Shareholder Proposal Reform Must Center on Facts, Not Philosophy

Almost all constituencies in corporate governance—shareholders, directors, and professionals—agree on one thing: The Securities and Exchange Commission’s handling of shareholder proposals isn’t working.

A recent large-scale survey reveals broad dissatisfaction with the agency’s administration of Rule 14a-8, citing unpredictability, opacity, and inconsistent application of standards. That consensus spans groups that otherwise disagree over the legitimacy of certain proposals. The problem isn’t just philosophical polarization—it’s institutional design.

This matters because the SEC is signaling a willingness to reconsider its role under Rule 14a-8. At stake is a fundamental question: Should a federal securities regulator continue to referee disputes that often turn on corporate governance, or should greater responsibility rest with the states that traditionally oversee internal corporate affairs? The debate has gained new salience, yet much of the public discussion remains abstract, dominated by anecdote and ideology. The survey data offer a more grounded starting point.

First, dissatisfaction with the current process is nearly universal. Even those who favor shareholder activism agree that the SEC’s no-action system has for many years been unpredictable and costly. That convergence suggests reform should focus less on proposals’ merits and more on how the process works.

Second, the data distinguish areas of consensus from genuine dispute. Traditional governance proposals—on voting rights, board accountability, or takeover defenses—are widely viewed as legitimate. By contrast, environmental and social proposals provoke sharp disagreement—not only about outcomes but also about the proper scope of shareholder involvement. Yet even here, respondents often agree on underlying principles: materiality, feasibility, and a connection to firm-specific business concerns.

Third, cost asymmetry looms large. Submitting a proposal is cheap; responding can be expensive. That imbalance shapes perceptions of fairness and effectiveness, especially among directors. Whether seen as a necessary feature of shareholder voice or a distortion of incentives, it underscores that Rule 14a-8 now carries consequences well beyond disclosure.

Finally, the system is often misunderstood as shareholder democracy. In reality, most proposals never reach a vote—they’re withdrawn or blocked through no-action relief. Of those that do reach the ballot, most fail. That’s not a flaw; it reflects corporate law’s design. Corporations aren’t democracies but hierarchical institutions where boards exercise plenary authority and shareholders have limited, episodic rights. Federal proxy rules were meant to complement that structure, not replace it.

The survey’s findings give concrete details on what might otherwise sound like an abstract federalism debate. Shareholder proposals increasingly require judgments about authority, fiduciary duty, and the boundaries between shareholder input and board discretion—questions traditionally addressed under state law. Yet the SEC remains responsible for administering a process embedded in federal proxy rules, using tools developed for a disclosure-oriented mandate.

The survey also points to a third option: private ordering. Many respondents favor letting companies set their own rules for shareholder proposals in bylaws and charters, subject to disclosure and fiduciary duties—flexibility long embraced in Delaware law.

The survey doesn’t dictate a single solution. Reasonable observers differ on whether clearer federal standards, greater deference to state law, or some hybrid approach would best improve predictability and legitimacy. But the data make clear that the status quo satisfies few participants and that reform discussions should begin with how the system actually operates rather than caricatures of activism or reflexive defenses of existing arrangements.

If the SEC proceeds with reconsidering its role, it can reframe the debate in practical terms. The question isn’t whether shareholder proposals should exist, but how they should function—and which institutions should make the judgments the system now requires.

Any durable reform, federal or state, must reckon with those realities. The goal should be a process that is predictable, transparent, and aligned with corporate law’s allocation of authority—while enabling private ordering for companies that seek tailored solutions.

Getting this right matters. Shareholder proposals shape corporate priorities, imposing real costs while also offering potential benefits—tradeoffs that remain sharply contested. Reform should start with facts, not philosophies.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Lawrence A. Cunningham is presiding director of the John L. Weinberg Center for Corporate Governance at University of Delaware and Henry St. George Tucker III Professor Emeritus at George Washington University Law School.

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