November 10th, 2026
Maxwell Homan, Friends Fiduciary Corporation
This analysis responds to the SEC’s proposed rule, Rescission of Rule 14a-8’s Federal Regulation of Shareholder Proposals and Amendments to Rule 14a-4 (Release No. 34-106383; File No. S7-2026-32), published on September 21, 2026. All footnote numbers referenced below refer to the footnotes in that proposed release. This document comments on the academic citations used throughout the SEC’s cost benefit analysis (“CBA”). The SEC cites certain articles multiple times to support arguments that run counter to the plain language of those articles.
This document proceeds as follows. First, this document highlights where the SEC relies on contradictory empirical evidence to make their argument. We list examples of where the SEC incorrectly generalized claims made in academic papers. Where available, we provide evidence that the author(s) of these papers directly or indirectly state that their findings should not be used to make the claims made by the SEC. Second, we provide examples of academic studies that find that the SEC’s proposed rulemaking fails to address how the rescission will complement other actions undertaken by the SEC. Third, we address key omissions from the findings or context of papers cited in the SEC’s CBA.
Section 1: Reliance on Contradictory Empirical Evidence
In this section, we organize our analysis by the specific papers that are misused in the SEC’s cost benefit analysis.
Footnotes 144, 410, and 442: Matsusaka, John G., Oguzhan Ozbas, and Irene Yi. 2021. “Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions.” The Journal of Law and Economics 64, no. 1: 107–146.
The SEC uses this paper throughout its argument to make several general points that conflict with the paper’s proposed scope. First, they use this paper to support their argument that “Rule 14a-8 has become a mechanism for influencing the interactions between companies and their shareholders in ways that are inconsistent with the rule’s original purpose.” Specifically, they use the paper as a citation for the argument on page 45: “For proponents, reaching a settlement can provide a more certain path to achieving a tangible outcome since shareholder proposals are typically non-binding even when they receive majority support.” They cite this paper because it has the following line: “when a proposal is withdrawn, it often means that the company granted some concession to the proponent, who in exchange withdrew the proposal.”
The main conclusions and core findings of this paper do not focus on the nature and process of withdrawals, thus demonstrating that the SEC’s release cites papers without analyzing its main findings. For example, here it was used to make a comment on empirical research that shows a relationship between stock prices and shareholder proposals:
Studies using the no-action letter process as a natural experiment find that markets react positively, on average, when a no-action letter concurring with the company is issued, with larger effects for proposals sponsored by individuals and those classified (by the studies’ authors) as pursuing special interests. This literature provides the closest available quasi-experimental evidence on the value effects of proposal exclusion, but its applicability to the proposed amendments is limited.
They claim that multiple studies that use “no-action letter process as a natural experiment” support their statement. Yet, they only cite one paper: Matsusaka et al. (2021). This paper does not consider the no-action letter process as a natural experiment. Their research strategy simply assumes that the SEC decisions resolve uncertainty, not that the no-action process introduces exogenous variation that can be used to identify how market participants value shareholder proposals on average. Moreover, this paper plainly argues that: “Our paper cannot provide an overall assessment of the shareholder proposal process; we doubt that our sample is representative of all proposals.” The authors’ characterization of their research is differentiable from the SEC’s characterization of their research:
Neither line of research estimates the effect of removing the Rule 14a-8 process as a whole or directly measures companies’ cost of capital. Moreover, the no-action letter evidence reflects proposals that companies challenged under particular Rule 14a-8 exclusion grounds and may not [emphasis added] generalize to the broader set of proposals affected by the proposed rescission
Therefore, the SEC’s characterization of the applicability of Matsusaka et al. (2021) to the proposed rulemaking is clearly arbitrary. As such, the paper is not applicable to the proposed amendments, and should not be treated as having limited applicability to the proposed amendments as suggested by SEC staff.
“However, recent evidence by Matsusaka et al. (2021) reveals a positive market response to the SEC staff’s decision to grant no-action relief, suggesting the process is adding value, on average.“ Most notably, Table 7 shows that the largest measured market response occurs when a seasoned SEC staff member is unable to concur with the issuers’ request. This further demonstrates that the SEC is providing value through adjudication of the process, rather than simply decreasing the number of proposals on proxies. What the SEC fails to mention is that the paper concludes: The discovery of a set of proposals that the market considered harmful complements the evidence in Cuñat, Gine, and Guadalupe (2012) that certain corporate governance proposals were value increasing in the eyes of investors. Taken together, these findings suggest that both reformers and critics of the process might have a point. Shareholders’ proposals might have both a bright side and a dark side. If so, the challenge from a policy perspective would be to design rules and regulations that let in the good proposals and screen out the bad ones.
