As I understand it, the SEC has been in the Rule 14a-8 no-action letter business since shortly after the rule was adopted in 1942, so we are entering truly uncharted territory. What will the SEC’s decision to retreat from its historical role as Rule 14a-8’s referee mean for public companies and shareholder proponents?  Nobody knows for sure, but here’s my two cents on some of the potential implications:

Will we see more shareholder proposals excluded?  Yes, but maybe not to the extent that some might expect. With the benefit of favorable recent guidance like SLB 14M and without the prospect of the Staff looking over their shoulder, companies may be inclined to take a more aggressive approach to excluding proposals than in years past. That being said, decisions to exclude proposals won’t be made in a vacuum.

Companies will need to consider how key investors or other constituencies may respond if they are perceived as acting too aggressively to “silence” shareholders. The facts and circumstances surrounding a particular proposal may also enter into the equation.  For example, when dealing with proposals that have the backing of well-financed proponents but that aren’t likely to get much support (like anti-ESG proposals), companies may also decide that fighting their inclusion may not be worth the headaches associated with excluding them.

Will companies seek Corp Fin’s sign-off on exclusions?  Corp Fin’s statement outlines a process by which companies can obtain some cold comfort from the Staff about their decision to exclude a proposal.  Despite Commissioner Crenshaw’s characterization of this process as a “hall pass” permitting companies to exclude shareholder proposals, my guess is that companies may be hesitant to put themselves in the position of making the representation required to obtain this assurance unless the precedent they’re relying upon is bullet-proof. Some decisions might fall into that category, but if you’re dealing with a sophisticated proponent, you may not find a lot of bullet-proof precedent permitting you to exclude that shareholder’s proposal.

I think in many cases that don’t involve the proverbial “no brainer,” a company that excludes a proposal may opt to do so without going through this cold comfort process. I know I’d rather defend a good faith judgment about excludability after the fact than have to deal with a situation where an unqualified representation made to the SEC that “there’s nothing to see here” is being challenged.

Will we see more Rule 14a-8 litigation? From time-to-time, issuers have bypassed the no-action process and filed lawsuits seeking declaratory relief permitting them to exclude a proposal under Rule 14a-8. Will the SEC’s withdrawal from the playing field result in more suits like these? My guess is that we’re unlikely to see much of this kind of litigation. These lawsuits were filed to avoid the Rule 14a-8 no-action process, and there’s less reason to pursue this strategy if that process is unavailable.  Of course, it’s still available in the case of precatory proposals sought to be excluded under Rule 14(a)(8)(i)(1), so I suppose a company that may not be able to provide the kind of opinion the Staff is looking for to exclude that proposal through the no-action process might consider litigation as an alternative.

What about proponents – will they take companies to court to force inclusion?  That seems unlikely in most cases not involving well-financed activist hedge funds (who typically aren’t big users of Rule 14a-8 anyway) and some deep-pocketed members of the anti-ESG crowd. For the most part, the shareholder proposal process has given gadflies & NGOs with limited funding the ability to get proposals on corporate proxy cards relatively inexpensively, and many of those proponents simply don’t have the financial resources to litigate a company’s decision to exclude a proposal.

Will we see more unorthodox strategies from proponents?  I think that’s a sure thing. To quote from Virgil’s Aeneid, “If I cannot move heaven, I will raise hell.” With the Rule 14a-8 process substantially crimped, it seems inevitable that shareholder proponents will turn to alternative ways of getting their messages across.

In the case of sophisticated investors, these might include withhold vote campaigns targeted at chairs of board committees responsible for areas of concern to a proponent. (John Chevedden recently did this at Microsoft after it excluded his proposal). Withhold vote campaigns may be conducted as exempt solicitations, but perhaps we’ll also finally see a few inexpensive “nominal solication” campaigns under the universal proxy rules. We may even see a rise in innovative Rule 14a-8 workarounds, like the “zero slate” campaign first waged by the United Mine Workers in 2024.

Now also might be a good time to dust off your copies of Saul Alinsky’s Rules for Radicals, because companies should probably prepare for a little old fashioned “hell raising.” Along those lines, proponents who feel that they were denied a voice through the Rule 14a-8 process may be inclined to deliver their message through floor proposals at shareholders’ meetings, or through protests at or other disruptions of those meetings or other investor events. I’d also be on the lookout for increased use of social media campaigns targeting company policies and board members.

I’m sure there are a dozen other potential implications of Corp Fin’s decision that I haven’t addressed, including the biggest question of all – is this the beginning of the end for shareholder proposals?

Well, maybe. While we hopefully won’t be dealing with the fallout from another shutdown, the SEC’s staffing constraints are unlikely to improve much over the course of the next several years, so it wouldn’t surprise me at all if its withdrawal from the no-action process extends beyond 2026.  Moreover, if the precatory proposals citadel falls, there isn’t going to be a whole lot left to fight about.

On the other hand, in the immortal words of Sideshow Bob, “You can’t keep the Democrats out of the White House forever!” So, whatever happens over the course of the next few years, we’re unlikely to let our Shareholder Proposals Handbook go out of print.

– John Jenkins