Five Hundred Words or a Contentious New Landscape: The Corporate Choice on Rule 14a-8

Every U.S. public company now has a decision to make, and not making it is itself a choice.

The Securities and Exchange Commission has proposed to rescind the shareholder proposal rule, Rule 14a-8, in its entirety. The proposal was published in the Federal Register on September 21; comments are due November 20, 2026.

Companies that treat the SEC’s shareholder proposal process as an inconvenience or annoyance may be tempted to welcome its burial. We think that reaction misjudges the importance of the process to company-shareholder relations and the can of worms that eliminating Rule 14a-8 would open.

We are shareholder advocates. We have spent years on the proponent side of this process. We are not going to argue that Rule 14a-8 is perfect. Instead, we caution that the system in place is better for companies and investors than the landscape that would replace it, and that companies have a short window in which to say so.

An Audacious Claim – the Rule is “Unauthorized”

The Commission’s lead argument in the rulemaking is not that Rule 14a-8 has become unwieldy. It is that the Commission never had the power to adopt it. We find this assertion dubious.

The Securities Exchange Act of 1934 authorizes the SEC to prescribe proxy rules necessary for investor protection.[1] Section 14(a) of the Act authorizes the Commission to regulate how proxies are solicited and what must be disclosed, and to set rules in the public interest, intended to safeguard the right of shareholders to make informed decisions on corporate elections and ballot measures, and to prevent proxy abuse in which corporations sought open-ended proxies to vote on ballot items as they chose, including on shareholder proposals.

The shareholder proposal rule the Commission adopted in 1942 has been amended and restructured numerous times – in 1954, 1976, 1983, 1998, and 2020 – and administered and sustained continuously through fourteen presidential administrations. The rule was adopted because shareholder voting with broadly dispersed ownership shifted to proxies, and voting on shareholder proposals cast only on the floor of corporate meetings no longer reflected the sentiment of most shareholders. Absent the rule, the same problem would return: leaving shareholder proposals off the corporate proxy statement disenfranchises most shareholders. Excluding a proposal without a rule circumscribing what must be disclosed also potentially creates a risk of companies being charged with a material omission under the federal securities laws’ antifraud provisions.

The shareholder proposal rule is grounded in a requirement that one may only file proposals for the proxy that would be permissible under state law. The rule goes further to restrict proposals that reach the proxy by imposing additional limits on which proposals qualify for the proxy statement. This provides a regulatory framework that is further protective of the corporate proxy statement as an SEC-regulated document, by establishing additional exclusions for proposals that might otherwise be permissible under state law.

Now, the Commission intends to assert that the rule has been beyond its authority the entire time. That is a remarkable turnabout from the SEC’s own eighty-year practice. Boards weighing whether to speak up should understand that position is legally contestable and leads to disruptive policy outcomes.

What Eighty Years of Calibration Built

The release describes Rule 14a-8 as a federal overlay that accreted without discipline. That is not what the record shows. What the record shows is a screening mechanism, refined by lawyers for issuers and investors across Republican and Democratic administrations, whose function is to put in front of shareholders the proposals that are potentially material — and to keep out the ones that are not.

Consider the tools that exist today, none of which has an analogue in state corporate law.

A relevance test.Rule 14a-8(i)(5) permits exclusion of proposals touching less than five percent of assets, earnings or sales, subject to an exception for matters “otherwise significantly related to the company’s business.” That exception has been litigated and construed — see Lovenheim v. Iroquois Brands, Ltd., 618 F. Supp. 554 (D.D.C. 1985) — and then refined again by staff guidance.

It is a functioning framework that filters out wrongly directed proposals and preserves access for proposals raising concerns a company’s own communications concede are relevant. No state has built anything like it.

A micromanagement doctrine.Rule 14a-8(i)(7) permits exclusion of proposals that micromanage. There has been some work by the Commission and staff to recalibrate how micromanagement is defined, but the idea that proposals should not prescribe in detail what a shareholder wants a company to do remains a sound principle.

Resubmission thresholds.A proposal that fails to attract meaningful support cannot be brought back indefinitely. The Commission’s 2020 amendments raised the resubmission thresholds. Shareholders objected; companies wanted them.

Procedural discipline.Ownership and holding-period requirements, a 500-word limit, one proposal per proponent per meeting, a presentation requirement, and firm deadlines. Every one of these constrains proponents, not companies.

