SEC moves to scrap rules on shareholder proxy proposals

Rules governing how shareholders in publicly-traded companies can bring corporate proposals would be scrapped under a new measure issued by the Securities and Exchange Commission. 

The proposal, which would overturn decades of corporate governance practices, was released by the regulator Wednesday. The agency is also proposing to overhaul the proxy solicitation process by eliminating the so-called glossy report, that is separate from both the proxy statement and annual 10-K reports that are filed with the SEC. 

SEC Chairman Paul Atkins has long been a critic of shareholders who he claims have weaponized the so-called proxy mechanism to push agendas centered on climate or social equity measures. The changes are part of a series of measures that the regulator is pushing to dramatically reshape the balance of power between corporate management and investors.

Wednesday's proposal was criticized by the New York state official who oversees the state's pension funds.

"The SEC has chosen to allow corporate management to shield themselves from accountability rather than protect the investors it was created to serve," New York State Comptroller Thomas DiNapoli in a statement. He added that the process is a "vital mechanism" for institutional investors to raise financially material risks to boards' attention.

Atkins, however, justified the move by saying that the SEC was looking to act within its statutory authority. The SEC has regulated the shareholder proposal process for decades. 

"The proposed rescission would not eliminate the concept of shareholder proposals and is not an attempt by the commission to silence shareholders," Atkins said in a statement.

The SEC emphasized that under the proposal, it would be up to the states where companies are incorporated to set the rules for shareholders to file proxy measures. If finalized, the elimination of the rules could cause states to weigh in on a topic where they've traditionally deferred to federal regulators. 

An SEC official told reporters during a Wednesday press briefing that regulating shareholder proposals was squarely within states' authority. Texas introduced laws in 2025 to require anyone that wanted to make a proxy proposal to have at least $1 million in shares or 3% of a public company voting stock.

'Bumpy' transition

Overturning "this mechanism by which small shareholders gain disproportionate leverage over companies would mark a fresh start," from the current process, Republican SEC Commissioner Hester Peirce said in a statement. "The transition period may be bumpy, but shareholders and companies will work to strike the right balance in state laboratories of experimentation," she said.

The U.S. Chamber of Commerce, a pro-business lobby group, said the SEC's proposed changes would be a "long-term solution" to activist investors who have used proxy votes to "advance their own agendas at the expense of public companies and their shareholders." 

The new measure adds to a series of agency moves meant to address the steady decline in the number of publicly traded companies over the past two decades, said Frank Zarb, a lawyer at Proskauer in Washington. "The SEC's primary motive for these proposals is to make it more attractive" to become or to stay a public company, Zarb said.

In the second proposal issued Wednesday designed to eliminate the glossy reports, the SEC said the only substantive disclosures currently required in annual reports that aren't on the 10-K are stock performance graphs. That information is "widely and freely available," the SEC said.

The SEC will take public comment on the proposals for 60 days. Those comments will be reviewed and incorporated into final rules, which must be voted on by the commission before they can go into effect. The overall rulemaking process typically takes between 12 to 18 months.