies.
\95\ See Universal Proxy Release at 68330 (``State statutes
require corporations to hold an annual meeting of shareholders for
the purpose of electing directors. A shareholder's ability to
participate in the election of directors is a fundamental right
under state corporate law, and the process by which directors are
elected is a fundamental aspect of corporate governance that is
central to maintaining the accountability of directors to
shareholders.'') (footnotes omitted).
\96\ See, e.g., Cal. Corp. Code section 600(b); 8 Del. C.
section 211(b); N.Y. Bus. Corp. Law section 602(c).
\97\ See Universal Proxy Release at 68331-32 (noting that
universal proxy cards ``must include the names of all duly nominated
director candidates presented for election by any party . . .'' and
explaining that ``[a] duly nominated director candidate is a
candidate whose nomination satisfies the requirements of any
applicable [S]tate or foreign law provision and a registrant's
governing documents as they relate to director nominations'').
\98\ See 17 CFR 240.14a-19(e).
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It is not always clear whether a matter is a proper subject for
shareholder action under State law. In some instances, State law
entitlements are relatively straightforward. For example, it is widely
recognized that State law generally confers voting rights on equity
shareholders in director elections but does not confer voting rights on
bondholders in those elections.\99\ In other instances, applying State
law can present difficult interpretive questions, even within a single
jurisdiction. For example, it remains uncertain whether the Delaware
General Corporation Law (``DGCL'') permits precatory proposals; the
statute does not speak to the question.\100\ These difficulties are
compounded by the fact that States vary in how they address particular
governance matters.\101\ But section 14(a) does not authorize the
Commission to resolve ambiguous questions of State law or to impose a
uniform Federal standard. Indeed, doing so has inhibited and may
continue to inhibit the development of State law by State legislatures
and courts interpreting the law of the relevant States of
incorporation, as we discuss below.\102\ Absent clear congressional
direction to the contrary, State legislatures and courts interpreting
State law are the appropriate bodies to develop and define the scope of
shareholder rights.
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\99\ Compare 8 Del. C. section 212 (granting voting rights to
stockholders) with 8 Del. C. section 221 (authorizing a corporation
to grant bondholders rights similar to those held by stockholders,
including the right to vote, because such rights do not exist by
default under State law).
\100\ See Mohsen Manesh, The Corporate Contract & The Private
Ordering of Shareholder Proposals, 50 J. Corp. L. 1, 29 (2024)
(noting that the statutory text of the DGCL is silent as to whether
shareholders have the right to make or vote on a precatory proposal)
(``Manesh 2024''). See also Kyle A. Pinder, The Non-Binding Bind:
Reframing Precatory Stockholder Proposals Under Delaware Law, 15
Mich. Bus. & Entrepreneurial L. Rev. 1 (2026), available at: <a href="https://repository.law.umich.edu/mbelr/vol15/iss1/2">https://repository.law.umich.edu/mbelr/vol15/iss1/2</a> (concluding that
Delaware law does not provide an inherent precatory proposal right).
\101\ See Stephen M. Bainbridge, Revitalizing SEC Rule 14a-8's
Ordinary Business Exclusion: Preventing Shareholder Micromanagement
by Proposal, 85 Fordham L. Rev. 705 (2016) (``[T]here is an
unfortunate degree of inconsistency from state to state as to which
actions are deemed extraordinary and which are deemed ordinary.
States are divided, for example, as to whether such basic matters as
filing a lawsuit or executing a guarantee of another corporation's
debts are ordinary or extraordinary.''). While many states have
adopted the MBCA, its adoption is not universal, and some states
have adopted it only in part. See American Bar Ass'n, Bus. Law
Section, Model Business Corporation Act Resource Center, available
at <a href="https://www.americanbar.org/groups/business_law/resources/model-business-corporation-act/">https://www.americanbar.org/groups/business_law/resources/model-business-corporation-act/</a> (noting that 36 jurisdictions have adopted
the MBCA in whole or in part).
\102\ See section II.A.2.b.ii. See also Fisch 1993 at 1192-93
(``The interdependence of the state and federal regulatory systems
has several consequences. First, the mere existence of the federal
proxy rules may have restrained the development of state corporation
law in the area of voting regulation. A state statute that
conflicted with the proxy rules might not be valid under the
Supremacy Clause. Additionally, the federal rules subdue state
motivation to legislate. State legislatures have become accustomed
to leaving the regulation of the voting process to the SEC and defer
to that agency's expertise. State and federal courts also have grown
accustomed to viewing shareholder proxy rights as those rights
defined by the SEC rules. In spite of the SEC's statements that its
rules simply enable shareholders to realize state law rights, courts
are loathe to recognize ballot access, information, or procedural
rights that extend beyond those explicitly guaranteed by federal
law.'').
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The Commission has, at times, noted that its authority to
promulgate Rule 14a-8 under section 14(a) was upheld in 1947 in SEC v.
Transamerica Corp.\103\ But in Transamerica, which upheld an
application of the 1942 version of the rule, the scope of the
Commission's authority under section 14(a) was not squarely presented
or addressed. To the extent the court's analysis could be read to
endorse a more expansive view of the Commission's authority than the
Commission's interpretation in this release, the Commission disagrees
with such a reading for the reasons discussed above.
---------------------------------------------------------------------------
\103\ 163 F.2d 511 (3d Cir. 1947); see, e.g., Shareholder
Proposals Relating to the Election of Directors, Release No. 34-
56161 (July 27, 2007) [72 FR 43488, 43489 n.8 (Aug. 3, 2007)]. But
see 1954 Adopting Release (explaining that ``state law is to be the
standard of eligibility of a proposal under the rule'' and that
``[t]he Commission wishes to make it clear that it considers this
standard consistent with [Transamerica]'').
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d. Rule 14a-8 Should Be Rescinded
An administrative agency must act within its statutory
authority.\104\ As
[[Page 59913]]
discussed, Rule 14a-8 exceeds the plain and best reading of the
Commission's rulemaking authority under section 14(a). Accordingly, we
propose to rescind the rule. Furthermore, as discussed below, even if
the Commission had the authority to adopt Rule 14a-8 or aspects of the
rule, for independent policy reasons, the Commission is proposing to
rescind the rule in its entirety.
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\104\ See Bd. of Governors of Fed. Rsrv. Sys. v. Dimension Fin.
Corp., 474 U.S. 361, 373 n.6 (1986) (holding that an administrative
agency, in this case the Federal Reserve Board, only has the power
``to police within the boundaries of the [relevant authorizing
statute]'' and not ``to expand its jurisdiction beyond the
boundaries established by Congress''); West Virginia v. EPA, 597
U.S. 697, 723 (2022) (``Agencies have only those powers given to
them by Congress, and `enabling legislation' is generally not an
open book to which the agency [may] add pages and change the plot
line.'') (citation omitted); Util. Air Regul. Grp. v. EPA, 573 U.S.
302, 327-328 (2014) (stating that to avoid ``a severe blow to the
Constitution's separation of powers,'' an agency must act within the
bounds established by Congress and may not rewrite statutory terms
``to suit its own sense of how [a] statute should operate''); City
of Arlington v. FCC, 569 U.S. 290, 297 (2013) (``No matter how it is
framed, the question a court faces when confronted with an agency's
interpretation of a statute it administers is always, simply,
whether the agency has stayed within the bounds of its statutory
authority.'') (italics in original); K Mart Corp. v. Cartier, Inc.,
486 U.S. 281, 291 (1988) (``In determining whether a challenged
regulation is valid, a reviewing court must first determine if the
regulation is consistent with the language of the statute.''); Stark
v. Wickard, 321 U.S. 288, 309 (1944) (``When Congress passes an Act
empowering administrative agencies to carry on governmental
activities, the power of those agencies is circumscribed by the
authority granted.''); Cal. Indep. Sys. Operator Corp. v. FERC, 372
F.3d 395, 398 (D.C. Cir. 2004) (stating that a Federal agency is a
creature of statute, has no constitutional or common law existence
or authority, and has ``only those authorities conferred upon it by
Congress'') (italics in original) (citation omitted).
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We acknowledge that Rule 14a-8 has been in existence for many years
and that both shareholders and companies are likely to have shaped
certain governance and engagement practices around the rule's
provisions. However, agencies may not add to their powers by adverse
possession; longevity is not a substitute for legal authority. Indeed,
the passage of time has seen Rule 14a-8 stray further from section 14's
authorization. That said, to better understand the potential impact of
rescinding Rule 14a-8 and possible measures to mitigate such impact, we
are seeking comment on reliance interests in the current rule and on
alternatives to complete rescission that would fall within our
authority.
2. Policy Reasons for Rescinding Rule 14a-8
Independent of our lack of statutory authority, there are also
policy reasons for rescinding Rule 14a-8 in its entirety. Specifically,
we believe that (i) many of the justifications that were originally
provided to support adoption of Rule 14a-8 either have not been
substantiated in practice or are less compelling today; (ii) Rule 14a-8
has had, and will continue to have, certain unintended consequences;
and (iii) retaining any version of Rule 14a-8--assuming the Commission
were authorized to do so--is unwarranted and unlikely to avoid these
unintended consequences.
a. Many of the Original Justifications for Adopting Rule 14a-8 Either
Have Not Been Substantiated in Practice or Are Less Compelling Today
When the Commission first adopted Rule 14a-8, Chairman Purcell
stated that the rule was adopted with the understanding that (i) the
cost to companies to include shareholder proposals in their proxy
materials was ``small;'' \105\ (ii) many proposals were either already
supported by management or received meaningful shareholder support;
\106\ (iii) the overall volume of proposals was low; \107\ and (iv) the
rights of shareholders to present certain matters for a vote to their
fellow shareholders under State law was reasonably clear, such that the
Commission's rules could operate to facilitate those rights.\108\ As
discussed below, many of these justifications either have not been
substantiated in practice or have become less compelling given the
evolution of the shareholder proposal process, and ambiguity about the
scope of shareholder voting rights under State law. In addition to
these considerations, other developments, including the reduced burden
in conducting independent solicitations and availability of other
methods of shareholder engagement due to technological advancements,
also may have rendered Rule 14a-8's original justifications less
compelling.
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\105\ See Statement of Chairman Purcell (``It is a very small
item of expense, so far as the company's funds are concerned and one
that can very readily and rightfully be used for the purpose, it
seems to us.'').
\106\ See id. at 181 (``Many [shareholder proposals] have been
accepted by managements, and others have secured respectable
percentages of the votes cast.''). We were unable to confirm
shareholder support rates for these earlier proposals.
\107\ See id. (explaining that there had been ``no flood of
stockholders' proposals'' around the time of the rule's adoption).
\108\ See id. (describing a situation in which a company's
chairman ruled a shareholder's floor proposal out of order, causing
``so much opposition among the assembled stockholders that the
chairman rescinded his ruling and permitted full discussion of the
matter'' and observing that ``the stockholders made it clear that in
that corporation, whether or not they agreed with their fellow
stockholders, they believed that every stockholder should be given
an opportunity to present his point of view to his fellow
stockholders and to have them express their own judgment on its
merits. This is the right that the State law intended to give
stockholders and it is that right our rules protect and make a
reality.'').
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First, the cost to companies of addressing and including
shareholder proposals in proxy materials is no longer small. In
response to commenter feedback on the proposing release to the
Commission's 2020 amendments to Rule 14a-8, the Commission estimated
that the cost to a company ranged from $20,000 to $150,000 per
proposal.\109\ One recent survey found that the aggregate direct costs
over a four-year period that companies incurred to comply with Rule
14a-8 varied widely among 35 public company respondents: 20 percent
reported four-year aggregate direct costs of less than $100,000; 25.7
percent reported between $100,000 and $250,000; and 17.1 percent
reported between $251,000 and $500,000.\110\ Nearly one-quarter
reported aggregate, four-year costs exceeding $500,000, including 14.3
percent reporting between $501,000 and $1,000,000 and 11.4 percent
reporting more than $1,000,000 over that period.\111\ Another survey
found that nearly 20 percent of the 35 responding companies, including
some companies that have small market capitalization, noted that they
spend over $500,000 in external costs addressing shareholder proposals
in a typical proxy season.\112\
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\109\ 2020 Adopting Release at 70245 n.63.
\110\ See Lawrence A. Cunningham, Shareholder Proposal Survey:
Report and Analysis of Results, University of Delaware, John L.
