SEC moves to scrap Rule 14a-8, the rule behind shareholder proposals

The Securities and Exchange Commission, the American stock market regulator, has taken the first formal step towards scrapping Rule 14a-8. The rule is about fifty years old. It lets shareholders put their own proposals into a company’s proxy statement, the booklet a company sends investors before its annual meeting. On Friday, August 28, the agency sent a plan called “Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals” to the White House Office of Management and Budget for review. It also sent changes to Rule 14a-4, which covers how companies ask shareholders to vote. This was reported by ESG Dive, citing the budget office listing that Bloomberg Law found first.

A spokesman for the SEC told Reuters that the commission plans to scrap the rule and let each state decide instead. Chair Paul Atkins has argued for years that the rule goes beyond what the agency is allowed to do and steps on state company law. In July he said the agency was reviewing it as a whole. The ground was prepared on August 14. The SEC’s Division of Corporation Finance said it would stop answering companies that ask permission to leave a proposal out, although companies still have to give eighty days’ notice.

Rule 14a-8 makes it easy to file. An investor who has held $2,000 of stock for long enough can put forward a proposal on climate risk, political donations, board structure or executive pay, and the company has to print it. This has been the main way investors press American companies on environmental and social questions, and it is why companies deal with hundreds of these proposals every spring.

Josh Zinner calls the SEC move an attack on shareholder rights

Investor groups reacted at once. Josh Zinner, chief executive of the Interfaith Center on Corporate Responsibility, called the move “an attack on the fundamental rights of shareholders”. His colleague Tim Smith warned that the rules will now differ from state to state and confuse people. Texas, for example, lets companies demand that a proposal come from someone holding $1 million in shares. A group including Ceres, the US Sustainable Investment Forum and New York State Comptroller Thomas DiNapoli had already asked the SEC to keep most of the rule. They said scrapping it outright would upset a balance that has held for fifty years.

Company secretaries and investor relations teams are not entirely happy either. Broc Romanek, a lawyer at Cooley, expects that shareholders who are shut out will simply vote against directors instead. That is a cruder tool, and boards often find it harder to handle than a proposal that carries no legal force.

Rule 14a-8 still applies through the 2027 meeting season

Review by the budget office comes before a formal proposal and a period for public comments. So the rule will still apply in some form during the 2027 annual meeting season. Two questions matter for companies listed in the United States, including Polish firms with American depositary receipts, which let a foreign company’s shares be traded in New York. One is which state’s law will decide how shareholders get access. The other is whether the loss of a national route pushes campaigners towards the press rather than the shareholder vote.