On Monday, the Delaware State Bar Association’s Corporation Law Council released this 28-page White Paper and Discussion Draft of new DGCL Section 214, establishing a statutory framework for nonbinding (precatory) shareholder proposals if the SEC rescinds Rule 14a-8.
This proposal would preserve a statutory right to submit precatory shareholder proposals – but substantially narrow access through higher ownership thresholds, limits on the number of proposals and restrictions on eligible companies. At the same time, the proposal would eliminate several traditional Rule 14a-8 exclusions, which could make it harder for companies to exclude proposals that satisfy the new requirements.
The new regime would become effective only upon the effectiveness of SEC’s rescission of Rule 14a-8 if the SEC does indeed go that route. So there is no direct impact on the upcoming proxy season.
The Delaware Corporation Law Council has established a 60-day comment period. Following consideration of comments, legislation could be submitted to the Delaware General Assembly during its 2027 session, with the framework perhaps being adopted before preparations for the 2028 proxy season.
Here are a dozen things for you to know:
1. Only the Largest Public Companies Covered: The proposed regime would apply only to Delaware corporations with market capitalizations of at least $30 billion. Newly public companies would generally receive a five-year exemption.
2. Number of Proposals Capped: Companies would be required to include a limited number of precatory proposals in their proxy materials, depending on market capitalization:
- $100 billion or more: Three proposals.
- $50 billion to $100 billion: Two proposals.
- $30 billion to $50 billion: One proposal.
3. Significantly Higher Ownership Thresholds: Shareholder proponents would need to own at least $250,000 of voting stock individually or $1 million collectively with up to nine co-filers, held continuously for 365 days. These thresholds are substantially higher than Rule 14a-8’s current $2,000–$25,000 ownership requirements.
4. Largest Shareholders Get Priority: If eligible proposals exceed the applicable numerical cap, priority would go to proposals supported by proponents and co-filers holding the greatest aggregate number of shares. Shareholders could participate in only one proposal per annual meeting.
5. Proposal Deadlines and Word Limits: Proposals would need to be submitted at least 180 days before the anniversary of the prior annual meeting – and would be limited to 500 words including supporting statements. Proponents would generally have one 14-day opportunity to cure deficiencies.
6. Fewer Substantive Exclusion Grounds: Unlike Rule 14a-8, the proposed framework would eliminate familiar exclusions for ordinary business, substantial implementation, violation of law and lack of power to implement. Exclusions would instead focus primarily on objective requirements, personal grievances, director nominee attacks and proposals that no rational person would consider relevant to the company or its business.
7. Stricter Resubmission Threshold: A proponent whose proposal received less than 15% of votes cast at either of the two preceding eligible annual meetings would be barred from resubmitting under the proposed standard. Unlike Rule 14a-8, the restriction focuses on the proponent rather than simply the similarity of proposals.
8. Limited Ability to Adopt Alternative Bylaws: Companies generally could not use charter or bylaw provisions to expand or restrict the statutory proposal requirements. However, the proposal contemplates a shareholder-approved opt-out that would eliminate precatory proposals entirely – and companies could voluntarily include proposals.
9. Delaware Court of Chancery Would Resolve Disputes: Shareholder proponents could challenge exclusion decisions in the Delaware Court of Chancery within 30 days of receiving the company’s determination. Companies would bear the burden of demonstrating that exclusion was proper.
10. Binding Proposals Remain Unaffected: The proposed statute would not regulate binding shareholder proposals, including director elections, director removals and bylaw amendments. These would remain subject to existing Delaware law and applicable advance notice bylaws.
11. No More Precatory-Only Proxy Contests: The proposed statute would establish the exclusive mechanism for submitting precatory proposals for shareholder votes. Shareholders would not be able bypass its requirements by conducting their own proxy solicitation solely for precatory proposals, thereby effectively eliminating so-called zero-slate campaigns for precatory proposals.
12. State Law Could Become More Important in Governing Precatory Proposals: The Delaware proposal would replace private ordering with a detailed statutory framework governing when precatory proposals may be submitted and included in a company’s proxy materials. Companies should monitor the SEC’s course of action, Delaware’s legislative process and potential responses from other states, as a company’s state of incorporation could become increasingly important in determining the rules governing precatory shareholder proposals.
Authored by
Broc Romanek