Burke (2023) shows that the market response identified by Matsusaka et. al (2021) “is concentrated among relatively more experienced staff.” This means that market participants do not simply value the exclusions of a shareholder proposal. Rather, market participants primarily value exclusions determined by experienced SEC staff members. Burke (2023) also provides a framework for evaluating the costs associated with a reduction in force in the Division of Corporation of Finance. The SEC fails to address these costs.
In March 2026, the GAO released a report evaluating the SEC’s workforce management practices during the second Trump administration. They found that:
Beginning in January 2025, the Securities and Exchange Commission has made significant personnel changes in response to executive orders and other directions from the administration. For example, it offered voluntary departure incentives—which over 12% of staff took in FY 2025…
Following staff departures due to voluntary buyouts and deferred resignations in April 2025, SEC analyzed the characteristics of staff who left the agency. This analysis found, among other things, that employees with longer tenure were more likely to have taken the voluntary buyouts. Specifically, employees with 20 or more years tenure disproportionately made up the people who voluntarily departed…
In September 2025, SEC again offered voluntary early retirement and voluntary separation incentive payments to most supervisory-graded employees and allowed certain supervisors to accept a downgrade in their duties to help achieve the planned ratios. According to SEC, 42 people departed the agency in fiscal year 2026 as a result of these efforts.
The GAO found that the SEC laid off 14% of staff who worked in the Division of Corporation Finance, the Division entrusted with administering and interpreting Rule 14a-8 in FY 2025. Most employees the GAO interviewed (48 of 61) raised “challenges associated with employee departures resulting from voluntary buyouts and deferred resignations.”
The SEC does not mention these findings in their proposed rulemaking. In “SEC Rule 14a-8 shareholder proposals: No-action requests, determinants, and the role of SEC staff,” Burke, the author, using a sample of 3,040 no-action letters, “finds that legal characteristics, pressures on the staff, and proposal attributes have a statistically significant association with the SEC’s decision.” Specifically, he finds that “individual SEC staff members differ in the likelihood that they grant no-action relief. On average, these staff members appear to add value, as evidenced by a positive market response to their decisions, but this favorable valuation effect is concentrated among relatively more experienced staff.”
Burke’s work is important for two key reasons. First, it provides important context for the results of Matsusaka et. al (2021), who found that market participants reacted positively to no-action decisions within their sample. Burke shows that the market response identified by Matsusaka et. al (2021) “is concentrated among relatively more experienced staff.” This means that market participants do not simply value the exclusions of a shareholder proposal. Rather, market participants primarily value decisions determined by experienced SEC staff members. Burke (2023) also provides a framework for evaluating the costs associated with a reduction in force in the Division of Corporation of Finance.
The SEC fails to address these costs. Burke also explicitly states that “While Matsusaka et al. (2021) show the decision to concur enhances shareholder value, I show value implications also vary with individually significant SEC staff and differentially based upon whether staff have a tendency to grant exclusion. Therefore, to understand the value implications of the no-action process, one must consider the SEC staff making the decision.” Also this paper shows that less seasoned staff are more likely to defer to shareholders, not issuers.
Footnote 432: Loughran, Tim, and Bill McDonald. 2014. “Measuring Readability in Financial Disclosures.” The Journal of Finance 69, no. 4: 1643–1671
The proposed rulemaking document uses the aforementioned citation to address “the potential effects of the proposed rescission of Rule 14a-8 and the proposed amendments to Rule 14a-4(c) on efficiency, competition, and capital formation.” They specifically use these papers to assert that: “Research has documented that investors have limited attention and may not fully process all available information in complex or lengthy disclosures, which can affect the quality of financial decision-making”
This paper asserts: “We report that 10-K document file size provides a simple readability proxy that outperforms the Fog Index, does not require document parsing, facilitates replication, and is correlated with alternative readability constructs.” First, the paper does not study the length of disclosures made in the proxy statements. The 10-K and the Proxy Statements are clearly differentiable and the SEC does not provide an empirical study on the connection between the length of the proxy statement and value creation.
Second, this paper is that it simply no longer represents the frontier of literature. For example, the SEC does not cite that Bonsall, Leone, Miller, and Rennekamp (2017) caution against the use of file size as a proxy for readability. Specifically they “caution researchers that a vast amount of the variation in Form 10-K file size over time is driven by the inclusion of content unrelated to the underlying text in the 10-K.” Also Dyer et al. (2017) “ find that new FASB and SEC requirements explain most of the increase in length [in 10-Ks] and that 3 of the 150 topics—fair value, internal controls, and risk factor disclosures—account for virtually all of the increase. These three disclosures also play a major role in explaining the trends in the remaining textual characteristics.” That said, even they stress that “our results are descriptive and do not allow us to draw normative conclusions” Additional papers in the literature also highlight the importance of large language models in aggregating text data from corporate disclosures.
