The SEC Prepares a Permanent Fix to the Shareholder Proposal Problem

A top priority of Securities and Exchange Commission (SEC) Chairman Paul Atkins is "making initial public offerings (IPOs) great again." The evidence shows (Chamber-Nasdaq report) this is a worthy goal. Since the 1990s, the number of U.S. public companies has declined precipitously, causing the U.S. economy to miss out on significant contributions to economic growth and job creation.

A central pillar of the Make IPOs Great Again agenda is, in Chairman Atkins' words, "de-politicizing shareholder meetings by restoring their focus to significant corporate matters." Public companies have increasingly had to devote significant time and resources during annual proxy seasons to address politicized campaigns – a major distraction for boards and management, while serving as a major disincentive for companies to go public.

Activists have specifically exploited SEC Rule 14a-8 of the Securities Exchange Act to force companies to take public positions on controversial social and political issues that have nothing to do with an underlying business or providing returns for shareholders. SEC Commissioner Mark Uyeda rightly labeled this system as promoting the "tyranny of the minority" at the expense of everyday investors saving for retirement, education, or other major life expenses.

The Chamber has been at the forefront of calling for a major overhaul to the shareholder proposal rules. Our advocacy contributed to incremental reforms adopted by the SEC in 2020. However, we have continued to call for more fundamental changes to Rule 14a-8 that protect against abuse by special interests.

The SEC is expected to release a proposal to rescind Rule 14a-8, thereby reverting the shareholder proposal process back to state law. Thus, whether a company includes a particular proposal with its proxy materials will largely depend upon the laws of the state in which it is incorporated.

A rescission of Rule 14a-8 would also end the pendulum swing of SEC interpretations of Rule 14a-8 that occur as administrations change. To strengthen the SEC’s objective of reverting the shareholder process to state law, the Chamber encourages the SEC to also address activist use of universal proxy that forces companies to include unnecessary shareholder proposals in their proxy materials. 

The SEC should be commended for seeking a permanent fix to these longstanding problems surrounding the shareholder proposal process. The Chamber and our members look forward to commenting on the proposal and working with the SEC as this rulemaking goes forward. 

About the author

Kristen Malinconico

Kristen Malinconico is Executive Director for the U.S. Chamber of Commerce’s Center for Capital Markets Competitiveness. She leads the Center’s portfolios for asset management, derivatives, and fiduciary issues.

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