When the Umpire Leaves the Field

When the Umpire Leaves the Field
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Introduction

The 2025–2026 proxy season has introduced a significant shift in the governance landscape for U.S. public companies. In November 2025, the U.S. Securities and Exchange Commission (SEC) announced that it would no longer issue no-action letters related to most shareholder proposal exclusions under Exchange Act Rule 14a-8 for the current proxy season.

This thought piece examines the evolving landscape following the SEC’s announcement, highlights early litigations, and provides recommendations to mitigate risks.

How We Used to Play

Under Rule 14a-8 of the Securities Exchange Act of 1934, companies may exclude shareholder proposals if they meet certain criteria: for example, if they concern ordinary business operations, seek to micromanage the company, or are procedurally defective.

Historically, when a company intended to exclude a shareholder proposal, it would submit a no-action request to SEC staff. These requests asked the SEC’s Division of Corporation Finance to confirm that it would not recommend enforcement action if the proposal were excluded from proxy materials.

Although non-binding, these letters played a critical role in the shareholder proposal ecosystem by:

  • Providing independent regulatory analysis of the company’s arguments.
  • Creating public precedents for interpreting Rule 14a-8.
  • Offering companies a measure of legal protection, sort of a “stamp of approval,” before excluding proposals.

Companies rarely excluded proposals without receiving no-action relief. The SEC staff’s review effectively served as a deterrent to litigation.

New Settings, Higher Stakes: What Changed Last November

On November 17, 2025, the SEC announced that for the 2025–2026 proxy season (October 1, 2025 – September 30, 2026) staff will:

  • Stop responding to no-action letter requests except those based on Rule 14a-8(i)(1) (improper under state law).
  • Stop expressing substantive views on companies’ decisions to exclude proposals.


This decision was driven by resource constraints following a prolonged government shutdown and has changed how companies approach shareholder proposal exclusions.

Companies must still notify the SEC and the shareholder proponent at least 80 days before filing their definitive proxy statement if they intend to exclude a proposal. Instead of the traditional no-action letter, the SEC will respond with a “no-objection” letter based on limited analysis.

The absence of SEC staff analysis has removed a long-standing procedural safeguard that historically guided companies’ decisions and discouraged litigation.

The First Games of the Season

Early developments in the 2025–2026 proxy season suggest that the absence of no-action relief may open an opportunity for shareholder proponents to litigate exclusions. As of April 2026, at least six lawsuits have emerged involving disputes over excluded shareholder proposals:

Sustainability Is, Still and Again, the Touchy Subject

Perhaps the most obvious thing to note is that all proposals are ESG-related. The recent context regarding sustainability topics has been getting tenser, and some companies have chosen to scale back on reporting on those issues. However, investors remain focused on sustainability and, as it seems, activists are ready to go to court over such proposals.

All six companies sought to exclude the proposals based on Rule 14a-8(i)(7), claiming the proposals related to ordinary business and sought to micromanage the company. Five of the proponents contested this by arguing that the proposals addressed long-term corporate strategy and risk management, rather than operational decisions, reflecting a broader shift in how investors view sustainability-related matters. It is worth noting that the other proponent alleged that the company failed to properly notify them of deficiencies in the submission, as required under Rule 14a-8.

AT&T, the first case of this season, posted a rather short notice to the SEC, naming one precedent only and without in-depth analysis, all other companies sent a detailed notice, demonstrating that even a notice with in-depth analysis is not full-proof security against a possible lawsuit.

Settlement

The AT&T and PepsiCo cases were settled by the companies agreeing to include the proposals in their 2026 proxy statements. Axon Enterprise settled by committing to disclose its policies and governance framework for political spending, along with amounts and recipients. We are still waiting for more development in the remaining cases. Chubb and BJ’s Wholesale Club have chosen to pushback in court rather than a quick settlement.

Our Recommendations for a Winning Season

It appears that this season, perhaps more than in previous ones, companies must take a proactive approach to shareholder-proponent engagement and demonstrate genuine transparency. Based on the lawsuits previously described, several practices can help companies reduce the risk of litigation.

