Governance practices should aim to strengthen the alignment between management’s actions and shareholders’ interests. How can directors lead a company without input from the owners?
The SEC announced on November 17, 2025 that the agency will seemingly not lift a finger to enforce shareholder rights when companies exclude shareholder proposals from proxy materials without express permission from the SEC. Shareholder activists and institutional investors should have seen this coming; on October 9, 2025, Chairman Atkins hinted that his regime would reassess Rule 14a-8. Chairman Atkins warned shareholders that Shareholder Proposal Modernization was coming, and he made good on his promise. Chairman Atkins has expressed his skepticism towards precatory proposals in the past: in 2008, he gave a speech outlining the “abusive use of the shareholder proposal process” by institutional investors. Chairman Atkins’ long held concern is that shareholders are improperly jamming up the 14a-8 Review Team inbox to politicize corporations and bully boards to bend to their will.
Despite this recent development, there are good reasons for corporations to think twice before excluding proposals based on nothing more than an “unqualified representation that the company has a reasonable basis to exclude.”
Both proponents and boards are in uncharted territory. Federal law and Delaware law are apparently both silent on the validity of precatory proposals. Kyle Pinder, a partner at Morris, Nichols, Arsht & Tunnell LLP in Wilmington, DE, and Chairman Atkins’ Rule 14a-8 modernization muse, warned corporations against hasty action. (Chairman Atkins cited Pinder’s article in his October 9th address, using Pinder’s reframing of precatory proposals as a springboard for his subsequent analysis.) “Fortune does not favor the bold when it comes to governance reforms and governance innovation for public companies.” In this case, one possible source of relevant misfortune could be lawsuits filed against corporations that attempt to restrict a shareholder right.
Potential litigation is not the only risk corporations face if they hastily exclude shareholder proposals. There are at least three more distinct risks.
First, individual directors risk unwanted attention if shareholders lose the right to submit precatory proposals. Shareholders have an inviolable statutory right to vote for the board of directors; if the gentle parenting precatory proposals are ignored, shareholders’ proverbial gloves will come off and directors themselves will likely face heightened scrutiny.
Second, excluding shareholders precatory proposals may prompt them to seek cumbersome regulation of public companies at the federal level. “Gagging institutional investors from attempting to exercise their state law rights will, in the long run, just generate frustration and fuel appeals for more federal ‘solutions.’” In short, aggressive exclusion today risks inviting aggressive regulation tomorrow.
Third, corporations risk Streisand Effect-ing valid criticisms into the public eye if they exclude too many shareholder proposals. For example, if a precatory shareholder proposal submits an inquiry related to child labor, and the board excludes the proposal based on little more than unqualified claims of “reasonableness,” the corporation risks highlighting the very issue they are seeking to shield from the public.
We recognize the concerns about precatory proposals having become overly politicized. Some precatory proposals likely do constitute a misuse of the Rule 14a-8 process. However, as Stefan Padfield, Executive Director of the Free Enterprise Project at the National Center for Public Policy Research, recently argued, “Corporate politicization . . . is largely an inside job.” Muzzling shareholders will not depoliticize boardrooms; it will instead entrench ideological leanings and even further embed politicized spending.
Finally, corporate democracy is supposed to be noisy. Directors and shareholders each have separate rights and duties, and engagement between boards and shareholders arguably promotes meaningful change and higher ROI. Governance practices should aim to strengthen the alignment between management’s actions and shareholders’ interests. How can directors lead a company without input from the owners? “Shareholder engagement . . . is the proverbial ‘canary in the coal mine’ for understanding investor concerns.” Shareholders have the right to advocate for their interests, and this right is not grounded in Rule 14a-8. Rather, the shareholder franchise is established in case law, and boards may not burden that right without a compelling justification.
In the interest of full disclosure, I work for the National Center for Public Policy Research as part of its Free Enterprise Project, and we file shareholder proposals.
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