The SEC's no-action pause is pushing proxy fights into court

For decades, the shareholder proposal process ran on an assumption: a company that wanted to exclude a resolution could ask the SEC for a no-action letter, and the agency's answer would settle the question without a lawsuit. That assumption is now in doubt. Sustainable Brands, in a June commentary, says the SEC has stopped issuing no-action letters and is weighing major changes to the process.

The letters were guidance, not binding rulings, but they carried practical authority—predictability for companies and investors alike. Without them, behavior changes. Sustainable Brands cites AT&T and PepsiCo, each of which faced shareholder lawsuits after excluding proposals and later settled, agreeing to put the disputed resolutions on their proxy ballots. Disputes that once ended in the no-action channel are increasingly ending up in court.

The easy reading of SEC retrenchment is that it relieves issuers. Sustainable Brands argues the opposite. Weakening the framework does not reduce pressure on companies; it shifts pressure into channels that are harder and more expensive to manage. The commentary warns of more contentious engagement, including aggressive campaigns aimed at directors, and higher litigation risk. If the trend continues, governance disputes could be resolved piecemeal under a company's state of incorporation—a patchwork that trades one uncertainty for another.

Sustainable Brands concedes the current system was imperfect; it evolved through decades of practical use and incremental improvement. But removing the neutral referee does not end the game—it moves it to the courts. The early returns for companies and shareholders are on the docket: fewer no-action letters, more lawsuits.