State Law Does Not Have This Balanced Framework

The Release predicts that if rescission goes forward, states and companies will fill the gap. There is no reason to believe that a similarly balanced state-run system will take the place of the long standing shareholder proposal rule. No state law currently requires companies to include shareholder proposals in their proxy materials, and nothing suggests that states or companies can provide the level of balance and investor protection that the federal rule has ensured. The only state law directed specifically at shareholder proposals, enacted by Texas in 2025, points the other way. That law allows Texas-incorporated companies to establish barriers to proposals that would be insurmountable for most shareholder proponents, including a $1 million holding requirement. In contrast, the current SEC rule requires at most $25,000 in shares held for a year.

Congress enacted Section 14(a) in 1934 precisely because state law was not proving adequate to protect shareholder rights in the proxy process. The federal framework was the answer to a state-law gap, not an intrusion into a state-law solution.

State law provides no counterpart to the standards Rule 14a-8 provides. No state has a micromanagement doctrine, relevance rule, resubmission thresholds, or a no-action process that resolves disputes at modest cost without anyone filing a lawsuit. Leaving these questions to boards of directors would also not fill the gap, because boards are not neutral arbiters. A board that disagrees with a proposal has every incentive to find a technical reason to exclude it.

Critically, eighty years of settled practice underpins contracts, investment mandates and fiduciary oversight arrangements built on the assumption that this channel exists. Unwinding the rule unwinds that reliance and channels investor concerns into more disruptive avenues.

The Pressure Does Not Disappear. It Relocates.

In our opinion, a shareholder proposal is the cheapest, most legible, most containable form of shareholder dissent that exists. It arrives months before the meeting. It says exactly what it wants. It is non-binding. It gives the board a quantified reading of investor sentiment on a discrete issue. Remove it, and the sentiment does not evaporate. Instead, it is forced into other channels.

Voting is a fiduciary duty, and the ballot has other lines on it

For many institutions, voting is not optional. The Department of Labor’s 1988 Avon Letter states that “the fiduciary act of managing plan assets which are shares of corporate stock would include the voting of proxies appurtenant to those shares of stock.” The Commission requires advisers under the Investment Advisers Act to vote client proxies in clients’ best interests. As Columbia Law School Professor John Coffee has observed, both agencies agree that fiduciaries must vote and must do so to increase value for beneficiaries.

If a fiduciary cannot express dissatisfaction with a company position on an issue through a proposal, it still must vote. What remains on the card is director elections and say-on-pay. And investors are not required to explain a vote against a director or against a pay package. They simply cast it. The board learns the result and not the reason.

The consequences of that substitution are well documented. Academic work correlates declining director vote totals with director turnover, loss of prominent committee assignments and reduced opportunities to join other boards. “Vote no” campaigns are associated with elevated abnormal CEO turnover. Low say-on-pay support carries similar reputational penalties, and compensation committee members at firms receiving low say-on-pay votes tend to see their own support erode.

The mechanism is already visible

U.S. director approval and say-on-pay ratification generally won comfortable levels of voting support this year. That is not grounds for complacency.

Votes against directors on issues that would be a topic of a shareholder proposal are already in the cards in the U.S. Fiduciary risk management by some of the largest U.S. asset owners includes reserving the right to vote against directors on environmental and social grounds. CalPERS and the New York State Common Retirement Fund have voted against directors over inadequate climate risk oversight. In June 2026 the Florida State Board of Administration — not a fund anyone would call an activist — amended its proxy voting policy on staff advice so that it may vote against directors who fail to provide “decision-useful disclosure on capital commitments and business strategy impacts related to environmental and climate-related matters that are material to long-term shareowner value.”

This season, the governance committee chairs of Chubb and UnitedHealthcare both drew under 90% support after their companies declined to settle litigation over the exclusion of shareholder proposals. The proposals were excluded. The exclusion became a director issue.

The United Kingdom offers a preview of what happens when the proposal channel is blocked. BP’s board blocked a resolution seeking a report on shareholder value under falling oil and gas demand; incoming chair Albert Manifold then received only 82% support and was subsequently ousted by the board. ShareAction’s “vote no” campaign against bank chairs accused of climate backsliding produced significant declines in support for the chairs of HSBC and NatWest and for HSBC’s risk committee chair.

