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
Meredith just hosted a terrific new Timely Takes Podcast featuring Davis Polk’s Ning Chiu and ExxonMobil’s David Kern on ExxonMobil’s new retail investor voting program. During this 33-minute podcast, Ning and David discussed:
– What led ExxonMobil to create this program and seek no-action relief from the SEC
– The basics of the program, focused on the aspects that were critical to the no-action relief
– The process of getting the program up & running
– Interest in the program and feedback received so far
– Maintaining the program and how investors opt in and out
– The process each year during proxy season
– What other companies should think through if considering a similar program
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
– John Jenkins
According to PwC’s 2025 Annual Corporate Directors Survey, a majority of the public company directors surveyed would like to see at least one of their colleagues voted off the island. This excerpt notes that this sentiment is on the rise, and suggests some of the reasons that may be behind it:
Frustration in the boardroom is mounting, and directors are increasingly acknowledging it. This year’s survey reveals discontent with peer performance is at a record high: 55% of public company directors surveyed believe that at least one of their board colleagues should be replaced, up six percentage points from last year.
This suggests that directors are becoming more candid about underperformance among their peers. It may also reflect a greater understanding that directors are looking for more from each other in today’s dynamic business environment. Indeed, the most common concern fueling this point of view is a lack of meaningful contribution to board discussions.
The survey found 41% of directors who want a colleague to leave said that it was because that person didn’t contribute meaningfully to discussions. When asked to elaborate, those directors’ comments reflected “a broader concern about alignment, engagement and boardroom dynamics.”
Director tenure appears to play a big part in this, with PwC observing that in many cases, directors believe that long tenure may result in diminished performance. Bolstering that conclusion was the fact that 34% of directors who wanted to replace a board member also cited long-tenured directors as contributing to board underperformance.
– John Jenkins
While we’re on the topic of director deadwood, a recent Heidrick & Struggles report highlights the benefits of approaching board refreshment as a strategic discipline. As this excerpt points out, increasing the board’s ability to keep activists at bay is not the least of the benefits associated with a proactive approach to board refreshment:
While being assured of the quality of your leaders for today and tomorrow is the primary reason to prioritize board refreshment, doing so also helps reduce exposure to costly and time-consuming activist campaigns.
So far in 2025, 43% of activist campaigns have targeted board seats, according to one recent report. Though activists have been relatively quiet amid economic uncertainty, many are preparing for a surge in the months ahead. Companies, in turn, are quietly hiring advisers to prepare defenses.
It is important to note that even though public proxy fights are becoming less common, negotiations are still disruptive and expensive. Boards that have failed to demonstrate board refreshment discipline are more vulnerable to activist critique and less able to credibly defend their position.
The report goes on to observe that with research finding that more than 75% of institutional investors see activists as catalysts for change and more than 70% see them as catalysts for accountability, boards that fail to take the intiative when it comes to refreshment “may find their refreshment agenda shaped for them—by others.”
– John Jenkins
Rounding out “Board Governance Day” on TheCorporateCounsel.net Blog, be sure to check out our recent “Timely Takes Podcast” featuring my discussion with governance expert Ralph Ward. In this 26-minute podcast, Ralph and I discussed the following topics:
– Qualities that separate good boards from not-so-good boards
– Preparing boards to address emerging governance issues
– Effective communication between boards and management
– Keys to good board and committee meetings
– The role and dangers of AI tools in the boardroom
– Advice for prospective directors on their due diligence
– Improving interactions between the board and its advisors
– Preparing for unexpected crises
– Some boardroom “hacks” to keep in mind
As always, if you have insights on a securities law, capital markets or corporate governance issue, trend or development that you’d like to share in a podcast, we’d love to hear from you. You can email me and/or Meredith at john@thecorporatecounsel.net or mervine@ccrcorp.com.
– John Jenkins
According to a recent report from The Conference Board, more than seven out of ten S&P 500 companies disclose their use of AI as a risk factor. That’s up from just 12% in 2023. This excerpt from a CFO Dive article on the report highlights some of the specific types of risks that companies are addressing in their disclosures:
Reputational risk is the most widely disclosed issue, at 38%, according to the report. This reflects the potential impact of losing trust in a brand in the case of a service breakdown, mishandling of consumer privacy or a customer-facing tool that fails to deliver.
Cybersecurity risk is cited by 20% of firms. AI increases the attack surface, and companies are also at risk from third-party applications.
Legal and regulatory risks are also a major issue, as state and federal governments have rapidly attempted to set up security guardrails to protect the public, while providing enough support for companies to continue innovation.
We cover SEC disclosure and corporate governance risks here, but if you’re on the front lines of risk management for AI, cyber, and other emerging technologies, be sure to subscribe to our AI Counsel Blog, where we roll up our sleeves and address some of the more granular issues that legal and compliance personnel are confronting when trying to manage the risks of emerging technologies.
– John Jenkins
Morris Nichols’ Kyle Pinder and Cleary’s J.T. Ho and Helena Grannis recently published this article on how to take the next step and implement a retail voting program. The authors note that the first step in the process is making sure a company understands its shareholder base, and then, as this excerpt discusses, determine whether that program will be effective:
Once the size and voting behavior of the retail investor base is understood, companies should consider how effective a retail voting program may be in helping meaningfully improve retail investor engagement over the long term, including participation in voting and potentially to help pass, or pass at higher levels, management proposals, before they decide to adopt such a program. A company with a significant concentration of votes with several large institutional shareholders or high levels of institutional holders may find that the retail program will not substantially impact voting outcomes.
