11/20/2025
SEC Steps Away from Shareholder Proposal Review, Creating Uncertainty for Proxy Season
Pensions & Investments (11/20/25) Croce, Brian
Following the SEC’s announcement that it will not act as a referee on requests to exclude shareholder proposals this proxy season, public companies will have more power over the process, but the development isn’t a sure-fire win for the business community, experts said. The change could lead to more chaos this proxy season, and more proposals making it onto proxy statements if companies fear a legal challenge as a result of their decision. “This will bring about certainly some short-term chaos here as people try to figure out the lay of the land,” said David Lynn, a partner in Goodwin Procter’s capital markets group and chair of the firm’s public company advisory practice. Added Cynthia Krus, a partner and co-chair of the global board at law firm Eversheds Sutherland, “I think it’s going to create a lot of confusion and I would say chaos, on how to respond” because the announcement was made during the period when shareholders typically submit proposals to companies. The SEC’s corporation finance division on Nov. 17 cited “resource and timing considerations following the lengthy government shutdown,” and the “large volume of registration statements and other filings requiring prompt staff attention,” as reasons why it will not “respond to no-action requests for, and express no views on, companies’ intended reliance on any basis for exclusion of shareholder proposals.” In a follow-up email, an SEC spokesperson said the decision was made “after thoroughly considering the staff’s role in the shareholder proposal process, staff resources, and timing issues. With over 900 registration statements and many other filings received during the government shutdown, this decision will allow staff to focus on time-sensitive transactional matters including capital formation and investor protection.” Companies that intend to exclude shareholder proposals from their proxy materials must still notify the SEC and proponents no later than 80 calendar days before filing a definitive proxy statement, the SEC noted in its announcement. Bryan McGannon, managing director at US SIF: The Sustainable Investment Forum, a nonprofit whose members include institutional investors, asset managers and financial advisers, said in an email the shareholder proposal process is a critical tool for investors to guard investment value from material risks and to protect the American public from corporate misconduct and egregious behavior. “Taking away the right to have shareholder proposals on the proxy will leave shareholder proponents with only costly and onerous options such as suing the issuers or voting against board directors,” he said. Looking ahead, Krus said she expects the SEC to issue a formal rulemaking on the matter. “I think they want to get out of the shareholder proposal business,” Krus added. The SEC’s latest agenda, unveiled in September, included potential amendments to Rule 14a-8 to “reduce compliance burdens for registrants and account for developments since the rule was last amended.” The Trump administration is also mulling other changes for investors to navigate during proxy season. It’s reportedly considering an executive order aimed at limiting the role of proxy advisory firms Institutional Shareholder Services and Glass Lewis. SEC Chair Paul Atkins has said the proxy firms have too much power over management decisions. Shareholders can file a proposal before a public company's annual meeting and it must be filed at least 120 days before the company's proxy statement was released for the previous year's annual meeting. But if a company thinks a proposal is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the proposal in its proxy statement. There are a host of reasons to exclude a proposal under Securities Exchange Act Rule 14a-8, and it's long been established that the SEC is the go-to referee for companies seeking to exclude a proposal. The business community and Atkins have long called for reducing the influence of activist investors who submit shareholder proposals each proxy season. Atkins in a speech last month in Delaware said he wants to “depoliticize shareholder meetings” as part of a broader effort to entice more companies to go public. In that same speech, Atkins made the case that Delaware state law does not provide shareholders the right to have their proposals addressed by companies. Given Atkins' prior comments, “I don't think that anyone should have seen this as sort of coming out of left field,” Goodwin Procter's Lynn said of the Nov. 17 announcement. Mike Flood, senior vice president of the U.S. Chamber of Commerce's of Center for Capital Markets Competitiveness, was pleased with the SEC's move. “Addressing the costs and politicization of the SEC's shareholder proposal system is a top priority of the Chamber,” he said in a statement. “We welcome (the) announcement and look forward to working with the SEC on permanent reforms to Rule 14a-8 in the coming months.” Investor groups, on the other hand, were displeased. So too was SEC Commissioner Caroline Crenshaw, the commission's lone Democrat. “This announcement is more of a giveaway to issuers than an exercise in resource allocation,” Crenshaw said in a Nov. 17 statement. “And, more directly, it is an act of hostility toward shareholders.” She also called the announcement a Trojan horse. “It cloaks itself in neutrality by expressing that the division will not weigh in on any company's exclusion of shareholder proposals, but then it hands companies a hall pass to do whatever they want,” she added. “It effectively creates unqualified permission for companies to silence investor voices (with 'no objection' from the commission). This is the latest in a parade of actions by this commission that will ring the death knell for corporate governance and shareholder democracy, deny voice to the equity owners of corporations, and elevate management to untouchable status. In a neutral way, of course.” The threat of legal action — shareholders suing companies alleging they've violated Rule 14a-8 by excluding a given proposal — could lead to more companies playing it safe and allowing contentious shareholder proposals to make it onto their proxy ballots, sources said. “If you excluded something, what would happen to your reputation, your stakeholders?” Krus said. “So I think it's going to weigh on management. You could have an opposite effect, which is, you have a lot more shareholder proposals in proxies because nobody wants to have the exposure out there.” Ryan Adams, a public company advisory and governance partner at law firm Morrison & Foerster, said that while the SEC's announcement could be seen as a boon to companies, it's important to think about the policy change in terms of risk management. “Now, companies will have to determine whether they are comfortable excluding proposals without staff concurrence, and there's some litigation risk that comes along with that,” he said. “In the past, we've seen most companies actually hesitant to proceed with excluding proposals without approval of the SEC staff so it's actually quite possible that this action could result in more proposals going to a vote.”
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