In this two-part series, we explore recent developments in shareholder proposals and the potential future of such proposals. In Part 1, we explored recent developments in the SEC’s approach to such proposals. In Part 2, we explore how the changes by the SEC’s approach to shareholder proposals raises certain state law issues.
For decades, Securities and Exchange Commission (“SEC”) Rule 14a-8 has provided the federal framework governing shareholder proposals, establishing uniform eligibility requirements, procedural mechanics, and substantive grounds for exclusion. That framework, however, now appears to be receding, as described in Part 1 of this series.
In August 2026, the Division of Corporation Finance (the “Division”) announced it would no longer respond to Rule 14a-8 no-action requests. On September 16, 2026, the SEC formally proposed to rescind Rule 14a-8, with a 60-day public comment period following publication in the Federal Register. In the proposing release, the SEC stated that Rule 14a-8 exceeds its statutory authority and intrudes into matters of state law, and that rescission would leave shareholder-proposal determinations to state law and company governing documents. As SEC Chairman Paul Atkins explained, absent authorization from Congress, the SEC has no authority to determine which matters are a proper subject for a shareholder vote: “This issue of corporate governance must be resolved by the state in which a company domiciles.”
This shift raises significant questions for public companies, boards of directors, and their advisors, and the time to prepare is now.
Rescission Does Not Mean the End of Shareholder Activism
Companies should not assume that rescission of Rule 14a-8 will necessarily result in less shareholder activism. Many companies regularly manage proposals that have little relevance to their core business or operations, and the removal of that particular process may seem like welcome relief. But any celebration is likely premature. Shareholder activism may simply look different going forward, and companies would have less certainty on how best to address proposals outside the established federal framework. For example, due to uncertainty of the handling of shareholder proposals under state law, activists may attempt to force through binding shareholder proposals through bylaw amendments or pivot to “vote no” campaigns against directors to drive change.
Company management may be reluctant to divert resources to evaluating proposals without clear procedural guidelines, and the risk and cost of potential litigation to exclude a shareholder proposal from a proxy statement could drive companies to accommodate activist demands in settlement negotiations. Investors, too, may view the lack of federal oversight over shareholder proposals as a negative development, potentially leading to increased costs and diversion of resources for public companies due to the absence of an orderly process.
For now, companies need to continue to follow Rule 14a-8(j), which requires filing the notice of exclusion of any shareholder proposal with the Commission and the shareholder proponent. Companies that receive a shareholder proposal should continue to evaluate it under the existing Rule 14a-8 parameters and build a record supporting their position.
State Patchwork Could Create New Challenges
If Rule 14a-8 is rescinded, the rights of shareholders to submit proposals will likely depend on the law of the state in which a company is domiciled (i.e., incorporated). But how much shareholder access state law currently provides is unclear. The corporate law of most states contemplates that annual meetings should provide for the election of directors and the transaction of other proper business, but state corporate law also generally vests boards of directors with broad managerial and oversight authority. This creates tension between shareholder rights and board prerogatives.
In September 2025, Texas adopted Section 21.373 of the Texas Business Organizations Code, which provides parameters for when and how shareholders of “nationally listed corporations” may submit matters for a shareholder vote, subject to affirmative election by the corporation, mandatory proxy disclosure, and amendment of organizational documents.
Delaware, by contrast, has not addressed these issues in detail. Although Rule 14a-8 may serve as something of a model act for states developing new legislation, it is also likely that states will take markedly different approaches, and some may not adopt a framework at all.
This presents operational and administrative challenges. Companies and shareholders will face uncertainty in understanding their rights. A choice-of-law problem may also arise: while one would generally expect the laws of a company’s domicile to govern shareholder proposal rights, a state that passes legislation purporting to reach companies merely headquartered within its borders (as Texas has done) could create conflicting regulatory obligations with no clear answer on which set of rules controls.
The competitive implications are equally notable. States that adopt well-structured statutory provisions addressing meaningful ownership and holding period requirements, limiting resubmission and multiple submissions, and confining proposal subject matter to genuine governance concerns could attract companies that have been frequent targets of shareholder proposals to consider reincorporation. Meanwhile, companies organized in states that are slow to address shareholder proposals may become more vulnerable to activist campaigns, as activists may perceive enhanced leverage in negotiations with companies facing an uncertain legal landscape. Chairman Atkins stated that “the proposed rescission of Rule 14a-8 should, if adopted, provide states with both the legal clarity and the motivation to implement their own ideas for a sensible shareholder proposal framework.” Time will tell as to whether states actually do so.
Practical Steps for Boards and Management Teams
Boards of directors should take several concrete steps to position their companies effectively. They should revisit their advance-notice bylaw provisions to ensure they are clear, concise, and provide workable mechanics such as adequate evaluation time and provisions allowing for comprehensive disclosure. Valid advance-notice bylaw provisions should bar the ability of shareholders to raise matters for consideration during the annual meeting (i.e., a “floor proposal”). Clear and reasonable advance-notice provisions adopted on a “clear day” should be favorably viewed in the event of litigation.
Boards should also request regular updates from their advisors on the evolving landscape with respect to shareholder proposals, including developments in federal and state law, trends in shareholder proposal activity, and related litigation.
Finally, meaningful communication and engagement with large shareholders on key governance, risk management, and business initiatives, while being mindful of Regulation FD, should facilitate trust. That trust may prove beneficial for public companies seeking to garner shareholder support with respect to future annual meeting agenda matters in a post-Rule 14a-8 environment. As discussed in Part 1, the federal framework has anchored proxy season for decades, and how it is ultimately replaced at the state level will shape shareholder engagement in the years ahead.
For timely insights and ongoing analysis, stay up to date on the proposed amendments by following Thompson Coburn LLP on LinkedIn and visiting our Public Company Reporting and Corporate Governance page.
