On October 9, 2025, during a keynote address at the John L. Weinberg Center for Corporate Governance’s 25^th Anniversary Gala, United States Securities and Exchange Commission (SEC) Chairman Paul Atkins suggested that the SEC may be amenable to arguments from Delaware-incorporated companies seeking to exclude precatory shareholder proposals from company proxy materials. Specifically, he suggested that such proposals may not be appropriate for shareholder action under Delaware law.

These statements and the SEC’s planned regulatory agenda may denote significant changes to the shareholder proposal process for the 2026 proxy season.

We explore these developments and their potential impact below.

Background

Rule 14a-8 under the Securities Exchange Act of 1934, as amended (Exchange Act), provides companies with multiple substantive and procedural bases for excluding shareholder proposals. Among these bases is Rule 14a-8(i)(1), which states that a company may exclude a shareholder proposal if it is “not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization.” The accompanying note clarifies that generally, a proposal drafted as a recommendation or suggestion would be considered proper unless a company demonstrates otherwise.

The question of what constitutes a “proper subject” for shareholder action under state law is not new. In 2007, the SEC hosted a roundtable, which, among other things, sought public input regarding clarification of boundaries between federal proxy rules and state corporate law.  The SEC staff went on to provide additional guidance to companies invoking the Rule 14a-8(i)(1) basis for exclusion of a shareholder proposal with the issuance of Staff Legal Bulletin No.14D (November 2008) and 14E (October 2009), clarifying, among other things, that the burden to prove that a subject is not proper for shareholder action under state law, is on the companies seeking no action relief, and that determination must be accompanied by opinion of counsel.

Despite this clarification, the SEC staff has rarely allowed companies to exclude a proposal under Rule 14a-8(i)(1) grounds. Over the past ten years, approximately 38 no-action requests made a Rule 14a-8(i)(1) argument, and only four were granted relief on that basis.

Views of SEC Commissioners

In his address, Chairman Atkins reiterated his view that state law – and not Rule 14a-8 – gives shareholders the right to present a precatory proposal. Chairman Atkins referenced the note to Rule 14a-8(i)(1), which makes it clear that a determination related to the nature of the proposal, mandatory or precatory, affecting a proposal’s includability, is solely a matter of state law.

Chairman Atkins noted that some Delaware law practitioners do not believe that precatory proposals are a proper subject for shareholder action, as Delaware law does not provide an inherent right to vote on precatory proposals. He contended that, if there is no fundamental shareholder right to vote on precatory proposals under Delaware law, “one could make an argument that a precatory shareholder proposal submitted to a Delaware company is excludable under paragraph (i)(1) of Rule 14a-8,” and when this argument is accompanied and supported by a legal opinion, it “should prevail.”

Chairman Atkins also discussed a unique legal tool available to the SEC regarding questions of Delaware corporate law which the SEC has relied upon only once: Article IV, §11(8) of the Delaware Constitution, which provides the Delaware Supreme Court with the power to hear and determine questions of law certified to it by the SEC.  This tool has been used only once. A certified question is a request for an authoritative ruling by the court on a specific, stated question of Delaware law. The court would accept a certified question when the answer will be determinative to the matter pending before the SEC; there is no controlling Delaware precedent that clearly answers the question; and the question presents an important and urgent reason for immediate resolution.   

Chairman Atkins expressed hope that, if needed, both the SEC and the court would continue to benefit from the certified question option to expeditiously resolve matters of Delaware law in the context of the federal securities laws. Whether the SEC will invoke such an option during the next proxy season is uncertain. However, until the court is presented with such an opportunity and makes a ruling, the SEC may need to address differing legal opinions regarding shareholder rights to submit precatory proposals in connection with no-action requests made under 14a-8(i)(1). If the court determines that there is no shareholder right to submit precatory proposals, then Delaware-incorporated companies would be able to exclude precatory shareholder proposals from their proxy statements.

Chairman Atkins and SEC Commissioner Mark Uyeda have both expressed support for private ordering of shareholder proposal rights. At the 2023 National Conference of the Society for Corporate Governance, Commissioner Uyeda argued that state law and a company’s organizational documents should determine the conditions under which shareholders could submit proposals for shareholder meetings. He stated that Section 14(a) of the Exchange Act, which makes it unlawful for a person to solicit proxies in violation of SEC rules, “should not be read in a manner that allows the [SEC] to abrogate the role of state corporate law regarding the conduct of shareholder meetings, including any requirements or conditions on a shareholder’s ability to add a proposal to the meeting agenda.”  

Under this view, Rule 14a-8 is intended to facilitate a shareholder’s rights under state law, not to replace them. Chairman Atkins noted his support for the view that Rule 14a-8(i) exclusions should serve as default standards in the absence of a company establishing its own standards under its governance documents.

Possible SEC rulemaking

As previously noted, the SEC included shareholder proposal modernization as an area for potential SEC rulemaking when it announced its Spring 2025 Unified Agenda of Regulatory and Deregulatory Actions, with an anticipated timing of as early as April 2026.

In his address, Chairman Atkins remarked that the SEC should re-evaluate the fundamental premise of Rule 14a-8 – specifically, whether Rule 14a-8 should require companies to solicit for shareholder proposals (assuming that the proposal is a proper subject for shareholder action under state law) at little or no expense for the shareholder. If changes to Rule 14a-8 are proposed, they would be subject to the public comment process and would likely not take effect until the 2027 proxy season. 

Outlook for the 2026 proxy season

In light of these developments, the outlook for the 2026 proxy season remains uncertain. Thus far, 2025 has yielded a significant increase in the number of no-action submissions to the SEC staff compared to 2024, potentially due to the impact of Staff Legal Bulletin (SLB) 14M. While SLB 14M primarily addressed exclusions under Rule 14a-8(i)(7) (ordinary business) and 14a-8(i)(5) (economic relevance), to the extent a shareholder proposal is also precatory, companies may increasingly cite Rule 14a-8(i)(1) as a basis for exclusion, assuming  their no-action submissions are accompanied by an opinion of counsel.

Actions to consider

Companies are encouraged to monitor the no-action request activity during the 2026 proxy season, especially the SEC staff determinations under the Rule 14a-8(i)(1) basis. Delaware companies receiving precatory shareholder proposals that they wish to exclude under Rule 14a-8(i)(1) should consider consulting with corporate and securities counsel to determine whether a legal opinion can be obtained, and whether the proposal is not a proper subject for shareholder action under Delaware law. Such an opinion would need to be included in connection with the company’s no-action request to the SEC.

Prior to making a final determination regarding reliance on Rule 14a-8(i)(1) as a basis for excluding a shareholder proposal, companies may wish to consider the likelihood of the SEC certifying a question to the court, and how that decision would impact their approach. 

Similarly, companies should consider the proponent’s reaction to the argument for exclusion, including the proponent’s submission of a counter-opinion challenging the company’s legal position.  

Depending on what the SEC and the court decide, companies may consider whether amending their bylaws to take into account some form of private ordering discussed by the Chairman, would be advisable.

In light of Chairman Atkins’ address, the SEC staff may also consider revamping the guidance currently found in Staff Legal Bulletins 14C, 14D and 14E, but until then, companies considering relying on the Rule 14a-8(i)(1) basis for excluding a shareholder proposal, should follow the current guidance found in these legal staff bulletins.

Learn more

DLA Piper will continue to provide updates on Rule 14a-8 developments. For more information, please contact the authors.

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