Weinberg Center for Corporate Governance (Jan. 2026), at 4,
available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6045474">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=6045474</a>. The report states that public
companies responding to this survey were predominantly large
capitalization or mega capitalization firms, drawn from diverse
industries. The estimated costs may vary for other types of
companies, such as investment companies.
\111\ See id.
\112\ See Business Roundtable, The Need for Bold Proxy Process
Reform (Apr. 2025), available at <a href="https://www.businessroundtable.org/the-need-for-bold-proxy-process-reforms">https://www.businessroundtable.org/the-need-for-bold-proxy-process-reforms</a>.
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Companies incur costs, including internal time, as well as external
legal and compliance expenditures.\113\ Companies also incur indirect
costs associated with addressing shareholder proposals, including
internal legal and administrative resources, management time, and
opportunity costs from diverting management's attention away from core
business operations, which may be substantial.\114\ These costs
[[Page 59914]]
ultimately are borne by the company's shareholders,\115\ who, in
addition to absorbing the costs incurred by the company, face their own
costs in analyzing and voting on proposals.\116\
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\113\ See id.
\114\ See Procedural Requirements and Resubmission Thresholds
under Exchange Act Rule 14a-8, Release No. 34-87458 (Nov. 5, 2019)
[84 FR 66458, 66496 (Dec. 4, 2019)] (``2019 Proposing Release'')
(``Shareholder proposals also impose opportunity costs on companies
and their shareholders because management, the board, and the voting
shareholders could spend the time spent on processing a shareholder
proposal and voting on the proposal to engage in other value
enhancing activities.''); Mary Jo White, Chair, SEC, Speech at the
69th Nat'l Conf. of the Soc'y of Corp. Secretaries and Governance
Professionals: Building Meaningful Communication and Engagement with
Shareholders (June 25, 2015), <a href="https://www.sec.gov/newsroom/speeches-statements/building-meaningful-communication-engagement-shareholde">https://www.sec.gov/newsroom/speeches-statements/building-meaningful-communication-engagement-shareholde</a>
[<a href="https://perma.cc/NQ8C-NRRE">https://perma.cc/NQ8C-NRRE</a>] (``Briefing boards [on shareholder
proposals], analyzing issues and determining how to communicate the
company's views to shareholders and markets take time and resources,
as does hiring lawyers to analyze the proper interpretation of the
Commission's grounds for exclusion and preparing communications with
the staff.'').
\115\ See Substantial Implementation, Duplication, and
Resubmission of Shareholder Proposals Under Exchange Act Rule 14a-8,
Release No. 34-95267 (July 13, 2022) [87 FR 45052, 45067 (July 27,
2022)] (``[C]ompanies may bear both direct costs and opportunity
costs associated with the submission of a shareholder proposal, and
these costs may be passed on to shareholders.''); 2020 Adopting
Release at 70267 (``[A]ll shareholders may incur passed-through
costs associated with companies' consideration and processing of
shareholder proposals and experience the economic impact of
shareholder proposals that are implemented.'').
\116\ See 2020 Adopting Release at 70277 (``[T]he costs to non-
proponent shareholders of analyzing and voting on shareholder
proposals are significant.'').
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Second, most shareholder proposals today do not receive majority
shareholder support and are not supported by management. We estimate
that approximately seven percent of submitted proposals and 11 percent
of proposals that were voted on received majority shareholder support
in 2025.\117\ It is also clear that management frequently opposes
shareholder proposals today, as reflected in the number of proposals
companies exclude from their proxy materials each proxy season,\118\
the number of proposals companies seek to exclude,\119\ and the
opposition statements companies routinely include in their proxy
materials to rebut proposals that are included and voted on.\120\
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\117\ See infra section IV.B.3.a.
\118\ See id. (noting that 22% of proposals were omitted from
company proxy materials in 2025).
\119\ For example, between Oct. 1, 2024 and Sept. 30, 2025,
companies sought to exclude approximately 370 proposals. See U.S.
Securities & Exchange Commission, Shareholder Proposals, available
at <a href="https://www.sec.gov/rules-regulations/shareholder-proposals">https://www.sec.gov/rules-regulations/shareholder-proposals</a>.
\120\ See Asaf Eckstein, The Rise of Corporate Guidelines in the
United States, 2005-2021: Theory and Evidence, 98 Indiana L.J. 921
(2023), available at <a href="https://www.repository.law.indiana.edu/ilj/vol98/iss3/6/">https://www.repository.law.indiana.edu/ilj/vol98/iss3/6/</a> (stating that boards choose to recommend against
shareholder proposals that are included in a company's proxy
statement ``most of the time'').
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Third, the volume of shareholder proposals has increased
significantly over time in comparison to the increase in the number of
companies required to file proxy statements.\121\ In contrast to the
relatively low number of shareholder proposals included in company
proxy materials between 1943 and 1946, which totaled between 34 and
66,\122\ the annual number of shareholder proposals submitted to
companies between 2020 and 2025 is estimated to have ranged from 697 to
932, with an estimated 437 to 599 proposals included in company proxy
materials each year.\123\
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\121\ There were 1,467 proxy statements filed by companies in
1943, see Securities and Exchange Commission, Thirteenth Annual
Report of the Securities and Exchange Commission Fiscal Year Ended
June 30, 1947, 42 (1948), available at <a href="https://www.sec.gov/about/annual_report/1947.pdf">https://www.sec.gov/about/annual_report/1947.pdf</a>, and we estimate that 6,043 proxy statements
are filed by companies today, see section V.C.
\122\ See Securities and Exchange Commission, Thirteenth Annual
Report of the Securities and Exchange Commission Fiscal Year Ended
June 30, 1947, 42 (1948), available at <a href="https://www.sec.gov/about/annual_report/1947.pdf">https://www.sec.gov/about/annual_report/1947.pdf</a> (noting that the number of shareholder
proposals included in company proxy statements was 66 in 1943, 38 in
1944, 34 in 1945, and 34 in 1946).
\123\ See Matteo Tonello, 2025 Proxy Season Review: From
Escalation to Recalibration, Harv. L. Sch. F. Corp. Governance
(Sept. 15, 2025), available at <a href="https://corpgov.law.harvard.edu/2025/09/15/2025-proxy-season-review-from-escalation-to-recalibration/">https://corpgov.law.harvard.edu/2025/09/15/2025-proxy-season-review-from-escalation-to-recalibration/</a>
(estimating the total number of shareholder proposal submissions to
be 697 proposals in 2020, 715 in 2021, 801 in 2022, 836 in 2023, 932
in 2024, and 781 in 2025, while estimating the total number of voted
shareholder proposals to be 437 in 2020, 419 in 2021, 538 in 2022,
586 in 2023, 599 in 2024, and 462 in 2025).
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Finally, when it adopted Rule 14a-8, the Commission appears to have
assumed that it would be clear, or at least reasonably easy to
determine, which matters are proper to present to shareholders for a
vote under State law. However, State law is often unclear or silent as
to what matters may be presented to shareholders. For instance,
Delaware law is unclear about the status of precatory proposals--the
most common type of Rule 14a-8 proposal.\124\ While section 211 of the
DGCL states that, in addition to the election of directors, ``[a]ny
other proper business may be transacted at the annual meeting,'' it
does not define what can be considered as ``proper business.'' \125\
Consequently, there is a diversity of opinion about whether the DGCL
permits precatory proposals. While a number of commentators have
observed that Delaware law does not explicitly authorize or contemplate
precatory proposals as proper subjects for shareholder action,\126\ the
question remains unresolved. For example, one scholar of Delaware law
has stated that section 211 of the DGCL could be interpreted to
authorize precatory proposals as proper \127\ and another legal scholar
has argued that the authority to present and vote on precatory
proposals is an ``incidental power[ ]'' derived from section 121 of the
DGCL and the broader governance framework created by statute.\128\
Regardless of their views, no commentator has identified any
controlling authority from a Delaware court on this issue, and the DGCL
(like the MBCA) does not directly address the question as to whether
precatory proposals are proper subjects for a shareholder vote.\129\
Moreover, even if Delaware law were clear on this issue, other States
may take a different position.
---------------------------------------------------------------------------
\124\ See supra notes 16 and 100.
\125\ See 8 Del. C. section 211; see also Model Bus. Corp. Act
section 7.01.
\126\ See e.g., Manesh, supra note 100, at 29 (``For one, there
is nothing in Delaware's statute or caselaw establishing as
`settled' public policy the right of shareholders to make or vote on
a proposal at a shareholder meeting. As previously noted, the
statutory text of the [Delaware General Corporation Law] makes no
reference to such a right. And to the extent that right is
recognized by case law, judicial references to it are scant and
fleeting''); Pinder, supra note 100 (``[T]he Delaware General
Corporation Law . . . does not contemplate (and thus does not
expressly authorize) precatory stockholder proposals.''); Unofficial
Transcript of the Roundtable Discussion Regarding the Federal Proxy
Rules and State Corporation Law Before the Chairman and
Commissioners of the Securities and Exchange Commission (May 7,
2007), available at <a href="https://www.sec.gov/spotlight/proxyprocess/proxy-transcript050707.pdf">https://www.sec.gov/spotlight/proxyprocess/proxy-transcript050707.pdf</a> (``2007 Proxy Roundtable Transcript'')
comment of Stanley Keller (``14a-8 in and of itself I think has
created the non-binding proposal. I think as a matter of state law
it really didn't exist outside of 14a-8''); cf. Leo E. Strine, Jr.,
Breaking the Corporate Governance Logjam in Washington: Some
Constructive Thoughts on a Responsible Path Forward, 63 Bus. Law.
1079, 1088 (2008) (``Strangely, precisely because state corporation
laws do not contemplate non-binding stockholder votes on anything,
the SEC has permitted non-binding or `precatory' proposals on
virtually everything, including takeover defenses and executive
compensation.'').
\127\ See 2007 Proxy Roundtable Transcript, comment of Frank
Balotti (``I think precatory resolutions are authorized by [section]
211 [of the DGCL], which says that a stockholder can bring before a
meeting anything that is proper for a stockholder to act on. I
believe that it is proper for stockholders to ask directors to do
whatever, as opposed to telling directors to do whatever.'').
\128\ See Fisch et al., supra note 24.
\129\ Despite the recent enactment of Tex. Bus. Orgs. Code Ann.
section 21.373, Texas law similarly does not address this question.
---------------------------------------------------------------------------
The Commission appears to have underestimated the challenges
associated with discerning and applying State corporate law when it
adopted Rule 14a-8, leading to subsequent efforts to provide clarity
through incremental amendments to the rule (such as, for example,
through the current codified presumption regarding precatory proposals
\130\). However, as explained in section II.A, when State law is
unclear or silent as to what matters can be presented to shareholders,
it is not the Commission's role to fill those gaps or impose
[[Page 59915]]
uniformity through the Federal proxy rules.
---------------------------------------------------------------------------
\130\ See Note to Rule 14a-8(i)(1).
---------------------------------------------------------------------------
In addition to the specific considerations discussed above, other
developments also may have rendered Rule 14a-8's original
justifications less compelling. For example, independent solicitation
may have become less burdensome due to, among other factors,
technological and regulatory advancements, including the introduction
of the Commission's e-proxy rules (i.e., notice and access).\131\ In
2021, we estimated that the median basic cost of soliciting
shareholders, namely, the proxy distribution fees and postage costs for
the first mailing, was approximately $14,000.\132\ We also estimated
that the costs of a nominal solicitation--where dissidents minimize
their solicitation efforts and rely on the notice-and-access
mechanism--would fall within a range of $5,300 to $9,800, with the
specific cost dependent on the subject company's market
capitalization.\133\ These estimates assumed that the dissident would
meet the minimum 67 percent solicitation requirement under 17 CFR
240.14a-19 (``Rule 14a-19''), the Commission's universal proxy rule,
which is not applicable if a shareholder does not solicit proxies in
support of director nominees other than the company's nominees.\134\
While estimating the total costs of a specific solicitation is
challenging due to the variability of discretionary solicitation
expenditures, we believe that technological and regulatory advancements
have helped to facilitate independent solicitations.
