SEC Chair Unveils Delaware Law Strategy to 'Depoliticize' Shareholder Meetings and Rein In Investor Proposals

Chair also exhorts Delaware legislature to revisit current prohibition on mandatory arbitration and fee shifting for federal securities law claims, to help maintain state’s competitive edge as preferred incorporation jurisdiction for public companies

In keynote remarks delivered last week at an event celebrating the 25th anniversary of the University of Delaware’s Weinberg Center for Corporate Governance, SEC Chair Paul Atkins expounded on a top priority of his chairmanship: enhancing the attractiveness of public company status. According to Atkins, the dramatic decline in the number of publicly traded companies in recent decades (from approximately 7,800 exchange-listed companies in 2007 to approximately 4,700 today) “is a signal that the costs of being a public company, coupled with the politicization of shareholder meetings, and ever-present specter of costly, frivolous litigation, have negatively impacted the vibrancy of our capital markets. Taken together, these forces have eroded American competitiveness; locked retail investors out of many of the most dynamic companies; and pushed entrepreneurs to seek capital elsewhere, either in the private markets or competing jurisdictions.”

Atkins’s stated mission to “Make IPOs Great Again” aims to revitalize the nation’s public capital markets by reversing this trend, and rests on three pillars:

1. 1. Disclosure simplification: “[W]e must simplify and scale the SEC’s disclosure requirements to reduce the costs of preparing SEC filings and, at the same time, make them more comprehensible.”
   2. “Depoliticization” of shareholder meetings: “[W]e must de-politicize shareholder meetings and return their focus to voting on director elections and significant corporate matters.” Atkins cited the proliferation of shareholder proposals focused on environmental and social issues in recent years (49% of all shareholder proposals in the 2025 proxy season, and a majority in each of the prior three proxy seasons), which he observed typically receive lower support than shareholder proposals do generally while consuming significant management time and imposing substantial costs on companies.
   3. Securities litigation reform: “[W]e must reform the litigation landscape for securities lawsuits to eliminate frivolous complaints, while maintaining an avenue for shareholders to continue to bring meritorious claims.”

Atkins’s remarks centered on the latter two pillars, each of which he noted also implicates state corporate law.

Shareholder Proposals

Is a Delaware company required to include nonbinding or “precatory” shareholder proposals in its proxy materials?

Atkins said the answer to this question lies at the intersection of Exchange Act Rule 14a-8 and state corporate law.

Rule 14a-8(i)(1) explicitly provides that a company may exclude a shareholder proposal from its proxy statement if it “is not a proper subject for action by shareholders under the laws of the jurisdiction of the company's organization.” State law governs whether a proposal is a “proper subject.”

Are precatory proposals a “proper subject” for shareholder action under Delaware law? Atkins asked. The Delaware courts have not squarely confronted this question. However, he pointed out that at least one Delaware practitioner has recently concluded they are not because Delaware law does not confer on stockholders an inherent right to submit or vote on precatory proposals, referencing Morris Nichols partner Kyle Pinder’s forthcoming law review article, The Non-Binding Bind: Reframing Precatory Stockholder Proposals under Delaware Law.

Atkins added that while the note to paragraph 14a-8(i)(1) reflects a codification of the SEC staff’s views that there is a presumption that precatory proposals are a “proper subject” under state law, the note expressly states that a company can overcome the presumption: “[W]e will assume that a proposal drafted as a recommendation or suggestion is proper [under state law] unless the company demonstrates otherwise” [emphasis added].

Taken together, Atkins posited:

“[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 under paragraph (i)(1) of Rule 14a-8.  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.”

Atkins also highlighted that Delaware amended its constitution in 2007 to allow the SEC to certify Delaware corporate law questions directly to the Delaware Supreme Court for declaratory judgments (an option, he noted, the agency has used only once, in 2008, for a case that incidentally involved whether a shareholder proposal was a “proper subject” for shareholder action under Delaware law, which the court resolved quickly). Atkins suggested that future questions of this nature could be similarly certified and decided expeditiously.