Beyond voting, the absence of a shareholder proposal mechanism would push disputes into litigation: we can expect an increase in fiduciary and misleading disclosure theories built on a board’s refusal to hear from owners. As an example, a recent shareholder derivative suit filed against Alphabet alleged that the board and controlling shareholders violated their fiduciary duties by failing to take steps to protect the company from over $4.5 billion in fines penalties and settlements arising from alleged privacy violations. The suit notes that the company was on notice on these issues, in part, by numerous shareholder proposals filed on the issue. In the future envisioned by the SEC rescission, if such a company had blocked the shareholder proposals from appearing on the proxy in the absence of Rule 14a-8, this might have provided further evidence of failure to heed red flags surfaced by the company’s own investors. A related question is whether boards must tell their D&O carriers that they are rebuffing issues raised by investors that would have been in proposals and that raise potential red flags and litigation risk.

The Legitimating Premise

At stake is the legitimacy of boards and management as agents of investors. When the Supreme Court held in Citizens United v. FEC, 558 U.S. 310 (2010), that corporations may spend treasury funds on political speech, it did not treat that spending power as unconstrained or as belonging to management in its own right. It addressed the obvious objection — that shareholders may not want their money spent that way — by locating the answer in corporate democracy itself. Quoting First National Bank of Boston v. Bellotti, the Court found “little evidence of abuse that cannot be corrected by shareholders through the procedures of corporate democracy.” That holding rests on a premise worth making explicit: management’s authority to deploy corporate funds and speak on shareholders’ behalf is legitimate only because shareholders retain accountability mechanisms sufficient to check that authority after the fact.

Justice Kennedy’s opinion in Citizens United does not treat corporate democracy as a rhetorical flourish; it allows the Court to trust management as shareholders’ agent rather than as a principal answerable to no one. Remove or hollow out the instruments of corporate democracy, such as the shareholder proposal process, one of the few mechanisms through which shareholders can raise concerns and register dissent, and the premise on which Citizens United rests becomes correspondingly weaker: a board’s decisions can no longer be said to be subject to correction through the procedures of corporate democracy on which the Court relied.

For eighty years, the most-used of those procedures has been the shareholder proposal. Indeed, corporate political spending disclosure has been among the most persistently filed proposal subjects in the entire history of the rule. The Supreme Court as recently as 2026 affirmed in National Republican Senatorial Committee v. Federal Election Commission(Docket No. 24-621, 609 U.S. ___, June  30, 2026) that political spending disclosure is a deterrent to corruption.

Rescission does not just close a channel. It withdraws a premise on which a good deal of corporate law and legitimacy currently rests.

What Companies Should Do

Companies can comment to the SEC in opposition to outright rescission. In contrast, companies that still have issues with how the rule is operated might support targeted reform, for instance reducing the discretion of SEC staff in its interpretation of the rules. The SEC could also pursue less harmful alternatives than rescission, for instance, by reducing the subjectivity of some of the substantive bases for exclusion.

In August 2026, Microsoft agreed to maintain its existing shareholder proposal eligibility thresholds for one year, covering the 2027 proxy cycle, in response to a proposal filed by the National Legal and Policy Center, a conservative shareholder advocacy organization. Microsoft’s commitment is modest. It tells the market that the company intends to keep hearing from its owners regardless of how the rulemaking and subsequent litigation challenging it turn out.

A board adopting this posture concedes nothing on the merits of any proposal. It simply declines to let a contested, litigation-bound rulemaking close a door it has kept open for decades.

Choosing the Pathway

We have been on the proponent side of this process for a long time. That is why we want to be clear about what we are not saying. We are not asking companies to embrace all shareholder proposals, or to stop contesting the ones they think are excludable. We are asking them to recognize that the framework, recalibrated through Republican and Democratic administrations, established a reasonably balanced system that serves both constituencies. The alternative is relocation of the same conflicts into forums that are slower, costlier, less predictable, and considerably less kind to boards.

To the companies that see shareholder proposals as a nuisance and may be cheering the end of the federal rule: consider what you’d be giving up. Proposals are an early-warning system, a way for the people who elect your directors to tell you what’s on their minds before it becomes a crisis. A board that listens is rarely surprised, and in the boardroom, fewer surprises is what good governance looks like.