---------------------------------------------------------------------------
\131\ See Broadridge, 2025 Proxy Season Key Stats and
Performance Ratings (2025), available at <a href="https://www.broadridge.com/campaign/2025-proxy-season-key-stats-and-performance-ratings">https://www.broadridge.com/campaign/2025-proxy-season-key-stats-and-performance-ratings</a> (noting
that 90% of the proxy communications Broadridge processed were
digital and that issuers and funds experienced an estimated $5
billion in cost savings on paper and postage). The Commission's e-
proxy rules require issuers and other soliciting persons to post
their proxy materials on an internet website and furnish notice of
the materials' availability to shareholders. The notice and access
model was intended to promote the use of the internet as a reliable
and cost-efficient means of making proxy materials available to
shareholders. See Amendments to Rules Requiring Internet
Availability of Proxy Materials, Release No. 33-9108 (Feb. 22, 2010)
[75 FR 9074 (Feb. 26, 2010)].
\132\ See Universal Proxy Release, at 68359 (the Commission
calculated this estimate based on industry data provided by a proxy
services provider for a sample of 31 proxy contests from July 1,
2018 through June 30, 2019).
\133\ See id. at 68359 n.273. See Table IV in section IV.B.3.b
for estimates of proxy solicitation costs between 2022 and 2025.
\134\ Rule 14a-19 requires the use of universal proxy cards by
companies and by persons soliciting proxy votes for their own
candidates in contested director elections. The universal proxy card
must include the names of all company and dissident director
nominees. Rule 14a-19 establishes certain notice and filing
requirements, as well as formatting and presentation requirements
for universal proxy cards, and requires dissidents to solicit at
least 67% of the voting power of shares entitled to vote on the
election of directors. Rule 14a-19 does not apply, however, in a
``zero-slate'' campaign in which the dissident does not nominate or
solicit proxies for its own director nominees.
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In addition, although the original purpose of Rule 14a-8 was not to
facilitate shareholder engagement or communication, shareholders
frequently use the rule for these purposes, as discussed in section
II.A.2.b.i below. To the extent shareholders use Rule 14a-8 for these
purposes, technological advancements have given rise to a wide range of
alternative channels--such as online platforms and social media
forums--that facilitate communication among shareholders, enable the
expression of shareholders' views, and allow investors to attempt to
influence corporate behavior.\135\ These means were not available when
Rule 14a-8 was first adopted. Modern technology allows investors--
including smaller shareholders--to communicate both with management and
fellow shareholders, mitigating concerns that rescinding Rule 14a-8
would limit engagement to larger shareholders or those with more access
to management or board members.\136\
---------------------------------------------------------------------------
\135\ See, e.g., Donna Fuscaldo, Say Gives Retail Investors A
Voice And Tesla Listens, Forbes (Feb. 19, 2019), available at
<a href="https://www.forbes.com/sites/donnafuscaldo/2019/02/19/say-gives-retail-investors-a-voice-and-tesla-listens/">https://www.forbes.com/sites/donnafuscaldo/2019/02/19/say-gives-retail-investors-a-voice-and-tesla-listens/</a> (describing a digital
platform that offers retail investors the ability to engage with
companies they invest in); Seth C. Oranburg, A Little Birdie Said:
How Twitter Is Disrupting Shareholder Activism, 20 Fordham J. Corp.
& Fin. L. 695, 707 (2015), available at <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2544363">https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2544363</a> (``Activists can now access
virtually all shareholders and influence public opinion through
social networks, relatively unencumbered by reporting requirements
under SEC rules.''); Taylor Nicole Rogers, Robby Starbuck: the
activist pushing U.S. companies to ditch their DEI vows, Fin. Times
(Sep. 5, 2024), available at <a href="https://www.ft.com/content/0c8974ee-60bf-4edb-839c-bc24b8ecbc81">https://www.ft.com/content/0c8974ee-60bf-4edb-839c-bc24b8ecbc81</a> (reporting on how a shareholder uses his
social media presence to influence corporate initiatives).
\136\ Cf. Fisch et al., supra note 24 (suggesting that
eliminating precatory proposals would lead to only those with large
share holdings or personal relationships with board members having
access to the board).
---------------------------------------------------------------------------
b. Rule 14a-8 Has Had, and Will Continue To Have, Certain Unintended
Consequences
i. Rule 14a-8 Has Become a Mechanism for Influencing the Interactions
Between Companies and Their Shareholders in Ways That Are Inconsistent
With the Rule's Original Purpose
Under Rule 14a-8, a company is required to include a shareholder
proposal in its proxy statement and form of proxy unless it can
identify a basis to exclude it, in which case it must file with the
Commission its reasons for exclusion.\137\ If a company excludes or
attempts to exclude a proposal, it may be exposed to litigation
risk.\138\ Proponents may thus use Rule 14a-8 in an attempt to gain
leverage in negotiations with company management or to secure private
benefits from such negotiations.\139\ Use of Rule 14a-8 in this way
represents a departure from the rule's original purpose and implicates
matters more appropriately addressed by State law.
---------------------------------------------------------------------------
\137\ See supra section II.A.1.c.
\138\ See, e.g., DiNapoli v. BJ's Wholesale Club Holdings, Inc.,
No. 26-cv-11075, 2026WL1762143 (D. Mass. Apr. 22, 2026); Heritage
Found. & Am. Conservative Values ETF v. Airbnb, Inc., 1:25-cv-00676
(D.Del. Feb. 12, 2026).
\139\ See Sarah C. Haan, Shareholder Proposal Settlements and
the Private Ordering of Public Elections, 126 Yale L.J. 262, 298-299
(2016) (stating that shareholder proponents are incentivized to
negotiate settlements because they ``may extract private benefits
from settlements'' and that they may ``bring a proposal solely for
the purpose of bargaining it away, or to put pressure on management
to accede to a different demand'').
---------------------------------------------------------------------------
For example, proponents may submit proposals to initiate a dialogue
with a company when they have little or no intent for their proposals
to actually be included in company proxy materials and voted on by
fellow shareholders. In fact, many shareholder proposals today are
resolved without a shareholder vote, suggesting that the Rule 14a-8
process has deviated from its original purpose.\140\ For instance,
based on available data, proponents withdrew their proposals at rates
ranging from 18.4 percent to 32.1 percent during the four-year period
between 2021 and 2025, with approximately 18 percent of proposals being
withdrawn in 2025.\141\ Companies and proponents alike may have
incentives to settle privately, rather than proceed to a shareholder
vote.\142\ For companies, the perceived
[[Page 59916]]
advantages of private resolution may include reducing reputational risk
associated with proposals, mitigating litigation risk related to
statements made in opposition or in connection with exclusion, or
avoiding the potentially greater costs associated with either including
a proposal in the proxy materials or seeking to exclude it under the
Commission's rules.\143\ For proponents, reaching a settlement can
provide a more certain path to achieving a tangible outcome since
shareholder proposals are typically non-binding even when they receive
majority support.\144\ The frequent withdrawal of shareholder proposals
as part of the Rule 14a-8 process does not fully align with Congress's
intent that section 14(a) and the Federal proxy rules promote ``fair
corporate suffrage.'' \145\ Rather than having their proposals reach a
shareholder vote through the proxy process, proponents often utilize
the existence of the rule as leverage for private negotiations with
companies, while company management may also find it advantageous when
proposals are withdrawn.\146\
---------------------------------------------------------------------------
\140\ See id. at 293 (``[I]n virtually all cases, the private
settlement of a proposal undercuts the basic justifications for the
shareholder-proposal framework under Rule 14a-8.'').
\141\ See Subodh Mishra, 2025 U.S. Governance Post-Season Review
Evolving Priorities in a Shifting Landscape, ISS STOXX, Harv. L.
Sch. F. Corp. Governance (Oct. 15, 2025), available at <a href="https://corpgov.law.harvard.edu/2025/10/13/2025-u-s-governance-post-season-review-evolving-priorities-in-a-shifting-landscape/">https://corpgov.law.harvard.edu/2025/10/13/2025-u-s-governance-post-season-review-evolving-priorities-in-a-shifting-landscape/</a> (explaining
that, of proposals submitted from Jan. 1 to June 30, 2025, 58% were
voted on, 23.6% were omitted from the proxy statement, and 18.4%
were withdrawn or not presented). Note that these numbers do not
represent the full scope of withdrawn proposals, such as proposals
that were withdrawn before companies filed no-action requests to
exclude them from their proxy materials.
\142\ Cf., e.g., Ross Kerber, This conservative activist is no
fan of Trump's SEC, <a href="http://Reuters.com">Reuters.com</a> (Mar. 4, 2026), available at <a href="https://www.reuters.com/markets/us/this-conservative-activist-is-no-fan-trumps-sec-2026-03-04/">https://www.reuters.com/markets/us/this-conservative-activist-is-no-fan-trumps-sec-2026-03-04/</a> (quoting a shareholder proponent as saying,
``[C]ompanies hate shareholder proposals. They're a nuisance to
them. Usually somebody's bringing it because they have a criticism
of the company and they just, they want to do everything they can
that's possible to get the proponent to withdraw. So if they can
work out some kind of minimally painful step to [get] us to
withdraw, they do it.'').
\143\ See Haan, supra note 139, at 293-297; see also Kobi
Kastiel and Yaron Nili, The Giant Shadow of Corporate Gadflies, 94
So. Cal. L. Rev. 569, 617 (2021).
\144\ See Nickolay Gantchev & Mariassunta Giannetti, The Costs
and Benefits of Shareholder Democracy, Eur. Corp. Governance Inst.
(Nov. 2019), available at <a href="https://www.ecgi.global/sites/default/files/working_papers/documents/finalgantchevgiannetti_2.pdf">https://www.ecgi.global/sites/default/files/working_papers/documents/finalgantchevgiannetti_2.pdf</a>
(``Gantchev Article'') (noting that an ``overall low implementation
rate'' of approximately 16% of proposals ``indicates that management
may choose not to implement proposals even when they are approved by
a majority of the voting shareholders''); see also John G. Matsusaka
et al., Can Shareholder Proposals Hurt Shareholders? Evidence from
Securities and Exchange Commission No-Action -Letter Decisions, 64
J.L. & Econ. 107, 110 (2021), available at <a href="https://www.journals.uchicago.edu/doi/epdf/10.1086/710828">https://www.journals.uchicago.edu/doi/epdf/10.1086/710828</a> (``When a proposal
is withdrawn, it often means that the company granted some
concession to the proponent, who in exchange withdrew the
proposal.'').
\145\ H.R. Rep. No. 1383, 73d Cong., 2d Sess. 13 (1934).
\146\ See., e.g., Ross Kerber, Shareholder activist Behar says
Trump is `disassembling capitalism,' <a href="http://Reuters.com">Reuters.com</a> (Jan. 21, 2026),
available at <a href="https://www.reuters.com/sustainability/sustainable-finance-reporting/shareholder-activist-behar-says-trump-is-disassembling-capitalism-2026-01-21/">https://www.reuters.com/sustainability/sustainable-finance-reporting/shareholder-activist-behar-says-trump-is-disassembling-capitalism-2026-01-21/</a> (quoting a shareholder
proponent as saying ``Most companies will have a dialogue. There are
those where you have to escalate by filing a resolution, about half
of those then say, `OK, if you withdraw it, we'll take some action.'
Then there are the really resistant ones, about 25% or so, that you
have to go to a vote . . . We've had some of our biggest wins at 6%
(support), we've had some of our biggest losses at 80%. We want to
bring forth new ideas.'').
---------------------------------------------------------------------------
Furthermore, Rule 14a-8 can serve as a mechanism for shareholder
proponents to advance interests that in many cases may not be shared by
a company's shareholders at large. For instance, in 2025, only 56 out
of 786 submitted proposals (seven percent) received majority
support.\147\ In addition, a significant proportion of shareholder
proposals are submitted by a small number of proponents who advance
substantially similar proposals across numerous companies.\148\ In
2025, 10 shareholder proponents submitted an aggregate of 58 percent of
all proposals (455 out of 786).\149\
---------------------------------------------------------------------------
\147\ The data cover proposals submitted for meetings held in
calendar year 2025. Data is retrieved from the FactSet
SharkRepellent Proxy Proposal dataset, which includes around 5,000
U.S.-incorporated public companies and some foreign-incorporated
companies. Unless otherwise specified, we exclude from our analysis
shareholder proposals that are not subject to Rule 14a-8, such as
proposals related to proxy contests and other proposals appearing in
dissident shareholders' proxy soliciting material, proposals that
were raised from the floor of the annual or special meetings and
were not submitted to appear in the companies' proxy statements, and
proposals submitted for a vote at meetings of foreign private
issuers, as defined in 17 CFR 240.3b-4, which are not subject to the
Federal proxy rules. See section IV.B.3.a.
