The U.S. deregulatory trajectory hit a new apex Monday (or nadir, if you prefer). According to a post from PracticalESG Advisory Board Member Doug Chia:
“The SEC Division of Corporation Finance will be taking a hiatus from considering any requests to exclude precatory shareholder proposals until the end of September 2026. In the meantime, companies may exclude proposals for any reason. No justification required. The SEC staff will take the company’s word for it. No questions asked.
Except… if it’s a question of whether the proposal ‘is not a proper subject for action by shareholders under the laws of the jurisdiction of the company’s organization’ (i.e., ‘improper under state law’). The SEC will still opine on those.”
If you aren’t familiar with securities law and proxy actions, precatory shareholder proposals are non-binding recommendations about what shareholders want the board or management to do, but they do not legally require the company to take action if the proposal gains majority support. Many ESG/sustainability-related shareholder proposals in the past have been precatory/non-binding.
John Jenkins called this action a “blockbuster” and wrote:
“Although no-action letters are mostly off the table for now, the statement provides that if a company wants to receive a response from the Staff about its exclusion of a proposal, it may include, as part of the required notification, ‘an unqualified representation that the company has a reasonable basis to exclude the proposal based on the provisions of Rule 14a-8, prior published guidance, and/or judicial decisions.’ Companies that follow this procedure will receive a response from Corp Fin to the effect that based solely on that representation, the Division won’t object if the company omits the proposal from its proxy materials.”
Commissioner Caroline Crenshaw issued a statement opposing the move, saying:
“the Division will ‘not object’ even if it would have disagreed with the company’s analysis had it substantively reviewed the submission. And, the Division will apparently ‘not object’ even if the representations are unreasonable on their face or contain misrepresentations or omissions…
[The action] effectively creates unqualified permission for companies to silence investor voices (with ‘no objection’ from the Commission).”
What does this mean for ESG/sustainability-related shareholder proposals? It depends on the nature of the proposal, but I suspect we’ll see two things happen: in the near term, companies will quietly push aside such proposals unilaterally. Then we’ll likely see proposal language evolve to be non-precatory, to which Staff should respond. A third option (yes, I know I said two originally) is that a whole slew of lawsuits will start up regardless.
Sustainability professionals who want to know more about how SEC works, shareholder proposals and other securities matters should check out TheCorporateCounsel.net and the free blog.
PracticalESG members can learn more about shareholder activism/proposal here.
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