The U.S. Securities and Exchange Commission (SEC) is set to review significant changes to the shareholder proposal process, as announced by SEC Chair Paul Atkins. These changes may include revisiting rules that require companies to present ESG-related proposals at annual meetings. During a keynote speech at the University of Delaware, Atkins introduced the “Shareholder Proposal Modernization” plan, aiming to shift the focus of shareholder meetings back to voting on director elections and major corporate matters. This initiative is part of a broader strategy to address the decline in the number of listed companies in the United States.
Atkins specifically highlighted ESG-related proposals, noting that they often address issues that are not material to a company’s business but still require substantial management time and financial resources. He remarked, “In the past few proxy seasons, perhaps nothing has epitomized the politicization of shareholder meetings more than shareholder proposals focused on environmental and social issues.”
The proposed modernization includes a re-evaluation of “Rule 14a-8,” established in 1942, which allows shareholders to include proposals in a company’s proxy statement. Atkins has tasked SEC staff with assessing whether the original rationale for this rule remains valid, considering changes in proxy solicitation and shareholder communication over the past 80 years.
While acknowledging that revising the rule will take time, Atkins pointed to a legal pathway under Delaware law, where more than 60% of U.S. public companies are incorporated. This pathway could allow companies to exclude proposals not deemed a “proper subject” for shareholder action from proxy materials, provided they obtain a legal opinion and consult the SEC.
In response to Atkins’ remarks, the sustainable investing organisation Ceres expressed concern, describing his views as potentially undermining the SEC’s investor protection mandate. Andrew Collier, Director of Freedom to Invest at Ceres, emphasized the importance of the shareholder proposal process in safeguarding the retirement savings of millions of Americans. Collier urged the SEC to seek public input before implementing significant policy changes, to ensure that investors can address practical and economic concerns as fiduciaries.
