SEC Suspicion of Shareholder Proposals Hurts Corporate Democracy

Olshan litigation counsel Daniel Stone authored an article in Bloomberg Law entitled “SEC Suspicion of Shareholder Proposals Hurts Corporate Democracy.” In the article, Dan examines how the SEC's recent policy shift on shareholder proposals gives companies effectively unrestricted freedom to exclude shareholder proposals during the 2025-2026 proxy season. He highlights that shareholder proposals have evolved from a tool primarily used by social activists to a common mechanism for institutional investors to promote good corporate governance. "The SEC’s new stance reverses the traditional notion that management is accountable to shareholders," Dan writes. "Although Rule 14a-8 proposals are typically non-binding and can't force directors to act, they serve an important purpose: They allow shareholders to give directors guidance on their preferred course of action." He explains that one potential upside of the expected drop in shareholder proposals is that it might provide beneficial insights to help better assess concerns regarding management distraction and costs. For instance, the costs of managing annual meetings with fewer proposals could be compared to annual meeting costs with lots of shareholder proposals. “It will be interesting to see whether the decision to effectively eliminate shareholder proposals leads to closer collaboration between directors and those shareholders with large shareholdings or personal relationships to directors, who can still communicate their managerial preferences to the board with a shareholder vote," Dan says. “With trustworthy information on the actual costs and benefits of shareholder proposals, both sides can have a better educated debate on whether these proposals are a legitimate tool for corporate democracy or a method of harassing corporate boards."