If you’re a founder weighing where to incorporate, an investor who values a particular set of governance rights, or a company that has spent real money mailing documents twice, this is the window where your view counts for something.
By Nick Morgan, Founder and President, ICAN Law
Chairman Atkins has reframed the shareholder proposal debate in a way that should interest anyone who believes in competition and choice.
On September 16, the Commission moved to rescind Rule 14a-8, the rule governing when a company must include a shareholder’s proposal in its proxy materials. The coverage framed it as a fight over shareholder voice—a win for management, a loss for investors, depending on who was writing. But it’s actually much more than that.
The proposal to rescind the rule came not to silence shareholders, but because the Commission lacks statutory authority to regulate shareholder proposals in the first place. Congress told the SEC to regulate disclosure—what shareholders get told, when, and whether it’s accurate. It did not tell the agency to decide which subjects belong on a ballot. But that’s what Rule 14a-8 does. It sorts proposals into includable and excludable, weighing whether a matter is ordinary business or significant enough to put to a vote. Those are governance calls, and governance is chartered at the state level.
Atkins said it about as directly as an SEC chairman can: the Commission has no authority to determine which matters are a proper subject for a shareholder vote.
The federal rule didn’t just regulate. It crowded states out.
By stepping back, the SEC removes the federal regulatory overlay that has kept states from developing their own frameworks. Right now, Rule 14a-8 effectively trumps state law. Rescind it, and states can compete.
Some will design investor-friendly shareholder proposal rules. Others won’t. The competition is the point. Investors don’t have to accept a one-size-fits-all framework from Washington. They can choose which state’s governance terms match their investment thesis and their values.
Want a company where shareholders can make precatory proposals on climate or compensation? Incorporate in a state that enables it. Prefer a narrow shareholder ballot? Another state will offer that. Investors and founders both get choice—the ability to match the governance framework to what they actually need, rather than what a federal agency decided decades ago.
This matters because the precatory proposal question is about to become very concrete. SEC Chair Atkins and other commissioners—including Commissioner Hester Peirce, who emphasized the constitutional case against the SEC’s authority, and Commissioner Mark Uyeda, who focused on institutional overreach—have signaled that Delaware practitioners may argue precatory (non-binding) shareholder proposals are ultra vires under state law. That argument could reshape the baseline. But it also opens the door: if Delaware restricts them, other states can go the opposite direction and attract shareholders who want that voice.
That’s the federalism play. Not a race to the bottom. A marketplace where investors shop for governance rights.
The modernization provisions proposed the same day matter too—shortening broker search periods, eliminating redundant annual report requirements, updating technical deadlines. These reduce friction without sacrificing investor access to information on EDGAR.
But the bigger point is the one embedded in the rescission itself: if the SEC lacks authority over shareholder governance, then investors shouldn’t have to accept federal gatekeeping. State law can be more permissive, or it can be more restrictive, depending on how each state balances founder and shareholder interests. The federal rule foreclosed that conversation entirely.
The transition risk is real. It’s also not the question.
Some critics argue this shifts power to issuers and away from shareholders, or that states may not fill the void quickly. These are fair concerns.
But transition risk is an argument about sequencing. It isn’t an answer to the structural question. If the agency lacks the authority, the fact that its rule has become useful is not a reason to keep exercising power Congress never granted.
The premise here—that the SEC never had authority to regulate shareholder governance at all—is structurally sound.
And if states want shareholder input, they’ll adopt it. Delaware already has competing states watching how it responds. That’s the pressure federalism creates, and it works.
Why this one is worth watching
The deeper principle is the one I’d flag for anyone who follows this agency: the SEC policing the boundaries of its own authority is rare. It’s the same question we’ve spent years pressing regulators on in one forum after another—what does the law actually authorize the agency to do? Usually we’re asking from the outside, against an agency insisting the answer is “more than you think.”
The question here isn’t whether shareholders can make proposals. It’s who gets to decide the framework. Atkins is saying that should be states, not federal regulators.
Comments are open for sixty days after the proposals are published in the Federal Register. Until then, the current rules stay in force.
If you’re a founder weighing where to incorporate, an investor who values a particular set of governance rights, or a company that has spent real money mailing documents twice, this is the window where your view counts for something.
Author Bio: Nick Morgan is President of the Investor Choice Advocates Network (ICAN), a nonprofit public interest litigation organization advocating for economic liberty, capital formation, and entrepreneurship rights on behalf of small investors and entrepreneurs facing SEC and FINRA overreach.