\148\ See Gantchev Article supra note 144 (``The press has
widely reported that a small group of individuals, often referred to
as corporate gadflies, submits a disproportionate number of
proposals. These individual sponsors, such as John Chevedden and
William Steiner, do not acquire large stakes and are not
particularly wealthy, but submit dozens of shareholder proposals
every year, convinced that `it is the right thing to do.' ''); see
also Kobi Kastiel and Yaron Nili, The Giant Shadow of Corporate
Gadflies, 94 So. Cal. L. Rev. 569, 591 (2020) (reporting that five
individual investors accounted for almost 40% of shareholder
proposals submitted to S&P 500 companies in 2018). See section
IV.B.3.a.
\149\ See supra note 147 for source of the data.
---------------------------------------------------------------------------
Such use is counter to how the Commission intended the rule to be
used. For example, when the rule was first adopted, Chairman Purcell
explained, ``[I]f [a shareholder proponent] were going to use the
corporate proxy machinery for making a stump speech for some political
party, that obviously is without the spirit of [the rule] . . . .''
\150\ The Commission also subsequently noted that it did not intend for
the rule to be used as a ``publicity mechanism'' for advancing personal
or partisan interests unrelated to the interests of a company's
shareholders.\151\ Yet Rule 14a-8 often serves as a stump from which,
figuratively, a small number of shareholders give speeches.\152\
---------------------------------------------------------------------------
\150\ See Statement of Chairman Purcell.
\151\ See, e.g., 1982 Proposing Release at 47422 n.8 (explaining
that ``the rule was not designed to burden the proxy solicitation
process by requiring the inclusion'' of proposals submitted by
proponents ``us[ing] the rule as a publicity mechanism to further
personal interests that are unrelated to the interests of security
holders as security holders'').
\152\ See, e.g., Business Roundtable, supra note 112 (``One
repeat proponent openly stated they would not withdraw their
proposal, not due to company-specific concerns, but because keeping
it on the proxy statement provided a larger platform for their
cause.'').
---------------------------------------------------------------------------
Furthermore, since Rule 14a-8 includes substantive and procedural
bases that companies may use to exclude proposals that otherwise may be
permitted under State law, companies may seek to use the rule to
exclude proposals they disfavor or to limit shareholder involvement in
corporate affairs. The various default positions, bases for exclusion,
and eligibility criteria have made Rule 14a-8 a contested vehicle for
influencing corporate governance practices and other corporate
behavior. However, the allocation of power between shareholders and
management, as well as determinations about the appropriate role of
shareholder advocacy in corporate governance, are matters for the
States to resolve and not the appropriate province of the
Commission.\153\
---------------------------------------------------------------------------
\153\ See Fisch 1993 (explaining that Rule 14a-8 permits
shareholder proposals to be excluded from company proxy materials
for reasons that are not grounded in State law, discussing the
rule's role in shaping corporate governance, and describing the role
of Federal and State law in regulating proxy solicitations and
shareholder voting).
---------------------------------------------------------------------------
ii. The Existence of Rule 14a-8 Places the Commission in the Position
of Making Judgments About the Application of State Law That Are Best
Left to Other Actors
In our experience, Rule 14a-8 has drawn the Commission into matters
that should be addressed by State legislatures, courts, and, if
permitted by relevant State law, companies.\154\ Although certain
aspects of State law may be clear--for example, State law generally
affords shareholders the right to elect directors \155\ and amend the
bylaws \156\--many other areas contain
[[Page 59917]]
gaps, ambiguities, or conflicting interpretations. State legislatures
and courts--not the Commission--are the appropriate authorities to
resolve those gaps, ambiguities, and conflicts. Similarly, it is not
the Commission's role to synthesize potentially conflicting State laws
for purposes of administering the Federal proxy rules. For example,
State corporate codes are silent as to whether precatory proposals are
proper to present for a shareholder vote.\157\ Historically, however,
in assessing whether a proposal is a proper subject for shareholder
action under State law, the Commission has assumed precatory proposals
are presumptively proper.\158\ The Commission cannot provide definitive
answers to State law questions. Such questions are properly decided by
courts, with the highest court in each State exercising final authority
on questions of State law.\159\ More generally, we do not believe that
section 14(a) authorizes the Commission to direct or influence
substantive corporate governance matters that fall within the purview
of State legislatures, courts, and the private ordering mechanisms
established in a company's governing documents.
---------------------------------------------------------------------------
\154\ See Alan R. Palmiter, The Shareholder Proposal Rule: A
Failed Experiment in Merit Regulation, 45 Ala. L. Rev. 879, 910
(1994) (citing then-Commissioner Richard Roberts who stated that
``it is neither fair nor reasonable to expect securities experts to
deduce the prevailing wind on public policy issues that have yet to
be addressed by Congress in any decisive fashion.'').
\155\ See, e.g., Julian Velasco, The Fundamental Rights of the
Shareholder, 40 U.C. Davis L. Rev 407 (2006), available at <a href="https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1314&context=law_faculty_scholarship">https://scholarship.law.nd.edu/cgi/viewcontent.cgi?article=1314&context=law_faculty_scholarship</a> (noting
that the right to elect directors is a fundamental right of
shareholders); 8 Del. C. section 109(a) (``the power to adopt, amend
or repeal bylaws shall be in the stockholders entitled to vote.'').
\156\ See Albert H. Choi et al., Contractarian Theory and
Unilateral Bylaw Amendments, 104:1 Iowa L. Rev 1, 36 (2018),
available at <a href="https://ssrn.com/abstract=3024873">https://ssrn.com/abstract=3024873</a> (stating that under
both the MBCA and DGCL, the shareholders' right to amend bylaws
cannot be restricted).
\157\ See, e.g., supra note 100.
\158\ See supra section II.A.1.c.
\159\ See Fidelity Union Trust Co. v. Field, 311 U.S. 169, 177
(1940). Decisions by courts, not the Commission, provide precedent
that proponents and companies may appropriately rely on going
forward.
---------------------------------------------------------------------------
The continued existence of a Federal rule governing shareholder
proposals--even one that purports facially to defer to State law--
encourages companies and shareholders to look to the Commission to
resolve ambiguities in the application of such rule. Moreover, because
the Commission has authority to bring actions to enforce compliance
with the proxy rules, including Rule 14a-8, companies inevitably turn
to the Commission and its staff for guidance on the application of the
Federal rule.\160\ As a result of the foregoing, State authorities who
are the appropriate bodies to resolve corporate governance matters may
have little incentive or occasion to provide clarity on the role of
shareholder proposals. This dynamic is reflected in the fact that, with
the recent exception of Texas,\161\ no State has adopted legislation
governing shareholder proposals in more than 80 years since Rule 14a-8
was first adopted, and we are not aware of any companies that have
incorporated their own framework for addressing shareholder proposals
into their governing documents.\162\ Under the proposed rescission of
Rule 14a-8, the Commission would continue to oversee the Federal proxy
process but would no longer determine which shareholder proposals must
be presented to shareholders through a company's proxy materials.
Removing the Commission from the shareholder proposal process would
ensure that the appropriate bodies--i.e., State legislatures, courts,
and, when permitted by relevant State law, companies--determine the
circumstances under which proposals should be included in a company's
proxy materials.
---------------------------------------------------------------------------
\160\ As discussed in section IV.B.3.a, during the 2022-2025
period, companies submitted 1,073 no-action requests to the
Commission to exclude shareholder proposals submitted under Rule
14a-8 (corresponding to 33 percent of all proposal submissions).
\161\ See Tex. Bus. Orgs. Code Ann. section 21.373 (for eligible
publicly traded companies that opt in, requiring a shareholder or
group of shareholders to hold a minimum amount of a company's
securities for a minimum amount of time, and to solicit a minimum
percentage of shares entitled to vote on the proposal, in order to
submit a matter for a shareholder vote).
\162\ We are, however, aware of a small number of companies that
have recently opted into Tex. Bus. Orgs. Code Ann. section 21.373.
---------------------------------------------------------------------------
iii. The Presence of a Federal Rule Has Inhibited the Development of
State Law and Private Ordering
Although States can enact laws determining the appropriate role of
shareholder proposals and establishing whether and to what extent
shareholders have access to company proxy materials for their
proposals, they have largely declined to do so. As discussed above,
Rule 14a-8 was not intended to displace State law; rather, it was
originally designed to facilitate State law rights through a Federal
disclosure and proxy solicitation framework.\163\ Although the rule has
evolved over time in ways that stray from this original intent, a
remnant of this principle remains in Rule 14a-8(i)(1), which expressly
permits companies to exclude proposals that are ``not a proper subject
for action by shareholders under the laws of the jurisdiction of the
company's organization.'' \164\ Accordingly, where State law sets forth
standards governing which proposals may be presented for a vote of
shareholders, a proposal not meeting those standards is excludable
under Rule 14a-8(i)(1) as ``not a proper subject for action by
shareholders.'' \165\ Similarly, if permitted by State law, companies
can adopt standards in their governing documents, such as establishing
company-specific ownership thresholds for presenting proposals for
shareholder action or limits on the types of proposals that may be
presented, and a proposal not complying with those requirements could
be excluded under Rule 14a-8(i)(1).\166\ For example, if State law or a
company's governing documents (if permitted by State law) were to
disallow precatory shareholder proposals, then a company may exclude
such precatory proposals pursuant to Rule 14a-8(i)(1).
---------------------------------------------------------------------------
\163\ See section II.A.1.a.
\164\ 17 CFR 240.14a-8(i)(1).
\165\ See Shareholder Proposals Relating to the Election of
Directors, Release No. 34-56914 (Dec. 6, 2007) [72 FR 70450 (Dec.
11, 2007)] (``With respect to subjects and procedures for
shareholder votes, most state corporation laws provide that a
corporation's charter or bylaws can specify the types of proposals
that are permitted to be brought before the shareholders for a vote
at an annual or special meeting. Rule 14a-8(i)(1) supports these
determinations by providing that a proposal that is not a proper
subject for action by shareholders under the laws of the
jurisdiction of the corporation's organization may be excluded from
the corporation's proxy materials.''); see also Shareholder
Proposals Relating to the Election of Directors, Release No. 34-
56161 (July 27, 2007) [72 FR 43488, 43490 (Aug. 3, 2007)] (same).
\166\ See supra notes 161 and 162.
---------------------------------------------------------------------------
Although current Rule 14a-8(i)(1) accommodates the ability of
States and their domiciled companies to tailor the shareholder proposal
process to reflect their own views about the optimal approach to
corporate governance and the particular circumstances of the company
and its shareholders, States and companies have, with one notable
exception, generally declined to exercise this authority to date.\167\
This reluctance may stem from concerns that adopting standards that
deviate from those in Rule 14a-8 could bring unwanted public attention
and criticism from investors and other parties. In this regard, State
authorities may be disinclined to undertake politically contentious
decisions and companies may fear that adopting such standards could
lead to accusations of disenfranchising shareholders, trigger organized
investor campaigns, and/or
[[Page 59918]]
result in voting recommendations against board nominees by proxy
advisory firms. Indeed, simply being singled out as insufficiently
responsive to a perceived shareholder right could impose reputational
costs for companies.\168\ Despite the capacity of States to enact laws
and companies to engage in private ordering under Rule 14a-8(i)(1),
there have been only limited efforts to tailor the modern shareholder
proposal regime.\169\
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\167\ But see supra notes 161 and 162. We also note that
companies have sought to exclude shareholder proposals based on
limitations in their governing documents about what matters
shareholders may vote on. See, e.g., Senior Hous. Props. Tr., SEC
Staff No-Action Letter, 2019 WL 530450 (Mar. 13, 2019) (agreeing
with the company that a proposal could be omitted from the proxy
statement under 17 CFR 240.14a-8(b), which, among other things,
requires a proponent to hold ``securities to be entitled to vote on
the proposal,'' because the company's governing documents limited
the matters shareholders could vote on and the proposal dealt with a
matter that was not within the enumerated list of matters as to
which shareholders were entitled to vote on); RAIT Financial Trust,
SEC Staff No-Action Letter, 2017 WL 373305 (Mar. 20, 2017)
(similar); Scripps Networks Interactive, Inc., SEC Staff No-Action
Letter, 2016 WL 390053 (Jan. 14, 2016) (agreeing with exclusion of a
proposal where the company had multiple classes of stock and the
proponent owned a class of common shares that were not entitled to
vote on the proposal).
\168\ See Manesh 2024 (``The risk of political backlash,
resistance among investors, and other practical considerations may
lead some, perhaps most, companies to leave shareholder proposal
rights untouched.'').