Does Rule 14a-8 preempt shareholder proposal submission requirements imposed by either state law or a company’s governing documents?

Although the law in this context is not settled, Atkins asserted it does not, noting that he shares Commissioner Mark Uyeda’s previously expressed view that Rule 14a-8’s procedural bases for exclusion should be viewed as default standards that apply only if companies decline to establish their own standards in their organizational documents or if standards are not contained within a state’s corporate law.

Briefly addressing Texas’s new shareholder proposal law, effective last month, which allows companies to opt into a provision that requires shareholders to own at least $1 million in market value or 3% of the company’s voting shares, among other requirements, to introduce proposals—significantly higher ownership thresholds than required under Rule 14a-8—Atkins argued:

“[I]f a company has opted into the Texas law, or has otherwise properly established conditions in its governing documents, and receives a shareholder proposal from a proponent that does not satisfy the requirements in the Texas law or the governing documents, then the proposal should be excludable under paragraph (i)(1) of Rule 14a-8.”

Does the SEC’s original rationale for adopting Rule 14a-8 in 1942 still apply today?

Atkins suggested it might not, calling for “a fundamental reassessment” of the rule, “especially in light of developments in the proxy solicitation process and shareholder communications generally over the last 80 plus years.” As part of the SEC’s broader effort to review and “modernize” the shareholder proposal system—identified as a policy priority on its current rulemaking agenda (which we previously discussed here)—the agency will reevaluate Rule 14a-8’s “fundamental premise” that companies must bear the burden and expense of soliciting votes for shareholder proposals.

In making his case, Atkins quoted Leo Strine, then-Vice Chancellor of the Delaware Court of Chancery, who in 2008 asked: “If investors seeking to change corporate governance really care about their proposals, why can’t they pay all of their own solicitation costs? Especially now that it is becoming both cheaper and easier to run an effective proxy contest because of the increase in institutional holdings and the ease of sending information electronically?” Atkins emphasized that any changes to Rule 14a-8 would follow standard notice-and-comment procedures, ensuring public input and thoughtful deliberation, and would “not happen overnight.”

Securities Litigation Reform

Atkins acknowledged that “class action securities litigation can serve an important path for vindication of rights as well as a deterrence function,” but stressed the urgent need for policy changes to enhance the value proposition of public companies:

“Reform may be needed to ensure that the ‘cost’ of being a public company does not involve frivolous lawsuits and exorbitant plaintiffs attorneys’ fees masked as recoveries for shareholders. All companies pay for these costs—even ones that are not subject to lawsuits—through increased D&O insurance premiums. Absent federal legislative changes, states can have significant influence in shaping reform in securities litigation. Reform should not be equated with the elimination of lawsuits, but rather, it can mean providing companies with optionality for how best to resolve disputes with their shareholders.”

Atkins criticized recent amendments to Delaware’s General Corporation Law enacted through Senate Bill 95 (SB 95), effective in August 2025, that barred both mandatory arbitration and fee shifting for federal securities law claims as “two giant steps backward” for the state. He allowed that mandatory arbitration and fee shifting “are not without controversy,” but argued that “[c]ompanies should have the ability to determine, after weighing the pros and cons, whether one, both, or neither of these provisions is appropriate for their business and shareholder base.” However, despite the SEC’s recent policy statement articulating its views that mandatory arbitration provisions are not inconsistent with the federal securities laws (see our client alert), SB 95 effectively eliminates Delaware as an option for incorporation for public companies that value arbitration as a part of their dispute resolution strategy, a result Atkins noted with regret.

Cautioning that “the pressure on and alternatives to Delaware [incorporation] are growing,” Atkins closed his address by urging the state to reverse course:

“I recognize that SB 95 was developed and became law at a time when the Commission had not made its views on mandatory arbitration clear to the public. With the benefit of clarity under the federal securities laws, I hope that the Delaware legislature will revisit the prohibition of both mandatory arbitration and fee shifting with respect to federal securities law claims. Doing so can help Delaware be a leader in the reform of securities litigation.”