Atkins on Challenges to Non-Binding Shareholder Proposals & DE/TX Law
Summary
SEC Chairman Gary Gensler’s successor, Chair Lynn A. Atkins, delivered a notable address on 9 October signalling a potential shift in how the SEC will treat precatory (non-binding) Rule 14a-8 shareholder proposals. Chair Atkins indicated the SEC staff is likely to defer to Delaware law opinions or Delaware court rulings on whether precatory proposals are a proper subject for shareholder action under state corporate law. If Delaware law were found not to recognise a shareholder right to submit such proposals, companies could seek exclusion of those proposals under Rule 14a-8(i)(1).
The speech effectively invited a Delaware-incorporated company to test the issue via a no-action request supported by a Delaware law opinion. The post outlines the Rule 14a-8(i)(1) framework, notes the longstanding SEC staff presumption that precatory proposals are generally proper, and explains the procedural paths — including SEC certification of a Delaware law question to the Delaware Supreme Court (a route used once previously in CA, Inc. v. AFSCME) — that could resolve the question definitively. Chair Atkins also said Texas corporations that adopt new statutory restrictions on who may submit proposals should have those restrictions respected by the SEC, and he expressed concern about recent Delaware amendments limiting mandatory arbitration and fee shifting for federal securities claims.
Key Points
- Chair Atkins signalled the SEC staff will likely defer to Delaware law opinions or court rulings on whether precatory (non-binding) shareholder proposals are proper under state law.
- If Delaware law is found not to recognise a right to submit precatory proposals, companies could exclude those proposals under Rule 14a-8(i)(1) with a supporting legal opinion.
- The SEC can certify Delaware corporate law questions directly to the Delaware Supreme Court; this route was used previously in CA, Inc. v. AFSCME.
- A competing legal fight is likely: shareholder advocates may supply opposing Delaware law opinions and seek to litigate the issue, possibly with amicus participation.
- If the Delaware Supreme Court rules shareholders have no right to submit precatory proposals, many Delaware companies could obtain opinions enabling broader exclusions — though any ruling’s scope may be limited to specific topics.
- Chair Atkins also indicated the SEC should respect Texas law changes that restrict who can submit proposals and suggested a re-evaluation of Rule 14a-8’s premise that shareholders can force companies to solicit proposals at little cost.
- Chair Atkins criticised recent Delaware amendments that prohibit mandatory arbitration and fee shifting for federal securities claims as counterproductive to retaining Delaware incorporations.
Context and relevance
This issue sits at the intersection of federal proxy rules and state corporate law. Rule 14a-8(i)(1) permits exclusion of proposals that are not proper subjects under a company’s state law, but the SEC historically presumes precatory proposals are proper unless a company demonstrates otherwise. Delaware courts have not squarely decided whether shareholders possess a right to submit precatory proposals; a recent law-review argument says they do not. Chair Atkins’ comments could prompt a test case that clarifies — or fundamentally alters — the availability of precatory shareholder proposals for Delaware companies.
For companies, general counsel and investor-relations teams this could become a frontline governance issue: a favourable ruling for companies would reduce the number of precatory proposals that reach proxy cards; an adverse ruling would preserve the status quo for shareholder proponents. For investor advocates and activists, the outcome could materially affect campaign tactics and the design of proposals.
Why should I read this?
Quick and blunt: if you care about proxy fights, shareholder activism, or how easy it is for investors to get proposals on the ballot, this could change the game. Chair Atkins has basically dared a Delaware company to test the law — which means a big court fight could be coming that will matter to lawyers, companies and activists alike. Read it to know what to expect and where the legal battlegrounds will be.
Author
Punchy take: this is high-stakes governance news. The SEC chair’s invitation makes litigation likely and could produce a watershed Delaware decision. If your role touches proxies, state corporate law or investor engagement, this is not mere noise — it’s a potential rule change by litigation and opinion rather than legislation.
