Atkins on Challenges to Non-Binding Shareholder Proposals & DE/TX Law
Summary
SEC Chairman Gurbir S. Grewal Atkins (referred to here as Chairman Atkins) signalled on 9 October that the SEC staff is likely to defer to Delaware law determinations when deciding whether precatory (non-binding) shareholder proposals submitted under Exchange Act Rule 14a-8 are proper subjects for shareholder action. If Delaware law were held not to permit such proposals, companies could seek to exclude them under Rule 14a-8(i)(1) with a supporting Delaware law opinion or via a Delaware court proceeding. Chairman Atkins also indicated similar deference to newly enacted Texas corporate-law restrictions and to limitations in company governing documents. He tied this position to the SEC’s broader regulatory review of Rule 14a-8 and expressed disappointment with recent Delaware amendments limiting arbitration and fee-shifting for federal securities claims.
Key Points
- Chairman Atkins invited Delaware-incorporated companies to test whether precatory shareholder proposals can be excluded under Rule 14a-8(i)(1) by relying on Delaware law opinions or court rulings.
- Rule 14a-8(i)(1) permits exclusion of proposals that are “not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organisation,” but historically the Staff assumes precatory recommendations are proper unless shown otherwise.
- Delaware courts have not directly ruled on shareholders’ rights to introduce precatory proposals; scholarship exists arguing no such right is guaranteed under Delaware law.
- If a company asserts Delaware law in a no-action request, proponents may submit opposing Delaware opinions; the SEC can also certify the legal question to the Delaware Supreme Court under established procedures.
- Certification to the Delaware Supreme Court would likely produce full briefing and argument and could attract multiple intervenors and amici on both sides.
- A Delaware Supreme Court ruling that shareholders lack the right to submit precatory proposals could enable many Delaware companies to exclude these proposals broadly, though the Court might limit its holding by topic or scope.
- Chairman Atkins also suggested the SEC should respect Texas statutory restrictions on shareholder proposals and limitations embedded in company charters or bylaws, but noted the law is unsettled and ultimately courts resolve Rule 14a-8 scope.
- The remarks align with the SEC’s Reg Flex Agenda re-evaluating Rule 14a-8’s presumption that shareholders may force companies to solicit proposals at minimal cost to proponents.
- Atkins criticised recent Delaware changes banning mandatory arbitration and fee-shifting for federal securities claims as counterproductive to retention of incorporations in Delaware.
Context and Relevance
This development sits at the intersection of corporate governance, securities regulation and state corporate law. If the SEC staff follows this course and Delaware (or Texas) law is interpreted to bar precatory proposals, it would materially reduce the volume of Rule 14a-8 proposals appearing in proxy statements and change engagement tactics for activists, investors and corporate boards. Legal teams, governance professionals and investor-relations heads should take note: the move could shift from proxy-season engagement to litigation or state-law opinion strategies.
Why should I read this?
Short version — pay attention. If you work in-house on governance, advise boards, or run investor campaigns, Atkins’ comments could change how shareholder proposals are fought or kept off proxy cards. It’s a potential game-changer for proxy-season strategy and for anyone tracking the balance of power between state corporate law and federal proxy rules.
