The theory supported by Atkins posits that advisory (i.e., non-binding) shareholder proposals do not constitute “proper business” for an annual meeting under Delaware law. The vast majority of shareholder proposals submitted to US corporations are written as advisory proposals, meaning that the board retains discretion over whether and how to act on them. The policy suggested by Atkins, taken to its conclusion, could eliminate all such advisory proposals.
A group of investment organizations, including the Shareholder Rights Group, have written a letter to Chairman Atkins expressing our concerns and opposition to this policy and requesting a meeting with him to discuss. The other organizations endorsing the letter include US SIF, the Interfaith Center on Corporate Responsibility, Ceres and the AFL-CIO.
Curtailing shareholders’ ability to raise concerns with the companies they own through the proposal process would strike at the heart of the SEC’s investor-protection mandate and its broader goal of sustaining fair and efficient markets and facilitating capital formation. The public capital system rests on a simple exchange: corporations benefit from investor capital and, in return, investors can express their perspectives on governance and risk. That participatory right has been a defining feature of American corporate practice and should not be discarded or weakened.
Advisory Proposals in Rule 14a-8
Under SEC Rule 14a-8, shareholders must surmount numerous exclusions and procedural requirements in order to file proposals. For instance, proposals are excludable if they only address the ordinary business of the company or attempt to micromanage its business, if they are not relevant to the company receiving it, if they relate to a personal grievance of the filer, etc.
Another exclusion, contained in Rule 14a-8(i)(1), permits omission of a proposal that is “not a proper subject for action by shareholders under the laws of the jurisdiction of the company's organization.” With most US issuers incorporated in Delaware, the SEC has had robust input on this rule by Delaware lawyers in correspondence submitted through the no action process.
That input process led the Commission to the settled expectation that the rule’s principal restriction is on proposals clearly prohibited by state law. Delaware rigorously defends the discretion of boards of directors to run their companies and therefore prohibits shareholder proposals that seek to bind companies to decisions, such as spending decisions, that the law reserves to boards. This means that many binding proposals would not be a “proper subject for action”.
There is no Delaware prohibition on advisory or “precatory” proposals, and therefore most Rule 14a-8 proposals take that form. Despite the lack of a prohibition under Delaware law, issuers’ no action requests under Rule 14a-8(i)(1) have sometimes argued for exclusion of precatory proposals as improper under Delaware law by impermissibly intruding on the discretion and managerial authority of the board. The SEC rejected these arguments, typically declining to concur in exclusion because of the non-binding nature of the proposal. The Commission issued a note consolidating its perspective in the 1998 14a-8 rulemaking release:
NOTE TO PARAGRAPH (I)(1):
Depending on the subject matter, some proposals are not considered proper under state law if they would be binding on the company if approved by shareholders. In our experience, most proposals that are cast as recommendations or requests that the board of directors take specified action are proper under state law. Accordingly, we will assume that a proposal drafted as a recommendation or suggestion is proper unless the company demonstrates otherwise.
Thus, while the Commission clearly recognized the need for shareholder proposals to avoid the Delaware prohibition on binding the company on matters reserved to the board’s discretionary authority, it declined to view advisory proposals as doing so in and of themselves. Indeed, to our knowledge, there is no case or statutory law in Delaware indicating that advisory proposals are not proper business for a meeting under state law. The SEC, through the no action process, has also declined to endorse the theory that the lack of express authorization for precatory proposals in Delaware statutory or case law means that such proposals are prohibited.
However, the SEC staff does address improper interference with board discretion in advisory proposals via another mechanism. It allows exclusion when a proposal’s request or recommendation is written in a manner that is seen as attempting to micromanage the company’s business. In this way, the shareholder proposal process further reinforces constraints on shareholder attempts to interfere with board and management discretion.
A 2007 Institutional Shareholder Services report (ISS (2007), noted that non-binding proposals accounted for 98% of the total shareholder resolutions in the U.S. in that year. In our experience, that ratio is about right currently as well.Non-binding shareholder proposals have provided a structured mechanism for shareholders to express collective views on issues of governance, risk, and sustainability. Boards are not required to act, but the proposals give investors a voice and often foster productive dialogue. Over time, advisory proposals have repeatedly driven meaningful change, spurring the adoption of independent boards, advisory votes on executive compensation, and greater transparency through sustainability and ESG reporting — driving best practices that have helped to advance market wide norms.
Shaky Ground of Atkins’ Speech
In his speech, Chairman Atkins referenced a forthcoming article by Kyle A. Pinder, a partner at Morris Nichols Arsht & Tunnell LLP, titled “The Non-Binding Bind: Reframing Precatory Stockholder Proposals under Delaware Law” which argues that because Delaware law contains no express provision authorizing advisory proposals, there is no inherent right under Delaware law to file such proposals.
