Scrapping Rule 14a-8 would push proxy gatekeeping into corporate bylaws

Rule 14a-8 supplied the substantive grounds a company used to keep a proposal off its proxy card, and those grounds go when the rule goes ^[7]. Commissioner Mark Uyeda wrote about a post-Rule 14a-8 landscape, one in which the existing substantive bases for exclusions are removed. One possible outcome is that the scope of permissible proposals could be significantly broadened, if neither state law nor company bylaws place any restriction on matters that may be submitted for a shareholder vote ^[7]. He said that is a matter for others, not the Commission, to decide ^[8].

Rescission is one of three proposed actions. The third is a set of amendments modernizing rules related to proxy solicitations ^[3][18].

Uyeda's case rests on authority before cost. He said: "Thus, despite over eight decades of existence, to the extent that Rule 14a-8 created a federal right to place a proposal before a shareholder meeting, I find the legal authority for the Commission to mandate such act was lacking." ^[5] On cost, he said management and boards spend significant amounts of time and energy responding to shareholder proposals. That is a tremendous opportunity cost that can be detrimental to the company as a whole ^[16]. He also said the mere threat of submitting a proposal is often enough for a public company to negotiate concessions with the would-be proponent ^[13]. He quoted the rule's original intent: it was not meant "to burden the proxy solicitation process by requiring the inclusion" of proposals from a few proponents that are "unrelated to the general interests of shareholders as shareholders" ^[17]. And he cited an SEC study in which the top reason an investor gives for buying an investment is strong future growth of the investment ^[15].

The statement did not include a comment deadline or the commissioners' vote ^[19]. The drafting would move. Uyeda's statement says state law generally provides flexibility for corporations and their boards to select specific provisions through their charters and bylaws ^[12]. A company that wants a narrower ballot would have to write the narrowing itself, and the threat-and-concession dynamic Uyeda describes would then run against bylaw language instead of a federal filing right ^[13][7].

The authority argument reaches further than this one rescission. Uyeda said the federal securities laws do not provide broad authority for the Commission to regulate corporate governance and internal affairs, absent limited exceptions mandated by Congress ^[9]. He pointed to courts ruling against "back door" attempts by the Commission to regulate corporate governance indirectly through exchange listing standards ^[10]. Congressional efforts to federalize corporate law, he said, have never come to fruition despite many opportunities ^[11].