New SEC shareholder proposal guidance divides business, investor groups

New guidance from the Securities and Exchange Commission will make it easier for public companies to get the greenlight to exclude shareholder proposals on company proxy statements, experts said, but investor and business groups are split on whether that’s a good thing.

“The more you erode shareholder rights, the other options that investors have to get companies’ attention or get attention to the issue that they’re trying to raise is to do more draconian steps like books and records requests, votes against directors (and) lawsuits — things that are costly to both sides,” said Bryan McGannon, managing director at US SIF: The Sustainable Investment Forum, a nonprofit whose members include institutional investors, asset managers and financial advisers.

“Having an engagement and a dialogue is a much better process for both sides than to have a contentious litigation or books and records request or director votes,” McGannon added.

McGannon’s alarm stems from a new piece of guidance issued by the SEC’s division of corporation finance, related to Securities Exchange Act Rule 14a-8, which concerns shareholder proposals.

Shareholders can file proposals before a public company’s annual meeting.

If a company thinks a proposal is out of bounds or has already been addressed, it can file a no-action letter with the SEC, requesting permission not to include the proposal in its proxy statement.

The SEC, now led by acting Chair Mark Uyeda, has reimposed more business-friendly guidance issued during the first Trump administration.

In Staff Legal Bulletin, SLB 14M, published Feb. 12, the SEC said that when determining whether it should grant a company no-action relief, the agency will analyze whether a shareholder proposal affects at least 5% of the company’s total assets, net earnings and gross sales.

Under SLB 14M, the SEC also reinstated three legal bulletins issued during the first Trump administration with language that made it more likely for the SEC to rule in favor of companies seeking no-action relief. With that move, the bulletin correspondingly rescinded a November 2021 bulletin, SLB 14L, promulgated under former SEC Gary Gensler that made it easier for shareholder proposals to make it onto a company’s proxy ballot.

The 2021 bulletin rescinded the Trump-1.0 era guidance and outlined changes in the division's views on what constitutes "ordinary business" and "economic relevance" when it determines whether a shareholder proposal should be excluded from a company's proxy statement.

Charles Crain, managing vice president of policy at the National Association of Manufacturers, is happy with the SEC’s new bulletin because the Biden-era guidance “politicized the proxy process and forced manufacturers to wade into controversial topics that were unrelated to their business.”

According to data from The Conference Board, a not-for-profit think tank, and analytics firm ESGAUGE, SEC staff rejected 108 no-action requests out of 246 submissions in 2022 among Russell 3000 companies (44%), compared with 59 rejections out of 267 submissions in 2021 (22%) before the Biden-era guidance was in place.

The number of shareholder proposals filed to Russell 3000 companies has also risen in recent years — from 798 proposals in 2020 to 1,013 in 2024, according to The Conference Board and ESGAUGE.

Since the Biden-era bulletin took effect, companies saw an “influx” in those politically motivated proposals “and a decrease in the SEC’s willingness to exclude those proposals,” Crain said. “In the absence of 14L, we hope that both of those threats will reverse.”

On the other hand, McGannon said 14L provided all stakeholders with clearer guidelines around the no-action process.

Law firm Gibson Dunn found there were 267 no-action requests submitted to the SEC staff in 2024, representing a submission rate of 29% out of total shareholder proposals filed, up significantly from a submission rate of 20% in 2023 and consistent with a submission rate of 29% in 2022, according to a client alert.

The overall success rate for no-action requests, after dropping to 38% in 2022, continued to rebound in 2024, with a success rate of 68%, compared to a success rate of 58% in 2023, Gibson Dunn found.

Though most companies don’t hold their annual meetings until the spring, many shareholder proposals have already been filed.

As of Feb. 24, 292 no-action requests were submitted by Russell 3000 companies ahead of the 2025 proxy season, of which 37 were granted, nine rejected and 20 withdrawn, according to The Conference Board and ESGAUGE.

In a Feb. 18 letter to the SEC, leaders of investor groups the Interfaith Center on Corporate Responsibility, the Shareholder Rights Group and As You Sow urged the agency not to apply the new bulletin to proposals that have already been filed.

“Applying new guidance to previously submitted proposals would unfairly penalize investors who followed the extant guidance in good faith, believing that they were following the procedures that would lead to clear results, limiting the need for the costly back and forth of the no-action process,” the groups said in their letter.

“To be held to the new guidance after filing shareholder proposals would be a costly and unfair outcome, and would reverse the staff practice of providing timely notice to companies and investors when guidance changes.”

Additionally, US SIF, ICCR and the Shareholder Rights Group on Feb. 24 issued a report in which they argued that shareholder proposals enable investors to safeguard their portfolios and protect the American public by holding corporate boards and management accountable for mismanagement and egregious conduct.

“Shareholder proposals provide value to the marketplace,” McGannon said. “It signals to other investors, even if they’re not filers, to understand the mood of the broader shareholder sentiment through these votes. The shareholder proposal process has improved companies, it has improved governance. It is a valuable piece that informs capital markets and those dialogues that are part of the engagement process are incredibly valuable between investors and companies.”