\169\ See supra note 161 and accompanying text.
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In addition, despite prior Commission statements to the
contrary,\170\ some uncertainty may exist as to whether States and
companies can establish shareholder proposal standards that differ from
those set forth in Rule 14a-8.\171\ Part of this uncertainty may stem
from an early judicial decision--SEC v. Transamerica Corp.\172\--which
some have interpreted as holding that Rule 14a-8 preempts State law and
privately ordered procedures governing the submission of shareholder
proposals.\173\ Rescinding Rule 14a-8 would eliminate any implication
of preemption stemming from Transamerica or otherwise and thus remove
that potential disincentive for States to develop their own laws
governing shareholder proposals. To the extent some believe that Rule
14a-8 currently preempts State law, we expect that if the rule were
rescinded, States and/or companies, in compliance with State law, would
be more inclined to adopt their own standards for when shareholder
proposals must be included in, or may be excluded from, the company's
proxy materials.
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\170\ See supra note 165; but see 1982 Proposing Release. By
proposing, in the 1982 Proposing Release, a new rule that would have
allowed companies and their shareholders to establish customized
requirements for submitting and including shareholder proposals in
the company's proxy materials--subject to shareholder approval,
periodic reapproval, and potentially certain minimum ownership and
other requirements--the Commission may have suggested that the
Federal rule preempts State law.
\171\ See, e.g., Elizabeth Ising, Ronald Mueller & Julia
Lapitskaya, Considerations for Shareholder Proposals in a Post-
Rule14a-8 World, Harv. L. Sch. F. Corp. Governance (June 15, 2026),
available at <a href="https://corpgov.law.harvard.edu/2026/06/15/considerations-for-shareholder-proposals-in-a-post-rule-14a-8-world/#10">https://corpgov.law.harvard.edu/2026/06/15/considerations-for-shareholder-proposals-in-a-post-rule-14a-8-world/#10</a> (``As Rule 14a-8 has increasingly contained provisions that are
not reflected in state corporate laws, it has become unclear whether
and to what extent Rule 14a-8 preempts state law.'').
\172\ 163 F.2d 511 (3d Cir. 1947).
\173\ See, e.g., Jill Fisch, The Transamerica Case, The Iconic
Cases in Corporate Law (Jonathan Macey, ed. 2008) (stating that the
court ``concluded that any issuer-specific limitations on the
shareholder voting power conferred by [Rule 14a-8] were improper'').
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Finally, we note that, to the extent State law or a company's
governing documents were to require inclusion of a shareholder proposal
in a company's proxy statement, the company would be required to comply
with the Commission's proxy rules with respect to that proposal.
c. Retaining Rule 14a-8 Is Unwarranted and Unlikely To Avoid Unintended
Consequences
Even if the Commission had authority to retain some version of Rule
14a-8, doing so would require the Commission to establish certain
baseline assumptions, such as whether shareholder proposals should, by
default, be included in or excluded from a company's proxy materials.
Whatever default rule the Commission were to select--inclusion or
exclusion--would establish the starting point for how disputes are
resolved. The rule also would have to articulate what a company or a
shareholder must do to opt out of the default. In doing so, the rule
necessarily would advantage one side over the other by shaping the
burdens of persuasion and the practical likelihood of success. Such a
structural choice, even if made with the intention of neutrality, would
have the practical effect of shaping how companies and shareholders
interact, negotiate, and ultimately view the costs and utility of the
shareholder proposal process.
Even if the Commission could attempt to amend the rule to
completely defer to State law, in practice we do not believe such an
alternative would address our fundamental concern about the
Commission's entanglement in State law issues. So long as a Federal
rule remains, experience has shown that parties will continue to look
to that rule--and the Commission--to resolve questions about the
inclusion of shareholder proposals in a company's proxy materials given
the greater uniformity offered by a Federal framework and
notwithstanding the fact that State law determines the proper scope of
a shareholder's power to present a proposal to their fellow
shareholders for a vote.\174\ The history of Rule 14a-8 underscores
this dynamic as, over time, the Federal rule has become the primary
reference for determining the scope, operation, and limits of
shareholder proposals, effectively displacing the authority of State
law notwithstanding the Commission's disclaimers of any intention to do
so. Thus, even if the Commission had the authority to retain a version
of Rule 14a-8--with the clear intention of deferring to State law--over
time it would inevitably be drawn into matters that should be left to
States or private ordering.
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\174\ See supra note 102.
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In addition, we do not believe that retaining such a version of
Rule 14a-8 would be warranted. We expect that total rescission of the
rule would lead the States and/or (where authorized by State law)
companies to be more inclined to adopt their own standards in this
area. State courts are the proper venue to resolve any disputes that
may arise directly based on State law and the terms of corporate
governance documents, without need for a Federal rule that would itself
necessarily incorporate State law (and risk overriding it).
Accordingly, we believe it is prudent for the Commission to defer to
States and companies to determine if, and under what circumstances,
shareholder proposals must be included in company proxy materials.\175\
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\175\ To the extent the Commission has previously suggested that
the mere omission of a shareholder proposal from a company's proxy
materials could render those materials materially false or
misleading in the absence of a rule like Rule 14a-8, we disagree.
Cf. Statement of Chairman Purcell (``The proxy statement purports to
tell the stockholders everything that is going to be taken up at the
meeting. The management knew [shareholder] proposals were going to
be taken up at the meeting. It knew that it intended to oppose them.
Any [proxy] statement which did not include those proposals and the
position of the management was obviously misleading, because the
soliciting material purported to tell the stockholders everything
that is going to be taken up at a meeting that management knew
about.''). The omission of a shareholder proposal from a company's
proxy materials or the failure to disclose that it will be
considered at the meeting is generally not, without more, materially
false or misleading. Cf. Heinze v. Tesco Corp., 971 F.3d 475 (5th
Cir. 2020) (rejecting a pure-omissions theory under Rule 14a-9); cf.
also Basic v. Levinson, 485 U.S. 224, 239, n.17 (1988) (``Silence,
absent a duty to disclose, is not misleading under Rule 10b-5.'');
Macquarie Infrastructure Corp. v. Moab Partners LP, 601 U.S. 257,
266 (2024) (holding that pure omissions are not actionable under
Rule 10b-5(b)). There could, however, be situations where the
failure to disclose a shareholder proposal could be false and
misleading under the circumstances. If, for example, management were
to state that it was unaware of any other business to come before
the meeting when it had in fact been advised that a shareholder
intended to present a matter, such statement may be materially false
and misleading in the context of soliciting discretionary voting
authority for such matter.
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3. Investment Company Considerations
Section 20(a) of the Investment Company Act includes substantially
the same language as section 14(a) but relates to proxies, consents, or
authorizations in respect of any security issued by registered
investment companies. The Commission has used the authority under
section 20(a) of the
[[Page 59919]]
Investment Company Act to adopt a rule that requires any proxy,
consent, or authorization with respect to any security issued by a
registered investment company to comply with the rules and regulations
adopted pursuant to section 14(a) of the Exchange Act.\176\ As a
result, registered investment companies are subject to Rule 14a-8
regardless of whether they have a class of equity securities registered
under section 12 of the Exchange Act.
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\176\ 17 CFR 270.20a-1.
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We are proposing to rescind Rule 14a-8 for all companies, including
registered investment companies and business development companies
\177\ (together, ``regulated funds''). We recognize that the regulatory
framework for regulated funds is different from that of other companies
that have a class of equity securities registered under section 12 of
the Exchange Act (``operating companies''). In particular, the
Investment Company Act provides regulated fund shareholders with voting
rights that are independent of State law corporate governance
provisions.\178\ For example, section 18(i) of the Investment Company
Act requires that, with limited exceptions, every share of investment
company stock must ``be a voting stock and have equal voting rights
with every other outstanding voting stock.'' \179\ In addition, several
provisions of the Investment Company Act require shareholder approval
by vote on matters such as changes to an investment company's
fundamental investment policies, approval of an investment company's
advisory contract, or certain director elections.\180\ Moreover, any
investment advisory agreement with a regulated fund must provide that
it may be terminated at any time by vote of a majority of the
outstanding voting securities.\181\
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\177\ Business development companies are a category of closed-
end investment company that do not register under the Investment
Company Act but rather elect to be subject to the provisions of
sections 55 through 65 of the Investment Company Act. See section
2(a)(48) of the Investment Company Act [15 U.S.C. 80a-2(a)(48)].
\178\ See New Germany Fund, SEC No-Action Letter (May 8, 1998)
(the Commission declined to provide a no-action position with
respect to a fund's request to exclude a shareholder proposal to
terminate the fund's advisory agreement based on the argument that
State law vested in the board exclusive authority to terminate the
agreement and noted that ``Section 15(a)(3) of the [Investment
Company] Act confers independent authority on the Fund's
shareholders to terminate the Fund's investment advisory agreement
at any time'').
\179\ 15 U.S.C. 80a-18(i). See also 15 U.S.C. 80a-18(a)
(providing an exception for specific voting rights of holders of any
senior security of a closed-end fund that is stock, e.g., preferred
stock).
\180\ See, e.g., 15 U.S.C. 80a-13, 80a-15, 80a-16. Business
development companies are subject to some of these shareholder
voting requirements to the same extent as registered investment
companies and have some separate shareholder voting requirements
under the Investment Company Act. See, e.g., 15 U.S.C. 80a-57, 80a-
58.
\181\ 15 U.S.C. 80a-15(a), 80a-58 (applying section 15(a) to a
business development company to the same extent as if it were a
registered closed-end investment company).
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The proposed rescission of Rule 14a-8 would not affect the status
or applicability of these statutory voting rights.\182\ The fact that
Congress established voting rights in these instances, however, does
not alter the scope of the Commission's authority over the solicitation
of proxies.\183\ While section 20(a) of the Investment Company Act,
like section 14(a) of the Exchange Act, provides authority to regulate
the proxy solicitation process, section 20(a) does not empower the
Commission to expand upon or restrict the scope of shareholder voting
rights.\184\ By establishing standards for when a shareholder proposal
must be included in, or may be excluded from, a company's proxy
materials that are neither grounded in State law nor authorized by
other statutory provisions, Rule 14a-8 effectively dictates the scope
of shareholder voting rights at regulated funds. Thus, Rule 14a-8
exceeds the scope of the Commission's authority to regulate the proxy
solicitation process with respect to regulated funds just as with
respect to operating companies.
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\182\ For example, following any rescission of Rule 14a-8,
proponents wishing to terminate an advisory agreement would remain
free to present a proposal to that effect at a meeting of
shareholders or conduct an independent proxy solicitation with
respect to such a proposal.
\183\ Indeed, the fact that Congress mandated certain voting
rights for shareholders of regulated funds under the Investment
Company Act only underscores that when Congress intends to intervene
in corporate governance matters, it does so expressly.
\184\ For the avoidance of doubt, this release addresses the
scope of the Commission's authority to regulate the proxy
solicitation process under section 14(a) of the Exchange Act and
section 20(a) of the Investment Company Act. It does not relate to
or address the scope of any other authorities available to the
Commission under those statutes.
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Apart from legal authority considerations, we recognize that
regulated funds' experiences with shareholder proposals differ in some
respects compared to operating companies. For example, regulated funds
generally receive fewer shareholder proposals than other types of
companies and, on average, the shareholder proposals that regulated
funds receive gain higher levels of shareholder support.\185\ In
addition, open-end investment companies and unlisted closed-end
investment companies generally do not hold shareholder meetings
annually, reducing the likelihood of shareholder proposals in proxy
materials in any given year for these companies. While these
considerations may mean that including shareholder proposals in proxy
materials may be less costly for regulated funds than for other types
of companies, we also understand that general costs associated with
proxy solicitations may be different for regulated funds than for other
types of companies. For example, obtaining sufficient votes on
regulated fund proxy matters can present challenges because these funds
often have diffuse, retail-oriented shareholder bases.\186\ Given the
unique considerations that apply with respect to the proxy process for
regulated funds, we are soliciting comment below on whether to take a
different approach to shareholder proposals for these funds.
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\185\ See infra section IV.B.3.a.
\186\ See, e.g., Confronting Growing Burden of Fund Proxy
Campaigns, Investment Company Institute (Mar. 2026), available at
<a href="https://www.ici.org/system/files/2026-03/26-confronting-growing-burden-fund-proxy-campaigns.pdf">https://www.ici.org/system/files/2026-03/26-confronting-growing-burden-fund-proxy-campaigns.pdf</a>.
