SEC moves shareholder resolution fights to the states

The Securities and Exchange Commission's second pass at shareholder rights arrived Wednesday, and having proposed in late August to give states, rather than the Commission, the final word on which shareholder resolutions reach a proxy, the agency now proposes to eliminate the Notice of Exempt Solicitation entirely, as Net Zero Investor reported. The pair points one way: the rules deciding who may put a resolution to a vote, and who settles the argument when a company leaves one out, are being moved out of Washington.

Paul Atkins framed both items as his own priorities, saying, “The proposals reflect two of my highest regulatory priorities”—naming first “ensuring that the Commission does not improperly intrude into state corporate law when applying the federal securities laws” and second a rulebook update to reflect “developments in market practice and technology.”

On the report's reading, the package raises the bar for investors to propose, access and vote on shareholder resolutions while strengthening the power of boards to ignore them, with the clearest change being venue: a shareholder whose resolution is left out of proxy materials would appeal to a state rather than to the Commission. The late-August plan, as this publication described it earlier this month, replaced SEC no-action review with state-by-state appeals, and Wednesday's addition does not undo that; it subtracts a filing on top of it.

Scale shows in the verb. Atkins calls the first item a rescission of Rule 14a-8, a deletion rather than an amendment, and the report frames the target as a shareholder process that has run for ninety years. Two proposals three weeks apart, both aimed at the machinery rather than the substance of a resolution, is a pace that leaves little room to argue the Commission is tinkering at the edges.

Danielle Fugere, president and chief counsel of As You Sow, put the cost of the venue shift in one sentence: “For a diversified investor, a single national standard would be replaced by up to fifty separate frameworks, most of which do not yet exist, adjudicated in fifty separate court systems at the investor's expense.” She described the result as “fragmentation with a built-in incentive for companies to relocate toward whichever regime offers to silence shareholders.”

Atkins answers that states should compete for corporate domicile, saying, “As we experience an exciting period of increased competition among states for corporate domicile, there is no better time for the Commission to recognise the limits of its authority, relative to state law, for regulating shareholder proposals,” adding that “competition has always been the engine for innovation and progress in America.” The proposed rescission of Rule 14a-8 should, in his account, give states “both the legal clarity and the motivation to implement their own ideas for a sensible shareholder proposal framework.”

Sarah Wilson, chief executive of the proxy research firm Minerva Analytics, disputed the premise, saying, “The SEC's reasoning doesn't stand up to scrutiny,” noting that states have always been free to set their own governance standards and that, on the Commission's own account, only one has used that freedom in eighty years: Texas.

There is an asymmetry in the two arguments that the Commission's framing does not price: states compete for corporate domicile, and domicile is chosen by issuers, while the rules at issue are exercised by holders. Competition over shareholder access therefore runs in one direction, which is the critics' objection stated in market terms rather than political ones.

Wednesday's announcement is the quieter half and, on the mechanics, the harder to unwind, since relocating a decision from the Commission to the states leaves the decision and its paperwork intact, so a later Commission could reclaim the forum without inventing anything new. Deleting a filing is pure subtraction: the obligation stops on adoption, and the coverage does not identify what, if anything, replaces the notice.

Where that notice actually bites is also left open, as the report does not say what it requires, who files it, or what would stand in its place, leaving the operational effect of that half of the package asserted rather than shown. What is shown is a Commission proposing to stop collecting a document, and a filing that stops being collected does not reappear as a state framework later; it simply stops.

Sequencing is where the objection really lands: the Commission is withdrawing a federal forum and a federal filing before any state has written the rules that would receive them, and Wilson's point is that the Commission's own account of eighty years is not evidence that states will move. Against Fugere's count of frameworks that do not yet exist, the burden sits with the Commission to show otherwise. This report does not show it.

For asset owners the change surfaces less in any single vote than in fixed cost: a diversified holder that reads one federal rulebook would need to read as many as fifty, and the natural adaptation is fewer, broader resolutions aimed at the jurisdictions that carry the most holdings, which suggests consolidation among the investors who file. That is an inference from Fugere's arithmetic rather than a claim in the record, but it is the one to price when a governance budget is set for next proxy season.

None of this is an ESG rule, and the Commission has not presented it as one—it is a procedural rulemaking governing how a resolution reaches a ballot, which is why it belongs on a disclosure desk, where reporting rules tell issuers what to put in front of shareholders and the proposal rules determine what shareholders can ask them about. The second lever is the one moving.

The test to watch is not whether the Commission adopts the rescission — Wednesday made the direction plain — but whether any state has a framework standing before the first excluded resolution is appealed to one. The coverage describes no mechanism for that gap, and on the Commission's own count the last eighty years produced a single state willing to fill it.