1. Engage Early and Meaningfully with Proponents

Direct engagement with shareholder proponents may reduce the likelihood of litigation. Four of the companies involved in lawsuits did not disclose any process for engaging with proponents in their proxy statement and did not disclose specific prior engagement with those proponents in the notice letter. Dialogue may allow companies to:

  • Clarify the intent of the proposal.
  • Negotiate modifications or withdrawals.
  • Identify potential compromises before disputes escalate.

 

2. Provide Detailed Notices of Exclusion

When companies decide to exclude a proposal, they should ensure that their notification to the SEC and the proponent includes clear and comprehensive reasoning.

That recommendation is not ours alone: ISS stated in its December 2025 FAQ that they expect “a clear and compelling argument for the exclusion of a proposal”.

Best practices include:

  • Detailed legal analysis of the relevant Rule 14a-8 exclusion.
  • Citations to prior SEC precedents.
  • Explanation of how the proposal affects company operations.
  • Documentation of relevant company policies or disclosures.

Companies providing detailed reasoning may still face challenges, but thorough analysis strengthens the company’s position if litigation occurs.

3. Evaluate Company-Specific Context

Investor relations and governance teams should assess exclusion decisions considering the broader context, including:

  • Industry-wide developments and trends.
  • Recent shareholder proposals on similar topics and shareholder support.
  • Changes in the company’s disclosure practices.
  • Track record of the proponent.

Proposals submitted by repeat proponents or activist organizations may warrant additional engagement and scrutiny. Similarly, companies that have previously disclosed information related to the proposal topic may face greater scrutiny when reversing course, as illustrated in the AT&T case. The AT&T litigation occurred after the company faced a similar proposal in 2020 and agreed to disclose its EEO-1 report, a disclosure that was discontinued in 2024.

4. Prioritize Transparency with Investors

In an environment without SEC validation, transparency can help mitigate reputational and litigation risk and encourage shareholder proponents to choose dialogue over litigation.

1. Companies can consider describing their engagement process with shareholder proponents.
Lockheed Martin and Wells Fargo describe engagement with shareholders proponent in a dedicated sub-section of the shareholder engagement section, outlining the practice as a part of their overall engagement process.

Lockheed Martin 2025 Proxy Statement

Screenshot 2026 04 08 at 01 22 41 Lockheed Martin 2025 Proxy 2025 proxy statement.pdf
Screenshot 2026 04 08 at 01 19 46 Lockheed Martin 2025 Proxy 2025 proxy statement.pdf
LM 3

Wells Fargo 2025 Proxy Statement

WF 1

2. Some companies have also begun disclosing excluded proposals or proposals they included but believe could have been excluded within their proxy statement.

Several companies have proactively acknowledged the change in dealing with shareholder proposals and included language in their 2026 proxy statements informing either of excluded proposals or proposals that they included due to the absence of SEC no-action letters but thought should have been excluded. Those statements were included either in the shareholder proposals section, often in the introduction, or as a comment of the related proposal (see The Walt Disney Company).

Starbucks 2026 Proxy Statement

SB 1

The Walt Disney Company 2026 Proxy Statement

WD 1

BD 2026 Proxy Statement

BD 1

Apple 2026 Proxy Statement

AP 1

Such disclosures can demonstrate a commitment to transparency and good governance, potentially reducing investor skepticism.

Looking Ahead

The SEC’s temporary withdrawal from the no-action process represents a significant shift in the typical U.S. shareholder proposal process. Companies must now make exclusion decisions with greater legal uncertainty, and it appears that shareholder proponents might be increasingly willing to challenge exclusions in court.

For investor relations and governance professionals, the implications are:

  • Engagement, documentation, and transparency are more important than ever.
  • Companies must carefully evaluate not only the legal basis for exclusion but also the strategic and reputational risks associated with that decision.


In this evolving environment, organizations that adopt proactive engagement strategies and robust disclosure practices will be best positioned to navigate the possible risks.

Citations

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