In a surprising recent development, the SEC announced that it will no longer be refereeing most shareholder proposals.
Why it matters: The SEC has always played a key part of the shareholder proposal process, since companies could ask the agency to grant “no-action” relief on certain proposals and feel safe excluding them from the proxy.
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Now, the SEC has said it will grant no-action relief only for proposals deemed improper under state law, eliminating guidance on all other exclusion grounds.
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This forces companies into riskier options: include proposals they oppose, exclude them without SEC backing, or head to court.
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Although resource constraints were the excuse, Chair Atkins has made his distaste for the current shareholder proposal process clear. See Commissioner Crenshaw’s scathing rebuttal to the change here.
Yes, but: Companies must still notify the SEC 80 days before their proxy filing if they plan to exclude proposals, but they're largely on their own for substantive decisions.
What's next?
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Investor blowback: Although unlikely, investors could sue companies for aggressively excluding shareholder proposals and “silencing” proponents. They could also turn to corporate campaigns or other methods of pressuring companies.
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State courts become the arena: Delaware and other jurisdictions must now determine whether precatory (nonbinding) proposals are proper shareholder matters.
Reality check: The SEC notes this approach is temporary, until there's sufficient guidance to help companies and proponents make decisions. But the timeline remains unclear – it could continue if staffing and budget constraints limit the staff’s ability to engage.
Bottom line: The proxy season just became far more unpredictable. Consult with legal advisors as soon as possible if you expect to receive shareholder proposals this year.