Further, companies will want to consider how much movement there is in their retail investor base. Maintaining an effective program will depend on the company’s ability to have proxies as of a particular record date. If there is significant movement in the retail base throughout the year, the company will need to engage in continual program enrollment, the program may not be as effective as anticipated as a result. Similarly, the program permitted by the SEC requires that retail investors be allowed to opt out of the program at any time and override voting instructions in particular votes, which would allow movement in voting out of a program.
This illustrates a further consideration: companies will need to invest in significant long-term engagement with retail investors to implement, refresh and maintain a program. The platform and communications to get investors to opt in as well as annual reminders may not be insignificant from a process, administrative and, potentially, cost perspective.
Once these two steps are completed, the final two steps are to determine the design of the program and determining how it will be perceived by shareholders. The article offers guidance on both of these issues, noting some specific drafting requirements for the program’s terms that necessary to comply with Delaware law, and the need to engage with shareholders to determine their sentiment toward the program prior to implementing it.
– John Jenkins
The US is considering moving to a semi-annual reporting system for public companies. There’s been a lot of speculation about what will happen if the US eliminates mandatory quarterly reporting, but based on his own country’s experience in scrapping mandatory quarterly reporting, this article from a Swedish financial regulator suggests that the answer might just be nothing:
[I]n 2014 the mandatory requirement was scrapped, in part because coming EU-regulations made it difficult to have quarterly reports mandatory. Also, the debate at that time, a period with very few IPO’s, was that the regulatory burden kept small companies from being listed. The mandatory quarterly requirement therefore had to go.
Trading statement
The half-year report was still mandatory, since Swedish companies are following IFRS. NASDAQ Stockholm also kept a requirement for the companies to issue a full-year (quarterly-like) report within two months of the final day of the year, because the annual report normally arrives late, after approximately four months. Consequently, the first and the third quarter report became voluntary. Companies only had to present a trading statement with very few numbers. However, they had to explain why this report was more useful to investors, than a comprehensive quarterly report.
Absolutely nothing
What happened? Nothing, absolutely nothing. Some companies, very few, changed the name of the Q1 and Q3 report to “quarterly statement”, but in essence the information was the same. (Footnote: The last ten years NASDAQ Stockholm and the unregulated markets in Sweden has been one of the most expansive IPO-markets in the world, so obviously quarterly reporting was not a limitation).
Although it’s a stretch to assume that US public companies will go the way of Sweden’s if mandatory quarterly reporting is eliminated, my guess is that investors will reward those who do continue to provide a steady flow of quarterly information, and that some of the potential downsides to reporting on a semi-annual basis may further encourage many companies to maintain the status quo.
– John Jenkins
I hope you were able to join us on Tuesday for our “2025 Proxy Disclosure Conference” and yesterday for our “22nd Annual Executive Compensation Conference.” Thanks again to all of valued sponsors, terrific speakers, and everyone at CCRcorp who made these events possible!
As always, our 15 panels covered a lot of ground on a wide range of topics over the past two days, and if you found that your notetaking was sometimes unable to keep pace or if you had to miss parts of the conferences, well, as they say on TV – “hey relax guy!” – because archives of the sessions will be available to attendees in the near future.
Attendees should receive an email next week with a link to our 2025 Conference Archives page. Members of TheCorporateCounsel.net, CompensationStandards.com, Section16.com and DealLawyers.com who registered for the conferences can use their existing logins to access the Proxy Disclosure Archives and the Executive Compensation Archives. In order to earn CLE credit for the archived sessions of the 2025 Proxy Disclosure & 22nd Annual Executive Compensation Conferences, you’ll need to follow the instructions outlined in our CLE FAQ page.
The unedited transcripts for the conferences will be added to the archive pages in the near future – and we’ll let you know when they’re up.
Finally, we bid farewell to our 2025 PDEC Conferences with one more quote from Fear and Loathing in Las Vegas:
“Maybe it meant something. Maybe not, in the long run, but no explanation, no mix of words or music or memories can touch that sense of knowing that you were there and alive in that corner of time and the world. Whatever it meant.”
Mahalo from Las Vegas, everybody – and safe travels!
– John Jenkins
Earlier this month, Meredith blogged about some advice that Cicely LaMothe, Deputy Director of Disclosure Operations & former Acting Corp Fin Director had for “digital asset treasury companies,” or DATCos, concerning the disclosures that the Staff expects to see from them. This DLA Piper blog takes a deep dive into the DATCos and addresses a variety of legal and business considerations associated with them. This excerpt reviews the capital markets tools being deployed in support of DATCo strategies:
A broad range of capital market tools is being leveraged to financially engineer DAT strategies, including at-the-market (ATM) offerings, private investments in public equity (PIPE), equity lines of credit (ELOC), convertible notes, warrants, preferred equities, de-SPACs, reverse mergers, and innovative credit facilities linked to staking yields and/or treasury performance.
ATM programs, which allow control over the timing of sales with minimal market impact, enable DATs to target sales when shares are trading at a premium to the treasury token’s net asset value and pause sales when market conditions are not favorable. PIPEs have gained traction among newly public or smaller companies looking to efficiently raise capital for digital asset reserves.
Convertible notes, coupled with derivative structures to help mitigate dilution, have also become attractive instruments, especially for high-growth companies seeking to rapidly scale their digital asset reserves. High demand for DATs in the convertible bond market has recently allowed such companies to negotiate favorable terms, such as zero-interest coupons and high conversion premiums. Companies announcing DAT strategies alongside capital raises have experienced significant stock movement.
The momentum in strategically deploying capital-raising tools for financial engineering is expected to continue throughout 2025.
Other topics covered in the blog include the reasons for institutional investors’ interest in DATCo equities, DATCo trading strategies, corporate governance issues and regulatory developments.
– John Jenkins
