The shareholder proposal rule, Securities Exchange Act Rule 14a-8, has long been heralded as a democratizing tool in corporate governance, allowing shareholders to voice their concerns through inclusion in company proxy materials. While well-intentioned, Rule 14a-8 is no longer fit for purpose. The rule imposes disproportionate costs on issuers, enables misuse by a small group of activists, and distracts boards from their core fiduciary responsibilities. Attempts at reform have failed to address these systemic flaws.
Initially envisioned as a mechanism to enhance shareholder participation, Rule 14a-8 has instead evolved into a tool for a minority of activists to advance agendas often unrelated to the company” financial performance. This evolution has come at a cost: growing procedural complexity, increased compliance burdens, and the diversion of board attention from strategic priorities.
As discussed in two prior posts, the SEC is now considering rescinding the rule:
The SEC Proposes to Scrap the Shareholder Proposal Rule: Part 1
As we have discussed many times here at Bainbridge On Corporations, Securities and Exchange Commission Chairman Paul Atkins has been signalling an interest in modifying and/or rescinding the shareholder proposal rule (Securities Exchange Act Rule 14a-8). The time has finally come.
The SEC Proposes to Scrap the Shareholder Proposal Rule: Part 2
As noted in the prior post, the SEC has proposed rescinding Securities Exchange Act Rule 14a-8 (the shareholder proposal rule).
In the proposing release,1 the SEC posed 13 questions. Many of them overlap.
In this post, I address the following:
“Should Rule 14a-8 be rescinded as proposed?”
“To what extent have costs to registrants associated with Rule 14a-8 (such as the costs of addressing and including shareholder proposals), the volume of shareholder proposals, and the degree of shareholder support changed since the adoption of Rule 14a-8?”
