SEC Proposes Ending Its Federal Shareholder-Proposal Rule

The Securities and Exchange Commission is proposing to rescind Rule 14a-8, the federal rule governing how shareholder proposals enter the proxy process. The agency says the rule goes beyond its statutory authority and intrudes into matters handled under state law. This is a proposal, not a final rule.

Under the proposed rescission, state law and each company's governing documents would determine the role of shareholder proposals. The SEC says several original justifications for the rule have not been substantiated or are less persuasive today. It also says an implication of federal preemption may have discouraged states from developing their own approaches.

A separate change to discretionary proxy voting

The SEC also proposed amendments to Rule 14a-4(c). Those changes would give companies more flexibility and shareholders more control when a company seeks discretionary authority to vote proxies on a proposal.

The communication rules would change too

A second package would modernize the proxy solicitation process. It would remove the delivery deadline for documents incorporated by reference into a proxy statement and end both the requirement and the ability to submit Notices of Exempt Solicitation.

SEC Chairman Paul Atkins described the two releases as an effort to keep federal securities rules within the agency's authority while updating them for current market practice and technology. He said the commission would review public feedback on both proposals before the process moves forward.