For more than eight decades, Rule 14a-8 (the SEC’s shareholder proposal rule) has been both a solvent and an irritant in U.S. corporate governance. The rule sought to ease management’s hold on the agenda of the company-funded proxy process by permitting shareholder-proposed reforms. This shareholder access became a potent democratizing device: a rule-based obligation that U.S. public companies subsidize communication and voting on shareholder initiatives deemed “proper.”
But, from the beginning, there has been a problem: the what, who, and how of “proper.” Rule 14a-8, an SEC rule more amended and revised than any other, has proven a regulatory morass. Eighty-four years after being promulgated in 1942, it has proved to be a failed experiment in merit regulation. It’s time for the SEC to get out of the game of guessing what corporate law deems proper and leave this to the usual norms and methods of state-based corporate law.
Rule 14a-8 was born of New Deal optimism, which sought to reimagine not only the transparency of the post-Great Crash public corporation, but also the functioning of corporate democracy. For its first 50 years, the rule proved a disappointment. Except for two misbegotten shareholder proposals, none received majority shareholder support. At best, the rule served as an outlet — a sort of safety valve — for gadfly shareholders who might otherwise have sought to advance their agenda through the political process.
But the rule became a method of federal censorship. From the start, the SEC took upon itself to decide which proposals deserved to be included in the shareholder-management dialogue by parsing its “ordinary business,” “relevance,” and other merit‑based exclusions—an enterprise that has grown only more untenable as institutional shareholders and environmental, social, governance (and political) proposals have transformed the shareholder‑management dialogue.
Through the 1990s, the SEC showed its ineptitude in attempting to define the topics that were proper for this dialogue. Shareholders promoting social change and governance reform in U.S. public corporations faced a labyrinth of SEC interpretations of what is proper. For example, during the 1960s and 1970s, shareholder proposals on such topics as the manufacturing of napalm, support of Israel during the Arab oil embargo, and the force-feeding of geese served as vehicles for questioning the U.S. corporate conscience. But the SEC and the agency’s staff chose in an almost arbitrary fashion what could be discussed and what not. The agency’s waffling during the Reagan and Clinton administrations on whether employment-equality (now DEI) proposals related to “policy” or “operations” reflected the agency’s cluelessness.
Today, the stakes are higher. The rise of institutional shareholders—mutual funds, public pension funds, asset managers, and international investors—has further exposed how inept the SEC is in deciding what topics are proper for the shareholder-management dialogue, a dialogue that, more than ever, is dynamic and evolving. The advent and dramatic expansion of ESG and political initiatives—which are here to stay—have exposed the SEC’s failure to understand and respond to the sophisticated, evolving nature of this dialogue.
The rule’s archaic merit regulation has been a barrier to a meaningful democratic corporate dialogue. Prior governmental restraint of this dialogue—something the First Amendment eschews—argues for the complete jettisoning of the substantive and process requirements of Rule 14a-8. Instead, the SEC should simply defer, as it does on many other matters, to state-based corporate governance. Thus, a shareholder proposal, proper under state corporate law and to be voted on at a shareholders’ meeting, becomes “material” under the SEC proxy rules (in particular, the antifraud Rule 14a-9), and therefore must be included in the corporation’s proxy statement.
Under this approach, the SEC gets out of the business of regulating—and trying to guess—the merits of shareholder proposals. Instead, the mixture of state-based legislative and court-made corporate standards, along with company-specific norms, function to identify the guardrails of this aspect of the shareholder-management dialogue. The winner? Our awakening corporation-based capitalism.
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The SEC’s 2025 partial retreat from the no‑action process makes explicit what has long been implicit: SEC control over the shareholder‑management dialogue is a fool’s errand. That retreat nudges the system toward the basics of U.S. corporate governance:
- State‑based allocation of power between shareholders and management, fleshed out in company charters and bylaws, and disciplined by markets and director/officer fiduciary duties, including duties of obedience and honesty.
- Complementary federal law that imposes civil and criminal liability, with a five-year statute of limitations, for failing to disclose material information about matters likely to come up at a shareholders’ meeting.
In this way, questions about whether climate‑transition plans, DEI initiatives or political‑spending policies are “proper subjects” for shareholder action become what they always should have been: questions for incorporation-based private ordering, complemented by rules against private corruption.
Getting rid of Rule 14a‑8 would complete this transition rather than plunge the system into chaos. Shareholder proposals would not vanish; they would be revitalized, migrating into a regime where access is guaranteed by the SEC’s antifraud‑based disclosure rule. This would free companies, institutional shareholders and states to experiment—through charter and bylaw provisions and perhaps exchange‑based standards—with ownership thresholds, numerical caps, and anti‑abuse filters, all against the backdrop of state‑law doctrines on “proper subjects,” ultra vires, and centralized management. Courts, especially in Delaware, would set the boundaries between board power under Delaware General Corporation Law (DGCL) Section 141(a) and inherent shareholder initiation rights, including under DGCL Section 109 to amend bylaws.
Will a post-14a-8 world be tidy? Of course not. Disputes over whether shareholders should be permitted to vote on climate risk, human capital, and political spending will not disappear. Instead, they will be resolved in C-suites, boardrooms, and chancery courts —and especially through shareholder engagement—rather than in staff bulletins. But that’s the point: Corporate law has always assumed that hard questions about the scope of shareholder “voice” are to be worked out by those who play the game, with courts as umpires. Rule 14a‑8 tried, for more than eight decades, to have the SEC umpire the corporate debate. The rule failed. It’s time for state‑based corporate democracy to get back on the job. The planet depends on it.
Alan R. Palmiter is professor emeritus and former William T. Wilson, III, Presidential Chair for Business Law at Wake Forest University. This post is based on his article, “Rule 14a-8: A Failed Experiment in Merit Regulation (Still),” available here.