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Request for Comment
1. Should Rule 14a-8 be rescinded as proposed? Why or why not? Are
there alternative approaches within the scope of the Commission's
authority we should consider that would adequately address our policy
concerns with respect to Rule 14a-8?
2. Do companies and proponents have reliance interests in Rule 14a-
8 that should be considered? If so, what are those interests and how
can we balance the need to address the Commission's authority concerns
with the potential effects on affected parties?
3. To what extent have the original justifications for adopting
Rule 14a-8 been or not been substantiated in practice given the
evolution of the shareholder proposal process?
4. To what extent have costs to registrants associated with Rule
14a-8 (such as the costs of addressing and including shareholder
proposals), the volume of shareholder proposals, and the degree of
shareholder support changed since the adoption of Rule 14a-8?
5. As discussed above, in many cases, State law is unclear or
silent as to whether particular types of proposals, including precatory
proposals, are proper subjects for action by shareholders in a given
jurisdiction. Is this an accurate assessment of the current status of
State law as it pertains to shareholder proposals? Are there any
additional observations or analyses regarding State law that we should
consider?
[[Page 59920]]
6. To what extent have recent developments, including the
potentially lower burdens of independent solicitation campaigns and the
emergence of alternative shareholder engagement channels, weakened the
original justifications for a Federal shareholder proposal rule? To
what extent have costs to proponents associated with conducting an
independent solicitation changed since the adoption of Rule 14a-8?
7. As discussed above, Rule 14a-8 has had certain unintended
consequences, such as becoming a mechanism for influencing interactions
between companies and their shareholders and potentially inhibiting the
development of State law and private ordering. Are there alternatives
to full rescission within the Commission's authority that would avoid
these unintended consequences? If so, how could the Commission retain a
Federal rule on shareholder proposals without becoming entangled in
State law issues?
8. If Rule 14a-8 is rescinded as proposed, would States and, where
authorized by State law, companies be more likely to set their own
standards and requirements regarding shareholder proposals? If so, what
would be the advantages and disadvantages? If not, what would be the
advantages and disadvantages?
9. If Rule 14a-8 is rescinded, what are the most likely forms of
State and private ordering that would develop? For example, would
States adopt uniform standards applicable to all companies organized in
their jurisdiction, or would they instead enable companies to establish
their own standards? If the latter, would a market-wide standard likely
develop or would companies largely adopt their own individual
standards?
10. What impact would rescission of Rule 14a-8 together with the
proposed amendments to Rule 14a-4 (described in section II.B, below)
have on shareholders and shareholder voting rights under State law?
11. If the Commission rescinds Rule 14a-8 as proposed, should the
Commission provide guidance regarding any other relevant rules adopted
pursuant to section 14? If so, which rules?
12. Would rescinding Rule 14a-8 have different effects on regulated
funds and their shareholders than it would on other companies and
shareholders?
13. Should we rescind Rule 14a-8, including for regulated funds, as
proposed, or should we take a different approach to shareholder
proposals for regulated funds? For example, should we adopt a new rule
under the Investment Company Act that addresses inclusion in regulated
funds' proxy materials of shareholder proposals relating to matters on
which the Investment Company Act provides shareholder voting rights? If
so, are there additional requirements or conditions that should be
included in such a rule that would be within the scope of our authority
to regulate the proxy solicitation process?
B. Proposed Amendments to Rule 14a-4(c)
1. Overview of Current Rules Related to Discretionary Voting Authority
Historically, few shareholders of companies with a class of equity
securities registered under the Exchange Act attend shareholder
meetings to vote in person. Instead, the most common way by which
shareholders learn about matters to be voted on at a shareholder
meeting and vote on such matters is through the proxy process.\187\
State corporate law generally authorizes the use of proxies to permit
shareholders to vote through a representative without attending the
shareholder meeting.\188\ Parties soliciting proxy authority to vote
Exchange Act-registered securities on behalf of shareholders entitled
to vote at the meeting must comply with the Federal proxy rules
pursuant to section 14 of the Exchange Act.\189\
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\187\ See supra note 8.
\188\ See, e.g., 8 Del. C. section 212(b) (``Each stockholder
entitled to vote at a meeting of stockholders . . . may authorize
another person or persons to act for such stockholder by proxy . . .
.''); Model Bus. Corp. Act section 7.22(a) (``A shareholder may vote
the shareholder's shares in person or by proxy.'').
\189\ 15 U.S.C. 78n(a).
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Currently, the Federal proxy rules provide shareholders two methods
to present proposals for consideration by company shareholders voting
by proxy at a shareholder meeting. First, a shareholder may seek
inclusion of its proposal in the company's proxy materials in
accordance with Rule 14a-8.\190\ Second, a shareholder may submit its
proposal to the company pursuant to the company's governing documents
\191\ and conduct its own proxy solicitation for its proposal, at the
shareholder's expense, using its own proxy materials.
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\190\ See supra section II.A.
\191\ State law generally requires that, where a company has
advance notice bylaw provisions, a proposal comply with those
provisions. Advance notice bylaws generally provide procedural and
informational requirements that shareholders must satisfy to submit
valid director nominations or other proposals at a shareholder
meeting, outside of the processes associated with Rule 14a-8 and
proxy access bylaws. Advance notice bylaws generally require a
shareholder who intends to nominate a director or make a proposal at
a shareholder meeting to provide certain information to the company
about itself, its director nominees, and its proposals within a
specified period of time in advance of the meeting.
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The company has two means to vote shares represented by proxies it
receives from shareholders on a given matter, including a shareholder
proposal. The company may seek direct voting authority for a proposal
included in the company's proxy statement and form of proxy (i.e.,
proxy card), in which case the company would receive direction as to
how to vote on the proposal from the selection made (e.g., ``for'' or
``against'' the proposal) by shareholders on their proxy cards.
Alternatively, the company may seek discretionary voting authority (as
further explained below) with respect to a proposal omitted from the
company's proxy statement and proxy card in the limited circumstances
where a company is allowed to do so under the current proxy rules, in
which case the company would be authorized to exercise its discretion
to determine how to vote on the proposal.
Current Rule 14a-4 addresses when a proxy card submitted by a
shareholder may confer discretionary voting authority on the proxy
holder.\192\ Discretionary voting authority under Rule 14a-4(c) is the
proxy holder's power to vote on behalf of a shareholder with respect to
a matter that is not included on the proxy card.\193\ A company may
omit from its proxy card a shareholder proposal presented by means
other than Rule 14a-8 \194\ and may vote the shares represented by
proxies the company receives against the proposal if, under Rule 14a-
4(c), the proposal is a matter on which a proxy may confer
discretionary voting authority. Current 17 CFR 240.14a-4(c)(1) (``Rule
14a-4(c)(1)'') permits a company to exercise discretionary voting
authority at an annual meeting to
[[Page 59921]]
vote the shares represented by proxies with respect to matters for
which the company did not receive timely notice, provided a specific
statement to that effect is made in the company's proxy statement or
form of proxy.\195\ Current 17 CFR 240.14a-4(c)(2) (``Rule 14a-
4(c)(2)'') permits a company to exercise discretionary voting authority
at an annual meeting with respect to matters for which the company has
received timely notice, provided the company includes, in its proxy
statement, ``advice'' \196\ on the nature of the matter and how the
company intends to exercise its discretion to vote on each matter.
Currently, however, a company may not exercise discretionary voting
authority under Rule 14a-4(c)(2) if the shareholder proponent does the
following: (i) notifies the company on a timely basis in accordance
with the rule that it intends to send its own proxy materials to
holders of at least the percentage of the company's voting shares
required under applicable law to carry the proposal; \197\ (ii)
includes the same statement in its own proxy materials; \198\ and (iii)
provides evidence to the company that it has in fact solicited the
holders of at least the percentage of voting shares required to carry
the proposal.\199\
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\192\ See 17 CFR 240.14a-4.
\193\ See 17 CFR 240.14a-4(c). This authority differs from
broker discretionary authority, which relates to the ability of
brokers to vote uninstructed shares held in ``street name'' (i.e.,
held in the name of the bank, broker, or other intermediary on
behalf of the shareholder), generally regarding routine matters on
the proxy card. See New York Stock Exchange Rule 452. Discretionary
voting authority under Rule 14a-4(c) also differs from discretionary
authority under 17 CFR 240.14a-4(b)(1) (``Rule 14a-4(b)(1)''),
pursuant to which a company (or soliciting shareholder, as the case
may be) receives the power to vote on behalf of a shareholder
because the shareholder has submitted a signed proxy card without
specifying a choice regarding one or more proposals listed on the
card.
\194\ By ``means other than Rule 14a-8,'' ``other than through
Rule 14a-8,'' or ``outside of the Rule 14a-8 process,'' we mean,
generally, proposals that are submitted pursuant to the advance
notice provisions of a company's governing documents and are a
proper subject for shareholder action under applicable State law,
and that a shareholder intends to present for a vote at the
shareholder meeting but does not expressly request that the company
include in the company's proxy materials.
\195\ Rule 14a-4(c)(1) provides that a company has not received
timely notice if the company did not have notice of the matter at
least 45 days before the date on which the company first sent its
proxy materials for the prior year's annual meeting of shareholders
(or the date specified by an applicable advance notice provision in
the company's bylaws). In addition, if during the prior year the
company did not hold an annual meeting, or if the date of the
meeting has changed more than 30 days from the prior year, then
notice is not sufficient if the company has not received it a
``reasonable time'' before the company sends its proxy materials for
the current year. See 17 CFR 240.14a-4(c)(1).
\196\ ``Advice'' as currently used in the rule means that a
company must provide brief disclosure regarding the nature of the
proposal.
\197\ See 17 CFR 240.14a-4(c)(2)(i).
\198\ See 17 CFR 240.14a-4(c)(2)(ii).
\199\ See 17 CFR 240.14a-4(c)(2)(iii).
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17 CFR 240.14a-4(c)(3) (``Rule 14a-4(c)(3)'') through 17 CFR
240.14a-4(c)(7) (``Rule 14a-4(c)(7)'') set forth additional matters on
which a proxy may confer discretionary voting authority. These consist
of:
<bullet> for solicitations by the company related to special
meetings, or for solicitations by persons other than the company
related to annual or special meetings, matters which the persons making
the solicitation do not know, a ``reasonable time'' before the
solicitation, are to be presented at the meeting, if a specific
statement to that effect is made in the proxy statement or form of
proxy; \200\
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\200\ See 17 CFR 240.14a-4(c)(3).
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<bullet> approval of the minutes of the prior meeting if such
approval does not amount to ratification of the action taken at that
meeting; \201\
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\201\ See 17 CFR 240.14a-4(c)(4).
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<bullet> the election of any person to any office for which a bona
fide nominee is named in a proxy statement and such nominee is unable
to serve or for good cause will not serve; \202\
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\202\ See 17 CFR 240.14a-4(c)(5).
---------------------------------------------------------------------------
<bullet> any proposal omitted from the proxy statement and form of
proxy pursuant to Rule 14a-8 or 17 CFR 240.14a-9 (``Rule 14a-9'');
\203\ and
---------------------------------------------------------------------------
\203\ See 17 CFR 240.14a-4(c)(6). Rule 14a-9 prohibits the
solicitation of proxies by means of materially false or misleading
statements or omissions.
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<bullet> matters incident to the conduct of the meeting.\204\
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\204\ See 17 CFR 240.14a-4(c)(7).
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2. Historical Background
Beginning in 1948, the Commission has sought to balance flexibility
for companies with shareholder protection by adopting amendments to the
rules governing discretionary voting authority, with amendments often
related to the determination of when a company has received sufficient
notice of a shareholder's proposal.\205\ Nonetheless, there have been
numerous disputes between companies and shareholder proponents, often
involving Commission staff as well, regarding the timeliness of
proposals, particularly in the period leading up to, and into, the
1990s.\206\ Under Rule 14a-4 as it existed at that time, a company
could not exercise discretionary voting authority on matters known to
the company a ``reasonable time'' before its solicitation.\207\
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\205\ See Solicitation of Proxies, Release No. 4185 (Nov. 5,
1948) [13 FR 6678 (Nov. 13, 1948)]; see also, e.g., Amendments to
Rules on Shareholder Proposals, Release No. 34-39093 (Sept. 18,
1997) [62 FR 50682, 50692-50693 (Sept. 26, 1997)] (``1997 Proposing
Release'') (highlighting (i) companies' interest in avoiding
potential delay and expense when they are notified of proposals
after they have begun to print or even mail proxy materials to
shareholders; (ii) shareholders' interest in having some control
over companies' discretionary voting authority on matters for which
the company received adequate notice, meaningful opportunity to
review disclosures in the proxy statement, and sufficient
information to make informed voting decisions; and (iii) companies'
and shareholders' interest in clearer and more predictable ground
rules).
