The Shareholder Proposal Rule

Under Securities and Exchange Commission (SEC) Rule 14a-8, public companies must include shareholder proposals in their proxy materials, provided proposal sponsors comply with the rule’s eligibility and procedural requirements and the proposals do not fall within certain substantive grounds for exclusion. Shareholder proposals generally involve shareholder recommendations regarding corporate governance or environmental and social (E&S) issues raised by a company’s operations. Rule 14a-8, often called the “shareholder proposal rule,” has long been a source of debate. The rule’s supporters tout it as a key tool in the shareholder rights movement and credit shareholder proposals with spurring valuable corporate governance reforms. Rule 14a-8’s critics argue that many proposals seek to advance social and political agendas unrelated to shareholder value, creating costly distractions for corporate management. The shareholder proposal rule is a component of the federal proxy rules, which require public companies to disclose various information to shareholders when soliciting proxies for shareholder meetings. The SEC has traditionally taken the view that state law allows shareholders to present certain types of proposals for a vote at annual meetings. Shareholder Proposals, 72 Fed. Reg. 43466, 43467 (Aug. 3, 2007). The SEC adopted the shareholder proposal rule in 1942 based on its conclusion that company proxy materials would be materially misleading if they omitted shareholder proposals of which management had notice. Jill E. Fisch, From Legitimacy to Logic: Reconstructing Proxy Regulation, 46 Vand. L. Rev. 1129, 1143–44 (1993). Companies that intend to exclude proposals for non-compliance with Rule 14a-8’s eligibility, procedural, or substantive requirements must notify the SEC and explain the basis for the omission. 17 C.F.R. § 240.14a-8(j)(1) (2025). As a matter of practice, companies file these notifications along with requests for “no-action” letters from SEC staff—i.e., letters stating that SEC staff will not recommend an enforcement action if a company omits a proposal from its proxy materials. While no-action letters are not legally binding on any party, they play a key practical role in determining which proposals proceed to a shareholder vote. As of this writing, the shareholder proposal rule may be approaching an inflection point. In an October 2025 speech, SEC Chairman Paul Atkins signaled a potential departure from the SEC’s long-standing approach to precatory proposals—i.e., proposals that recommend or request that companies take certain actions, as distinct from proposed bylaw amendments. Paul S. Atkins, Keynote Address at the John L. Weinberg Center for Corporate Governance’s 25th Anniversary Gala (Oct. 9, 2025), https://www.sec.gov/newsroom/speeches-statements/atkins-10092025-keynote-address-john-l-weinberg-center-corporate-governances-25th-anniversary-gala. In his speech, Chairman Atkins expressed “high confidence” that SEC staff would grant no-action requests seeking to exclude precatory proposals as improper under Delaware law if such requests are supported by an opinion of counsel. Id. Chairman Atkins went on to announce his support for a “fundamental reassessment” of Rule 14a-8, including the rule’s “fundamental premise that shareholders should be able to force companies to solicit for their proposals” at little or no personal expense. Id. Congress is also considering legislation that would reform various aspects of the shareholder proposal regime, including Rule 14a-8 itself, institutional proxy voting, and the proxy advisor industry.