Since Inauguration Day in January 2025, the new administration has in various ways publicly trumpeted the advisability of reversing numerous environmental, social, and governance (ESG) policies that many governmental and other entities have adopted in recent decades. Although this is in many ways a controversial theme, Trump-appointed SEC Chairman Paul Atkins has been singing a similar tune.
Atkins’ October Address
For example, in October, Atkins delivered a major address that included discussion of ways that companies might more often be able to exclude “precatory” proposals from their proxy statements filed with the SEC. For additional relevant detail about this address, please see “SEC Chairman’s ‘Make IPOs Great Again’ Project.” Briefly, “precatory” shareholder proposals are those that make a suggestion or recommendation, often relating to environmental or social issues, that, even if approved by shareholders, would not have any binding effect on the company or its board.
Atkins argued that requiring companies’ proxy statements to include such precatory proposals is among the costly burdens that unduly discourage companies from going public and thus becoming subject to the SEC’s proxy rules. He also argued that the SEC and its staff should, generally speaking, grant more deference to state corporate law governing the circumstances under which companies must permit shareholders to present their proposals. Inasmuch as precatory proposals frequently relate to ESG matters, Atkins’ suggestion of possible ways to reduce the number of such proposals was implicitly anti-ESG. That is, in his view, the SEC should not put its thumb on the scale — as much as it has in the past — in favor of such proposals being accorded a shareholder vote at company expense.
SEC Staff’s Further Development of Atkins’ Melodic Motif
On November 17, the SEC staff issued a “Statement Regarding the Division of Corporation Finance’s Role in the Exchange Act Rule 14a-8 Process for the Current Proxy Season.” For the current proxy season (which ends September 30, 2026) this staff statement provides the score for various instruments that must play in harmony in order to implement certain key ideas and objectives of Atkins’ October address. Among other things:
- Except as noted in the next bullet below, the staff will take a rest from responding to requests for “no-action” assurance with respect to company omissions of shareholder proposals from their proxy materials. The November 17 statement explains this pause in new no-action assurances by reference to the staff’s belief that the now-available guidance (including from both the SEC and staff) provides a sufficient basis for companies to make reasonable judgments about the permissibility of such omissions.
- The staff will, however, continue to toot its no-action horns, if the reason a company wants to exclude a precatory proposal from its proxy statement is that the proposal is improper under state law. In this connection, the staff statement cites the October address, in which, as to companies incorporated in Delaware, Atkins stated as follows:
[I]f there is no fundamental right under Delaware law for a company’s shareholders to vote on precatory proposals — and the company has not created that right through its governing documents — then one could make an argument that a precatory shareholder proposal submitted to a Delaware company is excludable [from the company’s proxy statement as being improper under state law]. If a company makes this argument and seeks the SEC staff’s views, and the company obtains an opinion of counsel that the proposal is not a “proper subject” for shareholder action under Delaware law, this argument should prevail, at least for that company. I have high confidence that the SEC staff will honor this position.
- The November 17 statement indicates that, as to proposals by registered investment company shareholders, the SEC’s Division of Investment Management will read from the same songbook and follow procedures comparable to those set forth for the Division of Corporation Finance.
The staff did not announce whether it expects to give a repeat performance of its November 17 statement for any future proxy season.
The staff did not announce whether it expects to give a repeat performance of its November 17 statement for any future proxy season.
Performances by State Courts and Legislatures
State courts and legislatures also will probably chime in meaningfully, particularly as the SEC seems inclined to yield more of the stage to state law than it historically has.
For example, Atkins’ October address specifically mentioned:
- A recent amendment to Texas law that allows a Texas company to elect to be governed by a much increased stock ownership prerequisite for shareholders to propose a matter for a vote. Moreover, the articles of incorporation or other governing documents may include similar preconditions for submission of shareholder proposals that substantially exceed the preconditions prescribed by the SEC’s proxy rules. Atkins explained his view that the SEC should defer to any such higher share ownership standard that might be applicable, thereby providing another potentially potent means for companies to avoid unwanted shareholder proposals, including any promoting ESG policies.
- Delaware’s constitution authorizes the SEC to certify questions to Delaware’s highest court for declaratory judgments. This could be highly useful in the event that disputes or uncertainties about Delaware law arise, particularly in view of the large number of public reporting companies that are organized under Delaware law.
The above-mentioned Texas law amendment, at least, seems to harmonize with Atkins’ tune. But it remains to be seen to what extent other new state legislation and court decisions will play along.
The Company Chorus
It is also unclear to what extent individual companies will take advantage of such opportunities as they may have to join any anti-ESG chorus. Even if a company may have grounds to assert that a given shareholder proposal is improper, shareholder relations or other business considerations may weigh in favor of allowing certain proposals.
Similarly, each company will need to weigh the public relations and business considerations applicable to its particular circumstances when deciding such questions as whether to press state legislatures to change any laws relevant to shareholder proposals or whether the company should change its domicile to a state whose laws it views as more favorable in this regard.