\206\ See, e.g., United Mine Workers of Am., et al. v. Pittston
Co., No. 89-0962, 1989 WL 201060 (D.D.C. Nov. 24, 1989) (finding
that the company did not have discretionary voting authority because
it had received sufficient notice, under Rule 14a-4(c)(1), of a
shareholder's proposals, where the shareholder provided the company
the text of the proposals approximately one month before the
company's annual meeting); see also Larkin v. Baltimore Bancorp, 769
F. Supp. 919, 925 (D.Md. 1991) (noting that Commission staff had
notified a company that the company could not exercise discretionary
voting authority where the company received notice of the
dissident's proposals 12 days before the annual meeting); Union of
Needletrades, Industrial and Textile Employees et al. v. May
Department Stores Company, 26 F. Supp. 2d 577 (S.D.N.Y. 1997).
\207\ At the time, Rule 14a-4(c)(1) provided that ``[a] proxy
may confer discretionary authority to vote with respect to . . .
[m]atters which the persons making the solicitation do not know, a
reasonable time before the solicitation, are to be presented at the
meeting, if a specific statement to that effect is made in the proxy
statement or form of proxy.'' See Proxy and Stockholder Information
Rules, Release No. 34-8206 (Dec. 14, 1967) [32 FR 20960, 20963 (Dec.
29, 1967)].
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With the aim of striking an appropriate balance between the
competing interests involved, the Commission staff, in 1996, expressed
its view in a no-action letter to the Idaho Power Company (the ``Idaho
Power letter'') that it would not object to the exercise of
discretionary voting authority to vote against a timely received
shareholder proposal not subject to Rule 14a-8, so long as the company
advised shareholders about the matter and specified how the shares
would be voted.\208\ The Idaho Power letter also indicated, however,
that in the staff's view a company could not exercise discretionary
voting authority if the proponent delivered a proxy statement and form
of proxy to holders of a majority of the shares entitled to vote on the
matter or, if a greater percentage were required under applicable law
to carry the proposal, holders of the minimum required.
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\208\ See Idaho Power Co., SEC No-Action Letter, 1996 WL 114545
(Mar. 13, 1996); see also Borg-Warner Security Corp., SEC No-Action
Letter, 1996 WL 119943 (Mar. 14, 1996). The statements in staff no-
action letters and any other staff statements or guidance referenced
in this release represent the views of Commission staff. See 17 CFR
202.1(d). Any such staff statements are not a rule, regulation, or
statement of the Commission. Further, the Commission has neither
approved nor disapproved their content. These statements, like all
staff statements, have no legal force or effect; they do not alter
or amend applicable law, and they create no new or additional
obligations for any person. See generally Statement of Informal
Procedures for the Rendering of Staff Advice with Respect to
Shareholder Proposals, Release No. 34-12599 (July 7, 1976) [41 FR
29989 (July 20, 1976)].
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In 1997, the Commission proposed amendments to Rule 14a-4 to
establish that a proposal would be considered timely if it were
received 45 days before the date on which the company first mailed its
proxy materials for the prior year's annual meeting (or otherwise, in
the case of an applicable advance notice bylaw provision).\209\ The
proposed rules also would have permitted companies to exercise
discretionary voting authority on timely received proposals, provided
[[Page 59922]]
companies included in their proxy statements a ``discussion of the
nature'' of the proposals, as well as, on the proxy card, a cross-
reference to this discussion in the proxy statement and a check box to
permit shareholders to prevent the proxy holder from exercising
discretionary voting authority.\210\
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\209\ See 1997 Proposing Release at 50692. The Commission noted
that the availability of discretionary voting authority on proposals
had ``been the subject of litigation and attendant uncertainty.''
\210\ See id. at 50693.
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In 1998, following public comment on the proposed rules, the
Commission declined to adopt the check box concept and instead
effectively adopted the approach set out in the Idaho Power letter,
namely that companies could exercise discretionary voting authority
with respect to timely received proposals, unless, among other matters,
the proponent solicited a sufficient number of shareholders.\211\ The
final rule did, however, retain the proposed 45-day period, or
alternative advance notice deadline, to determine whether a proposal is
timely received.\212\ The Rule 14a-4 framework adopted in 1998
continues to apply today, although, as discussed further below, the
likelihood of companies including shareholder proposals in their proxy
materials even when not required appears to have increased following
the Commission's adoption of the universal proxy rules in 2021.\213\
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\211\ See 1998 Adopting Release at 29110. This provision was
codified--and remains to this day--as Rule 14a-4(c)(2). See section
II.B.3 below for a discussion of why the Commission in 1998
abandoned the check box approach in favor of the Idaho Power
approach, and why we are now once again proposing to adopt the check
box approach.
\212\ This provision was codified--and remains to this day--as
Rule 14a-4(c)(1). We are now proposing clarifying changes to that
rule. See section II.C. below.
\213\ See infra notes 221 through 223 and related text.
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3. Proposed Rule Amendments
As further described below, under the current proxy rules,
companies may feel compelled to include on their proxy cards certain
shareholder proposals received outside of Rule 14a-8, notwithstanding
that the Federal proxy rules (and existing State law) do not require
that they do so. We are proposing amendments to Rule 14a-4(c) that are
intended to address this issue by providing companies with greater
flexibility to seek and obtain discretionary voting authority regarding
such proposals. At the same time, the proposed amendments would provide
shareholders with the means to elect to prevent the company from
exercising such authority with respect to their individual shares.
The proposed amendments to Rule 14a-4(c) are aligned with our
proposed rescission of Rule 14a-8, as companies may receive shareholder
proposals outside of Rule 14a-8 more frequently if Rule 14a-8 is
rescinded, as proposed. As described in more detail below, there are
also independent justifications for the proposed amendments to Rule
14a-4, even if the proposed rescission of Rule14a-8 is not adopted.
We are proposing to amend Rule 14a-4(c)(2) to no longer prohibit a
company from exercising discretionary voting authority with respect to
timely received shareholder proposals submitted outside the Rule 14a-8
process, regardless of whether the shareholder proponent delivers its
own proxy materials to holders of the requisite percentage of the
company's shares necessary to carry the proposal.
Under the proposed amendments, a company would be able to exercise
discretionary voting authority with respect to timely received
shareholder proposals if it includes: (i) in the proxy statement, a
brief description \214\ of the matter (for example, ``a non-binding
proposal from a pension fund that the company adopt a proxy access
bylaw provision''),\215\ and how the company intends to vote through
its exercise of discretionary authority; (ii) on the proxy card, a
cross-reference to the location of this disclosure in the proxy
statement; and (iii) a check box on the proxy card that, if checked by
a shareholder, would prevent the company from exercising its
discretion.\216\ The Commission declined to adopt a check box
requirement in 1998 due, in part, to some commenters' concerns about
potential shareholder confusion.\217\ However, as discussed below, we
believe that these potential concerns are less likely to materialize
under the proposed amendments.
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\214\ Current Rule 14a-4(c)(2) states that registrants must
include, in the proxy statement, ``advice on the nature of the
matter,'' which results in disclosure of a brief description of the
matter. We propose to amend Rule 14a-4(c)(2) to instead state that
registrants must provide ``a brief description of the matter,''
solely for clarity; we do not intend for this proposed amendment to
change the scope of the disclosure that registrants must provide
regarding the proposal.
\215\ Generally, we would expect that such disclosure, without
more, would suffice. As with any disclosures in the proxy statement,
the description would be subject to the antifraud provision in Rule
14a-9.
\216\ The company's description of the proposal, under the
proposed amendments, remains at the discretion of the company. In
addition, Rule 14a-4(c), as proposed to be amended, would not
establish a right of proponents to comment on, or seek revision of,
the description.
\217\ See 1998 Adopting Release at 29110. Other commenters
objected to the check box concept because of concerns that the
availability of the box ``would in effect create a new system for
submitting shareholder proposals without having to comply with the
restrictions under [R]ule 14a-8.'' Id. We do not find such arguments
compelling, given that, unlike shareholders that submit proposals
under the current Rule 14a-8 framework, shareholders that submit
proposals outside of Rule 14a-8 must engage in their own
solicitations, and such proposals are not automatically included on
companies' proxy cards.
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By eliminating the circumstances under which a single shareholder
proponent could effectively prevent a company from seeking and
obtaining discretionary voting authority, the proposed amendments are
intended to provide companies with greater flexibility, and
shareholders with greater agency, regarding the use of discretionary
voting authority for proposals that companies receive outside the Rule
14a-8 process. Under the proposed rules, each shareholder would be able
to prevent the company from exercising discretionary voting authority
on such proposals solely with respect to the proxy card the shareholder
returns to the company, while under the current rules, a single
shareholder proponent (through its satisfaction of the solicitation
threshold under Rule 14a-4(c)) may prevent the company from exercising
discretionary voting authority with respect to all proxy cards that the
company receives.
Under the current rules, when a company is unable to exercise
discretionary voting authority for a shareholder proposal received
outside of the Rule 14a-8 process, the company may determine to include
the proposal in its proxy materials even though it is not required to
do so by our rules, so that the company can seek and exercise proxy
voting authority from shareholders on the proposal.\218\ Otherwise, if
the company were to omit the proposal from its proxy card, the company
would be unable to solicit votes with respect to the proposal on the
company's card.\219\ In those circumstances, the proponent's
solicitation effort may obtain sufficient votes needed to pass the
proposal using the proponent's card.\220\ The shareholder proponent,
who may be soliciting less than all shareholders, thus may be able to
effectively obtain
[[Page 59923]]
inclusion of its proposal on a company's proxy card that is distributed
to all shareholders, thereby benefitting from the company's
solicitation efforts toward all shareholders without having to incur
the full costs associated with such solicitation efforts.
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\218\ See Cydney Posner, A Few Interesting Items from the CCR
Proxy Disclosure Conference, Harv. L. Sch. F. Corp. Governance (Oct.
24, 2024), available at <a href="https://corpgov.law.harvard.edu/2024/10/24/a-few-interesting-items-from-the-ccr-proxy-disclosure-conference/">https://corpgov.law.harvard.edu/2024/10/24/a-few-interesting-items-from-the-ccr-proxy-disclosure-conference/</a>.
\219\ We note that this discussion assumes that the proponent
has satisfied the solicitation threshold and related requirements
set forth in Rule 14a-4(c)(2)(i)-(iii). If the proponent has not
done so, the company may seek and exercise discretionary authority
to vote against the proponent's proposal. See supra notes 197
through 199 and related text.
\220\ The possibility of the proposal passing is more likely if
the proposal is subject to a majority-of-votes-cast standard as
opposed to, for example, a majority-of-shares-outstanding standard.
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If Rule 14a-8 is rescinded, as proposed, more proponents may choose
to conduct their own solicitations, including solicitations of the
requisite percentage of shareholders under current Rule 14a-4(c)(2)
that would prevent a company from exercising discretionary voting
authority on proposals omitted from the company's proxy card. Under
those circumstances, if current Rule 14a-4(c)(2) were to remain in
effect, more companies may feel compelled to include a proponent's
proposals in the company's own proxy materials to obtain proxy voting
authority from shareholders on the proposals, which would perpetuate
the ability of proponents to effectively obtain inclusion of their
proposals on the company's proxy card at the company's expense, even if
Rule 14a-8 is rescinded. As discussed in section II.A, part of the
Commission's goal in proposing to rescind Rule 14a-8 is to leave
decisions about the appropriate role of shareholder proposals in
corporate governance to the States and companies, by reducing the
impact of the Federal proxy rules on these matters. It would be counter
to that goal if another Commission rule (Rule 14a-4(c)) nonetheless
resulted in companies including shareholder proposals in company proxy
materials even when not required under State law or the company's
governing documents.
