Conservative National Legal and Policy Center Writes to SEC Chairman Opposing Recent Changes
/This post excerpts a letter written by The National Legal and Policy Center to Chairman Paul Atkins, Securities and Exchange Commission. Access the full text here.
Dear Chairman Atkins:
The National Legal and Policy Center (“NLPC”) writes to express our interest in working with you, the Commission, and staff on any future rulemaking, guidance, or other actions relating to the shareholder proposal process and broader proxy system. As a shareholder advocate that has long used Rule 14a-8 to challenge politicized corporate behavior, we offer a perspective that is both pro-market and skeptical of the “stakeholder” model of corporate governance.
Introduction
The SEC’s mission is to “protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.” To these ends, it has long played a central role in structuring the proxy process and protecting the rights of shareholders as owners. We respectfully submit that preserving a robust, predictable shareholder proposal regime is fully consistent with that mission, and that some of the recent ideas and developments surrounding the proposal process risk undermining it.
We understand that further action regarding shareholder proposals is under consideration by you and the Commission. We welcome discussion of how to reduce abuse and clarify fiduciary duties. However, we are concerned that reducing the SEC staff’s role in the no-action process, encouraging aggressive ownership thresholds, or casting doubt on the legitimacy of non-binding proposals could unintentionally weaken market-based accountability and drive political conflict into more heavy-handed regulatory channels
Shareholder Proposals Are a Capitalist Tool
From a conservative perspective, Rule 14a-8 is best understood not as a vehicle for stakeholder capitalism, but as a property-rights mechanism. It gives owners of a corporation a low-cost way to raise emerging risks and concerns with management, and test those concerns in the marketplace of investor opinion through a shareholder vote. Properly constrained, this is an explicitly capitalist institution. It is voluntary, firm-specific, and mediated by the discipline of capital markets. It is also qualitatively different from political regulation. When a shareholder proposal is adopted or prompts a negotiated change, that outcome arises from private ordering within a particular company, not from a government mandate imposed on the entire economy.
For that reason, shareholder proposals are a constructive alternative to more intrusive political interventions. If owners are denied meaningful tools to discipline management on social, political, or ESG matters that affect the firm, the likely result is more legislative and regulatory activism, not less. We believe conservatives should prefer disputes to be resolved within the framework of corporate law and capital markets rather than by sweeping federal mandates.
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Conclusion
For these reasons, we respectfully urge the Commission not to weaken the shareholder proposal process or to invite state-law experiments that would, in practical effect, curtail the ability of ordinary investors to raise concerns with management. A clear and stable federal baseline under Rule 14a-8—one that recognizes the legitimacy of precatory proposals, maintains an accessible threshold for smaller but bona fide shareholders, and resists efforts to reclassify ordinary owner oversight as “improper” under state law—is fully consistent with the Commission’s mission to protect investors and promote fair, orderly, and efficient markets. It is also the approach most compatible with a conservative, market-oriented vision of corporate governance, in which disputes over politicized corporate behavior are worked out within firms and among owners, rather than through sweeping political or regulatory mandates.
We would welcome the opportunity to discuss these issues further with you, your fellow commissioners, and your staff, and to provide concrete examples of how the shareholder proposal process has enabled NLPC and similarly situated investors to check managerial excesses, challenge uneconomic ESG initiatives, and refocus companies on their core duty to shareholders. We are confident that, with careful and viewpoint-neutral refinements, the Commission can address concerns about abuse and complexity without sacrificing a vital mechanism of owner oversight.
Sincerely,
Peter Flaherty, Chairman.