Regulator will reduce oversight of shareholder proposal disputes in a step critics say will leave investors in ‘legal limbo’
The SEC has changed its rules around how companies seek permission to exclude certain shareholder proposals from proxies, in a move that will make it more difficult for activists to force votes on contentious issues.
Earlier this week, the commission’s Division of Corporation Finance announced that it will not substantially review no-action requests under Rule 14a-8 for the 2025-26 proxy season, except for procedural exclusions it specifies in the legislation. The regulator blamed ‘current resource and timing considerations following the lengthy government shutdown,’ along with a busy docket of registration statements.
Under the new process:
- Companies must still give notice at least 80 days before filing their definitive proxy statement if they intend to exclude a proposal.
- However, unless a company represents that it has a ‘reasonable basis to exclude the proposal,’ the Division will no longer evaluate or provide a view on the exclusion.
- For procedural exclusions, the commission’s staff will continue its normal substantive review.
As per the announcement, these changes apply to the current proxy season (October 1, 2025 to September 30, 2026) as well as no-action requests received before October 1, 2025, to which the Division has not yet responded to.
The scale of the change
To put the impact in context, data from the SEC shows that during the 2024–2025 proxy season, the Division of Corporation Finance issued no-action responses to many companies. While the SEC does not report the total number of no-action requests publicly, the 2024-2025 No-Action Responses Issued Under Exchange Act Rule 14a-8 page lists hundreds of companies, including household names such as Amazon, Apple, JPMorgan and General Motors.
The volume of responses suggests a highly active no-action review practice, which underscores how significant it is that the SEC is now stepping back.
Stakeholder reactions
As You Sow, a shareholder advocacy group, sharply condemned the move. It argues that the change abandons the SEC’s long-standing role as a neutral arbiter, leaving investors and companies in ‘legal limbo.’ It also stresses that the no-action process provides predictability, ensures proposals meet legal standards and guards against arbitrary exclusions – all of which it says are critical for investor confidence.
‘Responsible companies should continue including legitimate shareholder proposals in their proxies as an opportunity for engagement and transparency on material issues of shareholder concern,’ says Andrew Behar, CEO of As You Sow. ‘Excluding proposals does nothing but create confusion and expose companies to legal and reputational risk.’
The group also notes that the SEC’s resource constraint argument may be weak: in prior years, the division successfully handled no-action requests even during government shutdowns and when filings were more numerous. By stepping back, it says the SEC is pushing these disputes into court, raising costs and delaying resolutions for both shareholders and issuers.
Ryan Adams, a partner in Morrison Foerester’s public company advisory and governance practice, described the development as ‘one of the most consequential’ changes to the no-action process. While companies might welcome more flexibility to exclude proposals without staff sign-off, he warned that this also introduced litigation risk.
‘In the past, we’ve seen most companies actually hesitant to proceed with excluding proposals without approval of the SEC staff so it’s actually quite possible that this action could result in more proposals going to a vote,’ he added.
Erik Gerding, partner at Freshfields and former director of the Division of Corporation Finance at the SEC, said that this shift could have lasting impacts on the shareholder proposal process and that much will depend on how courts treat the view that nonbinding shareholder proposals are not appropriate issues for proxy votes.
‘Taken together with other corporate governance actions this year, the SEC policy shifts could dramatically alter the balance of power between management and shareholders,’ he added.
What this means
For companies:
- Greater discretion to exclude shareholder proposals without waiting for a staff no-action letter
- Increased legal risk: without the SEC’s written view, exclusions may be more vulnerable to challenge.
For shareholders:
- Less certainty about which proposals will be accepted or excluded
- A possible rise in the number of proposals submitted to a vote, as companies may hesitate to exclude without SEC backing
- Potentially higher costs and longer disputes if matters move into litigation rather than being resolved via the no-action process.
For markets and governance:
- A re-evaluation of the SEC’s role from active reviewer, towards more of an oversight role
- The risk that a key governance check will be weakened
- The potential for more direct shareholder engagement, as companies reassess how they handle proposals.
The SEC’s decision to reduce the substantive review of no-action requests under Rule 14a-8 marks a major shift. The number of no-action responses issued in the 2024–2025 season suggests the change touches a meaningful portion of the proxy process.
While the move gives companies more flexibility, it also creates uncertainty and risk. Stakeholders will need to adapt quickly: companies in how they engage with proponents as well as shareholders in how they frame and press their proposals.
