Upending the shareholder proposal landscape

On February 11, the SEC’s Division of Corporation Finance (Division) staff issued guidance stating that a shareholder conditioning support for director nominees on the issuer’s adoption of certain recommendations or voting policies may lose passive investor status and therefore cannot rely on short-form Schedule 13G. On February 12, SEC staff issued new guidance rescinding earlier guidance that facilitated inclusion of a broader range of shareholder proposals in proxy materials by limiting exclusion grounds. The updated guidance restores the Rule 14a-8 requirement that proposals show a clear nexus to the company’s core business. Accordingly, companies are again allowed to exclude shareholder proposals where they either lack significant economic impact or deal with everyday business decisions best left to management. 

On June 12, the Commission withdrew a proposed rule that would have revised several substantive bases for proposal exclusions and would have required more rigorous justification for companies to exclude certain shareholder proposals from their proxy statements. On July 1, the DC Circuit Court of Appeals affirmed the 2024 DC district court decision confirming that proxy advisory firms are not “solicitors” under Section 14(a) of the Exchange Act. This case came after the SEC in 2020 amended Rule 14a-1 under the Exchange Act to include proxy voting advice, such as that provided by proxy advisor firms Institutional Shareholder Services and Glass, Lewis & Co. (Glass Lewis), within the meaning of “solicitation” and, therefore, subject to proxy rules. 

On September 15, SEC staff issued no-action relief to Exxon Mobil Corporation regarding the company’s proposed retail voting program that would allow retail shareholders to issue standing voting instructions to have their votes automatically cast in line with the board’s recommendations.

On October 9, SEC Chair Atkins indicated that the SEC may take a stance against non-binding shareholder proposals. In a keynote address, Chair Atkins stated that under Delaware law, “there is no fundamental right . . . for a company’s shareholders to vote on precatory proposals,” referring to proposals drafted as recommendations or suggestions rather than binding directives. He challenged the presumption that precatory proposals are a proper subject under state law. Atkins questioned these proposals as being material to the company’s business. Atkins also questioned whether shareholders should be able to require these types of proposals at little or no expense to the shareholder and suggested a re-evaluation of this “fundamental premise” in Rule 14a 8. On November 14, Chair Atkins further commented that the SEC intends to address potential issues pertaining to the role proxy advisory companies play in the corporate governance system. In a related move, on October 15, Glass Lewis announced that it will discontinue its standard proxy-voting guidelines in 2027 and shift clients to customized frameworks aligned with their own investment philosophies and stewardship priorities. 

More recently, on November 17, the Division announced that for the 2025-2026 proxy season, it will not respond to no-action requests regarding exclusions under Rule 14a-8, except for those which concern proposals not proper under state law. The SEC’s Division of Investment Management, which handles Rule 14a-8 requests for investment companies, will follow a substantially similar process to that outlined below. Attributable in part to resource constraints and the volume of higher priority filings following the recent extended federal government shutdown, and ample SEC guidance available to companies, the change allows companies to rely on their own judgment when excluding proposals without SEC involvement. While companies must still notify the SEC and proponents at least 80 calendar days before filing a definitive proxy statement, staff will not provide substantive responses (except for requests concerning proposals not proper under state law), so notices will be informational only. If a company seeks a response, it must include an unqualified representation that it has a reasonable basis for exclusion under Rule 14a-8, prior guidance, or judicial decisions. In such cases, staff will not assess the adequacy of the representation but will issue a letter stating that, based solely on the company’s representation, it will not object to omission. These letters will be made publicly available on the SEC website. The Division also noted that prior decisions, even adverse ones, are not binding, and companies may still form a reasonable basis to exclude similar proposals. Shortly thereafter, on November 19, the Division issued its first response under this new approach, stating that based solely on the company’s representation that the company has a reasonable basis to exclude the proposal, it would not object.

These changes are likely to make this year’s proxy season particularly challenging. As companies prepare for upcoming shareholder meetings, they should remain mindful of these developments, and management will need to carefully analyze the new positions to determine the best response. Looking ahead, we expect the regulatory landscape to continue to evolve as the SEC appears poised to pursue rulemaking on shareholder proposals and the scope of staff involvement.

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If you have any questions about this Legal Briefing, please feel free to contact any of the attorneys listed or the Eversheds Sutherland attorney with whom you regularly work.