State Law Takes Center Stage in Shareholder Proposal Debate

Strategic Insights -

U.S. Securities and Exchange Commission (SEC) Chairman Paul Atkins has signaled a shift towards state law playing a greater role in defining shareholders' ability to place proposals on company proxy statements. This development has significant implications for companies and boards as they navigate the evolving shareholder proposal landscape. Chairman Atkins's views, articulated in a recent speech, suggest that state law and Rule 14a-8 under the Exchange Act intersect, permitting companies to exclude non-binding shareholder proposals if they are not a "proper subject" for shareholder action under state law.

The intersection of state law and Rule 14a-8 has been a topic of discussion for some time, with Chairman Atkins advocating for private ordering of proposals under state law nearly two decades ago. However, Chairman Atkins's recent speech has reignited the debate, with implications for companies and boards.

Key Takeaways:

  • Chairman Atkins's speech forecasts an evolving shareholder proposal landscape, with state law playing a more prominent role in governing shareholder proposals.
  • Companies may need to review their advance notice bylaws to understand how they could be used by shareholders to submit proposals, and consider adding procedural guardrails such as ownership thresholds and limitations on the number of proposals.
  • Private ordering through corporate bylaws, such as setting a minimum ownership threshold or ownership requirement, may be a viable option for companies looking to supplement the current guardrails in Rule 14a-8.
  • Companies and boards should exercise patience and flexibility, as it will take time for companies, shareholders, proxy advisors, and states to settle on market-accepted practices.
  • Shareholder proposal landscapes may be influenced by state laws, such as Texas's "opt-in" $1 million ownership threshold, which could set a precedent for other states.
  • Companies may face pressure from shareholders and proxy advisors to explicitly provide a bylaw right to submit Rule 14a-8 proposals, leading to a drop in non-binding proposals submitted under Rule 14a-8.
  • Activist shareholders have proven willing to file their own proxy statements, and it is expected that this tactic will grow in prominence.

Statistics:

  • In 2024, the AFL-CIO submitted five proposals to Warrior Met Coal pursuant to the company's advance notice bylaw, reportedly spending just $15,000 in proxy solicitation costs.
  • Texas has set an "opt-in" $1 million ownership threshold for shareholder proposals, which may become a precedent for other states.
  • $1 million is the proposed ownership threshold as mentioned in the article, which can be used by companies as a reference point to set a similar threshold.
  • Companies that adopt higher ownership thresholds and limitations on the number of proposals may face resistance from activists, however, those that fail to do so risk being overwhelmed by proposals submitted under advance notice bylaws.

Sources:

1. Paul S. Atkins, U.S. Sec. & Exch. Comm'r, Keynote Address at the John L. Weinberg Center for Corporate Governance's 25th Anniversary Gala (October 9, 2025).

2. Paul S. Atkins, U.S. Sec. & Exch. Comm'r, Shareholder Rights, the 2008 Proxy Season, and the Impact of Shareholder Activism, Speech Before the U.S. Chamber of Commerce (July 22, 2008).

3. Mark T. Uyeda, U.S. Sec. & Exch. Comm'r, Remarks at the Society for Corporate Governance 2023 National Conference (June 21, 2023).

4. Kyle Pinder, The Non-Binding Bind: Reframing Precatory Stockholder Proposals under Delaware Law, 15 Mich. Bus. & Entrepreneurial L. Rev. (forthcoming 2026).

5. Jones Day, U.S. Securities and Exchange Commission, and Mondaq Ltd.