Atkins said in his speech that if a company filed a Rule 14a-8(i)(1) no-action request, supported by a Delaware law opinion asserting that a proposal is not “proper business” for a shareholder meeting, the company’s argument “should prevail” and expressed “high confidence that the SEC staff will honor this position.” As such, Atkins appeared to encourage companies to test whether Delaware law in fact permits advisory proposals at all — a position that challenges more than 50 years of accepted practice. In doing so, he appeared to endorse a significant shift in the policies previously established by the Commission, circumventing notice-and-comment requirements under the Administrative Procedure Act that would normally accompany such a dramatic change in the agency’s Rule 14a-8 program.
However, on November 4, 2025, during a Council of Institutional Investors webinar, Pinder noted his surprise that his law review article was cited by the Chairman to support such a position, and clarified that “if the feds say precatory proposals are one means that they would like for stockholders to be able to communicate pursuant to the proxy rules, Delaware is okay with that. . . . I’m not saying Delaware law prohibits or that a precatory proposal would violate Delaware law. It’s that they’re not a state law thing. It’s really they’re by virtue of the federal proxy rules.”
Decades of interplay of federal and state law has effectively defined proper business for Delaware corporations’ annual meetings. In practice, advisory proposals have long been treated as proper business to come before the meeting, including in Delaware corporations’ advance notice bylaws. Most Delaware corporations have adopted advance notice bylaws which require detailed disclosures regarding proposed director nominees and floor proposals and provide an exception for proposals submitted pursuant to Rule 14a-8. In our opinion, this widely adopted carve out demonstrates an assumption that the submission of proposals under the Rule 14a-8 is, essentially, proper business for the meeting. Since 98% of such proposals submitted under the rule are advisory, this provides strong evidence of their propriety.
Delaware courts have also long been aware of the long-standing tradition of advisory shareholder proposals. Even in the cases cited in Pinder’s article, Delaware courts have repeatedly encountered such proposals without questioning their legitimacy as subjects for shareholder consideration (typically in books and records litigation, where shareholders were seeking records for the purpose of advocacy and communication on advisory proposals). Pinder cites Food & Allied Service Trades Department, AFL-CIO v. Wal-Mart Stores, Inc., 1992 WL 111285 (Del. Ch. May 20, 1992); Conservative Caucus Research, Analysis & Education Foundation, Inc. v. Chevron Corp., 525 A.2d 569 (Del. Ch. 1987); Odyssey Partners v. Trans World Corp., 1983 WL 18011 (Del. Ch. Mar. 29, 1983).
The enduring weight of this regulatory history and the governance traditions that have emerged as a result underscores that advisory proposals are a settled and legitimate part of shareholder governance, and that the Atkins position stands well outside that consensus.
If companies were to follow the roadmap outlined by Atkins and the SEC staff, as directed, were to “honor” that position, it would amount to a radical reinterpretation of Delaware law. Should the SEC seek to certify this question to the Delaware Supreme Court, the process would be extraordinarily abbreviated — potentially as short as twenty days — offering no meaningful opportunity for public input or thoughtful policy evaluation. Changes of this magnitude to the SEC’s shareholder proposal rules should occur only through a deliberate and transparent SEC rulemaking process.
Policy Implications
Eliminating or casting categorical doubt on advisory shareholder proposals would likely interfere with fulfillment of responsibilities of fiduciaries, such as pension funds, foundations and other institutional investors. Many advisory shareholder proposals seek improved disclosure to enable investors to better evaluate potentially material risks and opportunities. Fiduciaries voting for or filing such proposals are often acting in furtherance of responsibilities to investigate and make informed judgments about investee companies, to effectively evaluate assets and portfolios. Any broad determination that advisory proposals are not "proper" would seem to be at cross-purposes with these fiduciary obligations, grounded in both state and federal law.
Moreover, to do so would also have serious unintended consequences. If advisory proposals were deemed improper by the SEC under Delaware law, shareholders seeking to raise concerns or express dissatisfaction would likely turn to voting on director elections and say on pay matters, and even binding bylaw amendments. The outcome would be more conflict, more litigation, and less flexibility for boards.
Advisory proposals tend to win more voting support than binding proposals precisely because they allow investors to express concerns and preferences while leaving board discretion intact, serving as a valuable communication channel between the board and its investors. Through that channel, management gains insight into whether significant blocs of the company’s own shareholders view an issue as material which, in turn, can inform the company’s assessment of its disclosure obligations under the federal securities laws.
The elimination of advisory proposals, coupled with other initiatives underway at the SEC, such as the changes in guidance on Forms 13D and 13G, which make asset managers more cautious about framing engagement issues as relevant to decisions on whether to support directors’ reelection, would dramatically shift the balance of power between investors and boards of directors.
Advancing such a theory would undercut the ability of investors to maintain and manage a diversified portfolio through stewardship and engagement. It would destabilize settled expectations of investors and markets. After decades of practice, these expectations are not incidental; they form part of the market infrastructure, supporting shareholder input and board accountability and strengthening investor confidence in Delaware’s corporate governance framework and US capital markets. Delaware law should defend, and not disrupt, these market norms.