In the keynote address yesterday at the John L. Weinberg Center for Corporate Governance’s 25th Anniversary Gala, SEC Chairman Paul Atkins asked a provocative question: “Are precatory proposals a ‘proper subject’ for action by shareholders under Delaware law?” Chairman Atkins cited Kyle Pinder of Morris Nichols and his upcoming paper — and also former Vice Chancellor Leo Strine — for the proposition that there’s no firm basis under Delaware law for a shareholder right to submit non-binding proposals.

After a brief discussion of the history of the SEC’s position on precatory proposals, he dropped this:

Pulling all of this together, if there is no fundamental right under Delaware law for a company’s shareholders to vote on precatory proposals—and the company has not created that right through its governing documents—then one could make an argument that a precatory shareholder proposal submitted to a Delaware company is excludable under paragraph (i)(1) of Rule 14a-8.

If a company makes this argument and seeks the SEC staff’s views, and the company obtains an opinion of counsel that the proposal is not a “proper subject” for shareholder action under Delaware law, this argument should prevail, at least for that company.  I have high confidence that the SEC staff will honor this position.

He also seemed to suggest that the SEC may seek to certify this question to the Delaware Supreme Court for declaratory judgment — highlighting that the Commission has once used this option when Corp Fin was confronted with two conflicting legal opinions on Delaware law:

In 2007, Delaware amended its constitution to give the SEC the ability to certify questions to its highest court for declaratory judgements. So far, the Commission has taken advantage of this tremendous opportunity only once—in June of 2008, shortly before I left the SEC as a Commissioner in my prior tour of duty.  Interestingly, that certification also involved whether a shareholder proposal was a “proper subject” for shareholder action.

The court issued its decision just 20 days after the Commission’s certification. As I stated at the time, I salute the court for its speed in deciding the issue. If the need for the Commission to certify a question to the court arises in the future, I hope that both the agency and the court will continue to benefit from this unique partnership to expeditiously resolve matters of Delaware law that arise in the context of the federal securities laws.

There’s a lot to unpack here — on this topic and others. This Gibson Dunn blog has more.

– Meredith Ervine