SEC Chairman Atkins Casts Doubt on the Validity of Precatory Shareholder Proposals

On October 9, 2025, in remarks at the University of Delaware’s Weinberg Center for Corporate Governance, U.S. Securities and Exchange (SEC, or the “Commission”) Chairman Paul S. Atkins spoke of what he described as “three pillars” of his goal to address a decline in IPOs, focusing on ways to de-politicize shareholder meetings and “return their focus to voting on director elections and significant corporate matters,” as well as on reforming the litigation landscape for securities lawsuits to “eliminate frivolous complaints, while maintaining an avenue for shareholders to continue to bring meritorious claims.” The takeaways from these statements are discussed below.

Shareholder Proposals and Rule 14a-8(i)(1)

In addressing challenges of shareholder meetings, Chairman Atkins stated that “[i]n the past few proxy seasons, perhaps nothing has epitomized the politicization of shareholder meetings more than shareholder proposals focused on environmental and social issues.” Chairman Atkins noted that these proposals “generally call for actions that are not binding on the company—referred to as ‘precatory proposals’—and frequently involve issues not material to the company’s business.” Chairman Atkins then expressed a view that precatory proposals may be excludable under Rule 14a-8(i)(1) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Rule 14a-8 provides a mechanism for shareholders to submit proposals to be included in a company’s proxy statement for an annual meeting. The rule also contains a number of bases whereby a company may be able to demonstrate that a proposal should be excluded for a variety of reasons, such as that the proposal would violate the proxy rules or is irrelevant to a company’s business.

Rule 14a-8(i)(1) permits companies to exclude shareholder proposals from proxy statements “[i]f the proposal is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.” In other words, if a proposal is not permissible under state law because it is not a “proper subject” for action by shareholders, Rule 14a-8 permits a company to exclude the proposal from its proxy statement.

What is or is not a “proper subject” is a complicated question, and no-action requests submitted to the staff of the SEC under the basis of Rule 14a-8(i)(1) require an opinion of local counsel to address these matters. In a Note to Rule 14a-8(i)(1), the SEC addressed a distinction between binding and non-binding—or precatory—shareholder proposals:

Depending on the subject matter, some proposals are not considered proper under state law if they would be binding on the company if approved by shareholders. In our experience, most proposals that are cast as recommendations or requests that the board of directors take specified action are proper under state law. Accordingly, we will assume that a proposal drafted as a recommendation or suggestion is proper unless the company demonstrates otherwise.

In his comments, however, Chairman Atkins cast doubt on this assumption. Noting that state law governs whether a proposal is a “proper subject” and that the SEC and its staff’s expertise lies in the federal securities laws, Chairman Atkins stated the SEC must rely on and defer to state law experts as to what is a proper subject for action. Citing a forthcoming law review article that argues precatory proposals are not a proper subject under Delaware law, Chairman Atkins posits that if there is no fundamental right under Delaware law for a company’s shareholders and such right is not explicitly granted in a company’s governing documents, then an argument under Rule 14a8(i)(1) that is supported by an opinion of counsel that a proposal is not a proper subject for shareholder action under Delaware law “should prevail, at least for that company” and that the chairman has “high confidence that the SEC staff will honor this position.”

This statement potentially opens the door for excluding nearly any shareholder proposal submitted to a company if the company obtains a legal opinion that concludes local law does not provide an express right to bring shareholder proposals. No-action relief granted under this basis would represent not only a dramatic shift in the shareholder proposal playing field but also could upend the process entirely.

Chairman Atkins’ statement and its setting seems to invite the Delaware bar to weigh in on this topic. Moreover, the chairman notes that Delaware permits the SEC to certify questions to the state’s highest court for declaratory judgements. Indeed, in 2008 in CA, Inc. v. AFSCME Employees Pension Plan, 953 A.2d 227 (Del. 2008), the Delaware Supreme Court did precisely this on a similar question. In that case, a company received a shareholder proposal that sought the adoption of a mandatory bylaw that would have required the company to reimburse proxy solicitation expenses incurred by an unsuccessful insurgent. The company sought to exclude the proposal on the basis of Rule 14a-8(i)(1), among other arguments, with a supporting legal opinion concluding that the proposal was not a proper subject for shareholder action. The proponent submitted a competing legal opinion from Delaware counsel that concluded that the proposed bylaw was a proper subject, and the SEC asked the Delaware Supreme Court to address the proper application of state law at issue.

In its decision, the Delaware Supreme Court held that (1) the proposal was a proper subject for shareholder action under Delaware law and thus could not be excluded on the basis of Rule 14a-8(i)(1), but also that (2) the proposal was excludable on a different basis. Notably, the Delaware Supreme Court held that the proposal was a proper subject for shareholder action because it related to the process of electing directors, “a subject in which shareholders of Delaware corporations have a legitimate and protected interest.” Thus, it remains an open question of whether a precatory proposal on a non-corporate governance issue would be a proper subject for action under Delaware law.

Private Ordering of Shareholder Proposals

Chairman Atkins also addressed recent developments in Texas law, including a new provision that would require shareholders to own at least $1 million in market value or 3% of a company’s voting shares to submit shareholder proposals, a much higher threshold than required under Rule 14a-8. The chairman expressed a view that private ordering of shareholder proposal requirements should be valid and that Rule 14a-8 should be viewed as expressing “default” standards that apply only if a company declines to establish their own standards. Thus, a company opting into this provision would presumably have a valid basis to exclude a proposal under Rule 14a-8(i)(1) if a proponent failed to meet the holding requirements.

Shareholder Proposal Rulemaking

Chairman Atkins also addressed potential rulemaking relating to shareholder proposals. Noting that “Shareholder Proposal Modernization” is on the SEC’s Reg Flex Agenda, Chairman Atkins stated that he has asked the staff “to evaluate whether the Commission’s original rationale for adopting Rule 14a-8 in 1942 still applies today, especially in light of developments in the proxy solicitation process and shareholder communications generally over the last 80 plus years.”

Securities Litigation Reform

On securities litigation reform, Chairman Atkins expressed “disappointment” with recent amendments to the Delaware General Corporation Law that prohibit mandatory arbitration with respect to federal securities law claims and that extended an existing prohibition on fee-shifting provisions on federal securities law claims.

What does this mean going forward?

Chairman Atkins’ statements represent a potential sea change in the shareholder proposal ecosystem. However, there is significant uncertainty as to how these remarks could affect proposals. While it is possible that a company could obtain no-action relief from the staff that represents a view that all precatory shareholder proposals are an improper subject under state law, it is also possible that the Delaware Supreme Court could hold that Delaware law provides a right for shareholders to submit precatory proposals.

In addition, proxy advisory firms like Institutional Shareholder Services and Glass Lewis have long opposed and penalized individual directors at companies that adopt restrictions on the ability of shareholders to submit proposals. They have also penalized companies for practices that they deem abusive of the shareholder proposal no-action process. These firms might oppose actions to limit the ability of shareholders to bring proposals, which could limit the willingness of companies to test the waters on such novel approaches to exclusion.

Nevertheless, it appears increasingly likely that the shareholder proposal system may see significant changes in 2026 and beyond.