Below are the “Key Takeaways” from this excellent Cooley Alert penned by Brad Goldberg, Beth Sasfai, Michael Mencher, Liz Dunshee, Vince Flynn, Amanda Weiss and Justin Kisner:
“1. Rescission of Rule 14a-8 would redirect activism, not eliminate it. Activism efforts are likely to shift toward other strategies, including director “vote no” campaigns, proxy contests, litigation, direct engagement and targeted publicity campaigns. If adopted, the proposed Rule 14a-4(c) amendments would provide companies with greater flexibility to exercise discretionary voting authority on shareholder proposals submitted outside of the Rule 14a-8 process, subject to disclosure and an affirmative shareholder opt-out election.
Importantly, however, while the proposed amendments to Rule 14a-4(c) are intended to address the concern that “zero slate” campaigns can pressure companies to include in their proxy materials shareholder proposals that might otherwise be excludable under Rule 14a-8, effectively circumventing the Rule 14a-8 process, the amendments would not prohibit zero slate campaigns. Indeed, if adopted and Rule 14a-8 is rescinded, they could further elevate zero slate campaigns as a prominent activist tool, providing a means for bringing shareholder proposals to a vote.
2. The proposed amendments would rescind the federal shareholder proposal framework of Rule 14a-8. This would eliminate long-standing rules that allow qualifying proponents to include their proposals in a company’s proxy materials.
3. Do not expect proposed rules to be effective for the upcoming proxy season. The proposed amendments must move through the public notice and comment period and survive other hurdles, including likely litigation, before becoming effective. Companies should therefore plan for the 2027 season under the existing rules.
4. 2027 could become a “last chance” season. The prospect of rescission may drive a surge in shareholder proposal submissions under Rule 14a-8, including both traditional governance proposals and proposals designed to create a shareholder proposal proxy access right that would survive a rescission of Rule 14a-8. Some companies have already received such proposals for this upcoming proxy season. Cooley’s June early proxy season alert previewed many of these themes.
5. Private ordering may become the central battleground. The closest analogy may be proxy access for director nominations by shareholders. After the SEC’s mandatory proxy access rule was vacated in 2011, shareholder proposals submitted under Rule 14a-8 drove company-by-company adoption of proxy access for director nominations by shareholders. Given the proposed rescission of Rule 14a-8, proponents may have only a limited window to use the Rule 14a-8 process to establish company-specific proxy access rights for shareholder proposals.
6. State law and governing documents would take on greater significance. Texas has already enacted an opt-in statutory framework addressing shareholder proposal rights more broadly. In Delaware, whether shareholders have an inherent right to bring precatory proposals remains unsettled; the debate could move to the legislature and the courts.”
Authored by
Broc Romanek