SEC Chair Drops Three Bombshells: Questions Precatory Proposals and Defers to State Laws Like Texas’s $1M Threshold — The End of Proxy Regulation as We Know It?

In his Keynote Address at the John L. Weinberg Center for Corporate Governance’s 25th Anniversary Gala on Oct. 9, 2025. SEC Chairman Paul S. Atkins started off on a high note: 

“I am delighted to discuss one of my top priorities as Chairman, which is to make being a public company an attractive proposition for more firms… There are approximately 4,700 exchange-listed companies today, compared to a high point of approximately 7,800 in 2007.  

“My goal is to reverse this trend—to “Make IPOs Great Again” —and it involves three pillars.  First, we 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.  

“Second, we must de-politicize shareholder meetings and return their focus to voting on director elections and significant corporate matters.  

“Finally, we must reform the litigation landscape for securities lawsuits to eliminate frivolous complaints, while maintaining an avenue for shareholders to continue to bring meritorious claims.”

But then, Atkins waded into much deeper waters, where, in many respects he is seriously uninformed – and in the case of costs, he’s been seriously mis-informed in our view:

“In the past few proxy seasons, perhaps nothing has epitomized the politicization of shareholder meetings more than shareholder proposals focused on environmental and social issues.” This, we agree, is
largely true.

“These proposals, which reflect views from both sides of the political aisle, generally call for actions that are not binding on the company—referred to as “precatory proposals”—and frequently involve issues not material to the company’s business.” We say, the “frequently” part is true – but to most investors, many of them DO involve issues like climate change, sustainability, child labor practices and corporate reputation that, undeniably, we say ARE  “material issues” to investors.  

“When voted on at meetings, they almost always receive even lower support than shareholder proposals do generally.” Atkins cited a jumble of “averages” that include “anti-governance proposals” in the numerator - which draw less than 3% support - that totally masks the fact that MANY proposals DO draw big votes. And he ignored the fact that, historically, hundreds of precatory proposals that drew smallish votes for many years suddenly came into fashion - and were ultimately adopted.

“Nonetheless, these proposals consume a significant amount of management’s time and impose costs on the company.” Here, his written speech provides a footnote alleging that it can cost a company “up to $150,000” to deal with each proposal – which, as the OPTIMIZER has noted before, (a) has no empirical basis whatsoever and (b) fails to recognize that the amount spent to rebut a precatory proposal is entirely up to the corporation itself and (c) that after the first year there are literally NO COSTS to run them again – unless the issuer decides to hire outside help to re-write their rebuttal. We were astonished at his naivete in assuming that regulatory expenses and shareholder meetings somehow account for the big drop in publicly traded companies. What business founders would pass up the huge paybacks from a successful IPO because they have to hire a few more accountants, attorneys and auditors - all of whom will be paid for by the new investors? The current imbalance is due entirely to the efforts of hedge funds and venture capitalists who’ve been scooping up public companies faster than new ones can be formed.   

Then, Atkins drops his first bombshell: “However, is a company actually required to include these precatory shareholder proposals in its proxy materials?  The answer to this question lies at the intersection of the Commission’s Rule 14a-8 and state corporate law. While Rule 14a-8 provides a mechanism for a shareholder to include its proposal in the company’s proxy statement, the rule can only be used for proposals that can properly be brought before a shareholder meeting under state law” he asserts.

Then, after a meandering commentary on the long and winding history of Rule 14-a-8 – which fails badly we think, to recognize the role of the SEC as mostly-fair and reasonable “mediator” as to whether a proposal is “material” - or not - Atkins drops a second  bombshell:

“State law governs whether a proposal is a “proper subject… So, are precatory proposals a “proper subject” for action by shareholders under Delaware law?  The expertise and domain of the Commission and its staff is in the federal securities laws.  Accordingly, it is appropriate for the agency to defer to those who practice Delaware law, including many of you in the room this evening, to answer this question…

Then, he drops his third and biggest bombshell… “I also want to discuss recent developments in Texas.  Last month, the state’s shareholder proposal law went into effect and added a new section to the Texas Business Organizations Code (“TBOC”) If a company opts into this section, then a shareholder must own at least $1 million in market value or three percent of the company’s voting shares, among other requirements, to submit a shareholder proposal. These thresholds are obviously significantly higher than those in
Rule 14a-8.  

Then after a bit more meandering on the Rule, he hammers his point home: “So, if 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.” - after which he calls for a “fundamental reassessment” of the Rule. So readers, put on your thinking caps and start your engines now!

From our perspective, as 60+ year ‘watchers’ and active participants in the proxy voting process, we foresee terrible consequences if the SEC fails to realize, and deal with  the following points:

• Atkins, and the staff, need to get their noses out of the Rule-Book and into the real world, as he did indeed promise they will do: First, they absolutely need to recognize that quite aside from Rule 14 a- 8, most “precatory proposals” ask the company to provide more information to investors about subjects that they consider to be “material” to the Election of Directors. This is surely at the core of the SEC’s mandate to protect investors, by assuring they have the information they need, and that the information is complete and correct.

• Next, they need to reckon with the serious economic consequences of ditching “precatory proxies” in favor of Binding Bylaw Resolutions. This will make it harder and more expensive for investors to introduce shareholder proposals - and for issuers to fight them. It will not only tick investors off, and rightly so, it will generate even more “activism” – and   will raise the costs to issuers significantly, by turning every proposal into a Proxy Fight!

• Activist Investors are not going to go away. Dealing with shareholder activism is a multi-billion-dollar business now… and is certain to get bigger, more expensive and more divisive yet, if the SEC fumbles the ball here.
•  Issuers – and the SEC too – need to be aware that activists have a “Nuclear Option” in their pockets that could send intransigent  issuers reeling: Just imagine what would happen if the major State and Union Pension Funds, and maybe College Endowment Funds too, were to completely divest their Exxon shares and move the money to a ‘better governed peer company,’ for example.   Ten years ago, this would have been unthinkable. But not today, we say. Ironically, for as long as we can remember issuers have been saying that if investors don’t like management positions, they should “Vote with their feet.” Heaven help them if they do.