For more than 80 years, shareholders of companies have had the right to put forth proposals or recommendations on a host of issues, urging the company to take specific actions.
The U.S. Securities and Exchange Commission (SEC) Division of intends to gut that rule, known as Rule 14a-8, in a systematic effort to weaken the institutional infrastructure that gives investors the voice to engage directly with companies they own. Such a move would limit the rights of shareholders and hurt the free market built on these very foundations.
No one disputes that the shareholder proposal process can be improved. A relatively small number of investors account for a disproportionate share of proposals, many of which receive little support. The SEC has a legitimate interest in ensuring that Rule 14a-8 serves long-term investors rather than encouraging repetitive or frivolous submissions.
But there is an important difference between improving the process and dismantling it.
In 1934, the U.S. Securities and Exchange Act established the SEC. In 1942, Rule 14a-8 was established by the SEC and has provided an orderly mechanism for shareholders to raise concerns about governance, executive compensation, long-term strategy, and emerging risks. Most proposals never receive majority support. Many are withdrawn before reaching a vote because companies and investors reach an agreement through engagement. That is precisely how the system is supposed to work.
The proposal process functions like a pressure valve. It creates a structured forum for disagreement before conflicts escalate into proxy ballot fights — where all shareholders get the chance to vote on a proposal — or litigation. Recent examples demonstrate what happens when that framework is weakened.
For decades, the SEC’s no-action process allowed disputes over shareholder proposals to be resolved through an administrative process backed by the agency’s expertise. As the commission has retreated from providing substantive no-action guidance, those disputes have increasingly migrated to federal courts. Companies, including PepsiCo and Axon, have found themselves litigating questions that previously would have been resolved more quickly and at lower cost by the SEC.
These cases serve as a warning as to what could come for companies if the proposal process is removed: More litigation, higher costs, and lengthier disputes.
Reducing avenues for shareholder engagement does not eliminate disagreement. It simply changes where disagreements are resolved — and almost always at greater expense for companies, investors, and taxpayers.
SEC Chairman Paul Atkins has argued that the current system gives disproportionate influence on a small number of frequent filers and has described it as a “tyranny of the minority.” The concern about concentrated use of the proposal process deserves consideration. But the solution is to target abuse, not diminish a governance mechanism that has helped improve board accountability, strengthen oversight, and surface material business risks long before they became financial liabilities.
Shareholder proposals have driven the adoption of independent board committees, strengthened executive accountability, prompted action on child safety online, and surfaced material financial risks before they became crises, proof that they work as intended.
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We approach these issues from different perspectives — one of us a Republican former member of Congress, the other focused on sustainable finance and investment, but we agree on this: A government that decides which investor voices are legitimate and then removes the mechanism for the others to be heard is not reducing regulation. It is substituting political judgment for market discipline.
The SEC has every right to improve an 80-year-old rule. But modernization should preserve the principle that has made Rule 14a-8 endure: shareholders deserve a practical, orderly way to engage with the companies they own. Weakening that principle would not make American markets more competitive. It would make them less accountable.
Carlos Curbelo, a Republican, represented Florida’s 26th Congressional District in the U.S. House of Representatives from 2015 to 2019. Steven M. Rothstein is the Chief Program Officer at the sustainability nonprofit advocacy organization Ceres.