Sec Speeches Cryptocurrency A Proposal on Proposals: Remarks on the Proposals to Rescind Rule 14a-8 and Modernize Proxy Solicitation Rules

I am pleased to support today’s proposals to rescind Rule 14a-8 under the Securities Exchange Act and modernize the proxy solicitation rules. Thank you to the Division of Corporation Finance, the Division of Economic and Risk Analysis, and the Office of General Counsel for your work on these rulemakings. 

In past remarks, I compared companies navigating our complicated and at times treacherous regulatory landscape, one in which regulations are often complicit in dragging companies into contentious social and political debates, to the bighorn sheep that leap precariously from crag to crag in the Sierra Nevada mountains. Under Chairman Atkins’s leadership, the Commission has focused on simplifying that rocky regulatory landscape so companies can maximize long-term returns for their shareholders by producing products and services that people value. Today’s proposal to rescind Exchange Act Rule 14a-8 contributes to that effort, while also helping to preserve Commission resources for rulewriting and disclosure review. 

For years, Rule 14a-8 has operated as a mechanism to allow certain shareholder proponents to propose matters for inclusion in a company’s proxy materials. These matters, although typically advisory in nature, became a costly distraction for boards and management because they often related to concerns immaterial to the company. The process has become a lever for shareholders motivated by niche concerns with little demonstrated stake in a company to commandeer its time and attention: “Hey, company,” says the would-be proponent, “I would graciously concede to keep quiet if you agree to spend company resources on a project of personal interest to me. Otherwise buckle up for a very public and contentious vote-yes campaign.” Companies often take the deal to avoid the greater nuisance a proposal would produce, but non-proponent shareholders pay the price. 

Disrupting this mechanism by which small shareholders gain disproportionate leverage over companies would mark a fresh start. The transition period may be bumpy, but shareholders and companies will work to strike the right balance in state laboratories of experimentation. The states will determine what issues ultimately get put up for a vote by setting the gating parameters. The process should produce a framework that sets clear expectations for all parties, with disputes mediated by the appropriate and most knowledgeable authorities. States likely will preserve a mechanism for shareholders with a demonstrated commitment to the long-term value of the company to raise issues for their fellow shareholders’ consideration. 

This area is one that sparks lively debate, so I look forward to reading the comment file on the proposal. Among other issues on which feedback would be valuable are the following questions:

1. Some commenters may be concerned that rescinding Rule 14a-8 would eliminate a cheap and easy vehicle for putting issues before company management. Is facilitating communication between shareholders and management a proper function of the SEC staff, or would such a policy concern be better and more appropriately handled by the states?
2. Rescinding Rule 14a-8 may increase companies’ uncertainty in the short term about when to include proposals. Would empowering “outside practitioners to make the hard calls without the [SEC] Staff as [their] crutch” result in more consistent exclusion decisions over time?
3. I also look forward to comments on the proposal to simplify other aspects of the proxy solicitation process. Do the proposed changes reduce company costs and burdens while protecting investors?