In addition, the likelihood of companies including shareholder
proposals in their proxy materials even when not required appears to
have increased in recent years following the Commission's adoption of
the universal proxy rules.\221\ Following those amendments, a
proponent, when conducting a proxy solicitation for a shareholder
proposal, can include the company's director nominees on the
proponent's proxy card, even when the proponent does not present its
own competing director nominees (often referred to as a ``zero slate''
campaign).\222\ In these circumstances, if the company does not also
include the proponent's proposals (submitted outside Rule 14a-8) on the
company's proxy card, shareholders may be more likely to use the
proponent's proxy card to vote their shares instead of the company's
proxy card, given that the proponent's card would provide shareholders
the ability to vote on both the company's nominees and the proponent's
proposals. The proposed amendments are intended to address the pressure
companies may feel to include proponent proposals submitted outside
Rule 14a-8 in the companies' own proxy materials following the adoption
of the universal proxy rules.\223\ Under the proposed amendments, a
proponent's proxy card could include the company's nominees, management
proposals, and the proponent's proposals, while the company's card
could solely include the company's nominees and management proposals.
The company could then exercise discretionary voting authority to vote
proxies it receives against the proponent's proposals, other than for
proxy cards the company receives on which shareholders have checked the
proposed box, as described below.\224\
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\221\ See supra notes 94 through 98 and related text.
\222\ When the Commission adopted the universal proxy rules in
2021, 17 CFR 240.14a-4(d)(1) (``Rule 14a-4(d)(1)''), referred to as
the ``bona fide nominee rule,'' was amended to facilitate the use of
universal proxy cards by requiring a director nominee to consent to
being named in any proxy statement for the meeting rather than just
one specific party's proxy statement. See Universal Proxy Release.
\223\ The Commission staff has observed at least three zero
slate campaigns since the universal proxy rules went into effect in
2022, and in each case the company included the proponent's
proposal(s) on the company's proxy card: in 2024, one by the United
Mine Workers of America with respect to Warrior Met Coal, Inc. (the
company supported one of the five non-binding proposals submitted by
the United Mine Workers of America) and another by Starboard Value
with respect to News Corporation; and in 2026, one by Stilwell
Activist Investments, L.P. with respect to Central Plains
Bancshares, Inc. (the company indicated in its proxy statement that
because Stilwell's ``proposal is advisory in nature only, [the
company] would like to use this proposal as an opportunity for our
stockholders to express their views on this subject.''). In
addition, in the 2026 proxy season, at least two separate
proponents--Trillium Asset Management (with respect to BJ's
Wholesale Club Holdings, Inc.) and Communications Workers of America
(with respect to Nexstar Media Group, Inc.)--threatened zero slate
campaigns in an effort to exert pressure on companies. See Meredith
Ervine, Another Proponent Uses Rule 14a-4 for Multiple Proposals,
The Corporate Counsel (May 1, 2026), available at <a href="https://www.thecorporatecounsel.net/blog/2026/05/another-proponent-uses-rule-14a-4-for-multiple-proposals.html">https://www.thecorporatecounsel.net/blog/2026/05/another-proponent-uses-rule-14a-4-for-multiple-proposals.html</a>.
\224\ We expect that, under the proposed amendments, the company
would not feel compelled to include the proponent's proposals on the
company's proxy card, because the company could seek and exercise
discretionary voting authority to vote the proxy cards the company
receives against the proponent's proposals.
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While we are proposing to expand the circumstances under which a
company may seek and exercise discretionary voting authority, we are
also proposing to require a check box on company proxy cards that would
provide shareholders an option to prohibit the company from exercising
discretionary voting authority on proposals omitted from the company's
proxy card. This proposed requirement is intended to increase
shareholders' control with respect to the company's exercise of
discretionary voting authority by allowing shareholders, particularly
those who are not solicited by a proponent, to vote on a company's
proxy card without effectively obligating those shareholders to grant
discretionary authority to the company to vote those shareholders'
shares on matters not included on the card. Without the proposed check
box, simply by voting on a company's card, rather than on a proponent's
card, the shareholder would grant the company discretionary authority
to vote on any matters not included on the company's card. Under those
circumstances, such a shareholder would typically have two choices. One
option would be to vote using the company's proxy card notwithstanding
that the company may use its discretionary authority to vote the
shareholder's shares contrary to the shareholder's wishes on a proposal
omitted from the card. Unless the shareholder is able to attend the
meeting or obtain a proxy card from the proponent, the shareholder's
other option would be to not vote at all.\225\
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\225\ See John C. Coffee, Jr. The Bylaw Battlefield: Can
Institutions Change the Outcome of Corporate Control Contests? 51 U.
Miami L. Rev. 605, 620 (1997) (stating that if a shareholder is not
solicited, ``the public shareholder faces Hobson's Choice: the
shareholder can either grant a proxy to management (knowing that
management will vote against this proposal) or refrain from
voting''); see also J. Robert Brown, Jr., The Proxy Rules and
Restrictions on Shareholder Voting Rights, 47 Seton Hall L. Rev. 45,
79 (2016) (stating that the ``rule allows for the involuntary
transfer of voting rights for proposals known to management well in
advance of the meeting. Shareholders are left with a Hobson's choice
of either conceding the transfer or preventing discretionary
authority by giving up the right to vote'' (internal citations
omitted) (citing Coffee, supra, at 620)).
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In addition, under the current rules, a proponent effectively has
the ability to determine whether the company is prevented from seeking
and exercising discretionary voting authority--on behalf of all
shareholders--with respect to the proponent's proposals, through the
proponent's decision whether to solicit the requisite percentage of
shareholders. The presence of the check box, alongside the absence of a
solicitation threshold under the proposed rules that would restrict the
company's ability to exercise discretionary voting authority, would
shift that agency from the proponent to each individual shareholder to
make that determination on an individual basis.
[[Page 59924]]
In sum, we believe that the check box would appropriately balance
the additional flexibility granted to companies under the proposed
rules with the ability of shareholders to prevent companies from
exercising discretionary voting authority with respect to their shares.
Providing this option is consistent with Congress's intent that section
14(a) and the Federal proxy rules facilitate the exercise of
shareholders' voting rights under State law through the proxy
process.\226\
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\226\ See Statement of Chairman Purcell (``[t]he rights that we
are endeavoring to assure to the stockholders are those rights that
he has traditionally had under State law . . .''); see also H.R.
Rep. No. 1383 at 13, 73 Cong., 2d Sess. (1934) (``Fair corporate
suffrage is an important right that should attach to every equity
security bought on a public exchange.'').
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With respect to concerns that were raised in the past \227\
indicating that a check box might create confusion among shareholders,
we believe that, given the practice of most shareholders to cast their
votes through electronic voting platforms rather than paper proxy
cards,\228\ as well as the resulting shareholder familiarity with
electronic voting platforms and continued advances in the ease of use
of electronic voting platforms, the risk of confusion has been reduced.
In addition, both companies and shareholder proponents could further
mitigate confusion by including clear instructions and disclosure in
their proxy materials. Such instructions and disclosure could address,
for example, the treatment under State law of the proxy cards of a
shareholder voting to approve a shareholder proposal on a proponent's
proxy card and later not marking the check box on the company's card,
thereby allowing the company to exercise discretion to vote against the
shareholder proposal.\229\
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\227\ See 1998 Adopting Release at 29110.
\228\ See Broadridge Financial Solutions, 2025 Proxy Season Key
Stats and Performance Ratings, available at <a href="https://www.broadridge.com/_assets/pdf/2025proxykeystats_report.pdf">https://www.broadridge.com/_assets/pdf/2025proxykeystats_report.pdf</a> (``Over
97% of the voted shares were cast electronically via Broadridge's
secure digital platforms.'').
\229\ We believe that, as a matter of both current technology
and State law, proxy service providers' electronic voting platforms
should be able to accommodate the submission of multiple proxy cards
by the same shareholder and to ensure that non-conflicting
instructions are in fact honored and tabulated across such cards.
---------------------------------------------------------------------------
Proposed Rule 14a-4(c)(2) would require at least a single check
box, regardless of the number of matters subject to discretionary
voting authority under the rule. We are proposing that companies may
use a single check box, as opposed to requiring a check box for each
non-management proposal subject to discretionary voting authority, to
address potential shareholder confusion, as a single check box would
result in a simpler proxy card in situations involving multiple
shareholder proposals. The proposed use of a single check box allows a
company to avoid listing all non-management proposals subject to
discretionary voting authority on the proxy card, which would be
necessary under a multiple-check-box approach and potentially create a
system for effectively providing shareholder proposals access to the
company's proxy card.\230\ However, nothing in the proposed rules would
prevent a company from voluntarily providing multiple check boxes for
multiple non-management proposals subject to discretionary voting
authority, should a company wish to provide shareholders with
additional flexibility.
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\230\ See supra note 217.
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Request for Comment
14. Should we adopt the proposed amendments to Rule 14a-4(c)? Why
or why not?
15. Do the proposed amendments, taken as a whole, strike an
appropriate balance between, on the one hand, guarding against possible
abuse of discretionary voting authority by companies, and, on the other
hand, avoiding the present situation where proponents, as a practical
matter, are often able to obtain inclusion of their proposals in
companies' proxy materials while not fully bearing the costs of
solicitation?
16. If the proposed amendments to Rule 14a-4(c) and the proposed
rescission of Rule 14a-8 are adopted, are there reasons to expect that
a company may continue to voluntarily include, on its own proxy card,
shareholder proposals as to which proponents are conducting their own
solicitation?
17. Under the proposed amendments to Rule 14a-4(c)(2), consistent
with the requirements of the current rule, a company would be able to
exercise discretionary voting authority if, among other things, it
includes in its proxy statement a brief description of the proposal.
Accordingly, a company would not need to disclose the full text of a
non-Rule 14a-8 proposal to exercise discretionary voting authority.
Should we maintain in the proposed amendments the requirement for a
brief description of the proposal? Is the disclosure currently provided
by companies under this requirement appropriate to inform shareholders
about shareholder proposals submitted outside of Rule 14a-8 as to which
the company intends to exercise discretionary voting authority? Would a
brief description provide sufficient information for a shareholder to
assess the company's position on the proposal and to decide whether to
prohibit the company from exercising discretionary voting authority via
the proposed check box or leave the box unmarked thereby permitting the
company to exercise discretionary voting authority? In addition, are
there reasons that we should require companies to identify the specific
source of the proposal as part of the brief description of the
proposal?
18. Should we adopt the check box requirement, as proposed? Why or
why not? Should we instead consider an amendment allowing companies to
exercise discretionary voting authority while not providing
shareholders with the means to elect to prevent the company from
exercising such authority with respect to their individual shares via a
check box? Should the requirement that companies provide the check box
be tied to a particular solicitation threshold being met by the
relevant proponent? Why or why not?
19. Should we consider any modifications to the proposed check box
requirement, or a different mechanism to give shareholders an option to
prevent the company from exercising discretionary voting authority on
matters not included on the proxy card? For example, should the default
rule be that companies do not have discretionary voting authority, and
that shareholders must check a box to elect to grant such authority?
20. We are proposing that companies may use a single check box, as
opposed to requiring a check box for each non-management proposal
subject to discretionary voting authority. As an alternative approach,
should we instead require companies to include a check box for each
non-management proposal subject to discretionary voting authority,
thereby allowing shareholders the option to prevent the company from
exercising its discretion on each such matter on an individualized
basis?
21. Could the proposed check box be confusing to shareholders? What
challenges may occur in implementing the proposed check box requirement
(including shareholders' use of the check box)? How could such
challenges be mitigated?
22. A shareholder that submits a proposal outside of Rule 14a-8 to
a company may not be aware of proposals submitted by other proponents.
Under the current rules, a soliciting shareholder may exercise
discretionary authority to vote the shares represented by proxies it
receives on matters that it
[[Page 59925]]
does not know, a ``reasonable time'' before its solicitation, are to be
presented at the meeting, so long as a specific statement to that
effect is made in the shareholder's proxy statement or form of
proxy.\231\ Given the uncertainty associated with ``a reasonable
time,'' and the potential for this provision (Rule 14a-4(c)(3)) to be
used more frequently in light of the proposed rescission of Rule 14a-8,
should we amend Rule 14a-4(c)(3) to replace ``a reasonable time'' with
a definite length of time, such as three or five business days before
the date on which the shareholder proponent's proxy statement and form
of proxy are first sent or given to shareholders? Why or why not? As
this rule covers both companies in non-annual meeting situations and
shareholders in all situations, would there be reasons to distinguish
between companies and shareholders when it comes to establishing the
appropriate timing requirement?
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[…truncated; see source link]Indexed from Federal Register on September 21, 2026.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.