Third, the SEC implies that the shareholder proposal process has caused proxy statements to increase in length. Later on in the section, they assert that: “To the extent that these limitations apply to proxy cards, the proposed amendments to Rule 14a-4(c) could improve the informational efficiency of the proxy process to some degree with respect to those items. Any such benefit would depend on the number of non-Rule 14a-8 proposals a company receives.” The SEC does not cite research that shows that financial disclosures’ textual complexity actually predicts shareholder activism. Anand et al. (2025) find that companies that issue 10-Ks with lower readability receive a higher number of shareholder proposals on corporate governance. They found that the “effect is primarily concentrated in proposals sponsored by retail investors and is most pronounced in firms with entrenched management, those actively engaging in earnings management through discretionary accruals, and proposals related to executive compensation and disclosure.” This paper provides clear evidence of two features. First, shareholder proponents do not promote disclosure complexity. Second, shareholder proponents provide a club good to non-proponents by engaging with companies that issue disclosures with textual complexity.
Commenters should also consider commenting on how advancements in technology also have a significant effect on how capital stewardship professionals process information. The SEC’s proposed release has not analyzed that development.
Footnote 334: Helwege, Jean, Vincent Intintoli, and Andrew Zhang. 2012. “Voting with Their Feet or Activism? Institutional Investors’ Impact on CEO Turnover.” Journal of Corporate Finance 18, no. 1: 22–37
The SEC uses this citation to assert that: “Although Rule 14a-8 was not adopted to serve as a means of shareholder engagement, we recognize for purposes of assessing the baseline that some shareholders use the Rule 14a-8 process as an engagement tool.” The SEC then describes different engagement methods under the existing regulatory regime that serve as “complements to or substitutes for” the shareholder proposal process. This paper is used to assert: “Finally, academic literature has also discussed the role of the threat of divestment as a potentially important alternative to more traditional methods of shareholder engagement.” Specifically, they characterize this paper as “examining the role of activism and exit in driving CEO turnover.” The SEC fails to highlight that this paper identified a decline in divestment as a form of engagement: “In contrast, voting with their feet has declined to the point where it no longer affects turnover outcomes.” In short, the SEC uses a paper that shows divestment to be an ineffective engagement strategy as an example of how shareholders could use divestment to engage companies without the shareholder proposal process.
Footnote 329: Catan, Emiliano M., and Marcel Kahan. 2019. “The Never-Ending Quest for Shareholder Rights: Special Meetings and Written Consent.” Boston University Law Review 99, no. 2: 743–775; Gompers, Paul, et al. 2003. “Corporate Governance and Equity Prices.” The Quarterly Journal of Economics 118, no. 1: 107–155.
The SEC asserts that: “Although Rule 14a-8 was not adopted to serve as a means of shareholder engagement, we recognize for purposes of assessing the baseline that some shareholders use the Rule 14a-8 process as an engagement tool.” The SEC then describes different engagement methods under the existing regulatory regime that serve as “complements to or substitutes for” the shareholder proposal process. These papers are used to assert: “Shareholders also may request a special meeting between annual meetings or an action by written consent, if permitted by State law and a company’s governing documents.” Specifically, they characterize these papers as “including limits on the ability to call a special meeting “that either increase the level of shareholder support required to call a special meeting beyond that specified by state law or eliminate the ability to call one entirely” in the paper’s measure of greater management power (lower shareholder power) and noting that “[s]uch provisions add extra time to proxy fights, since bidders must wait until the regularly scheduled annual meeting to replace board members or dismantle takeover defenses. This delay is especially potent when combined with limitations on actions by written consent.”). Calling a special shareholder meeting could be a part of the proxy fight.”
However, the SEC omits Catan and Kahan’s findings that “these powers are most useful when they can be employed to gain a board majority and only useful if they can be employed at least to change the board composition…we show shareholders cannot use that power to gain a board majority or change the board composition. We also document that precatory shareholder proposals were key drivers of the evolution of the ability to act between annual meetings among our sample firms.” Therefore, Catan and Kahan do not support shareholders calling a special meeting as a meaningful form or alternative to shareholder engagement in the current U.S. context, especially compared with shareholder proposals.
Moreover, Gompers et al. argues for the materiality of the shareholder proposal process. The majority of governance rules that compose their “Governance Index” govern the conduct of managers, directors, and shareholders actions at annual meetings. Moreover, many of the governance rules that comprise the index have been the subject of past shareholder proposals.
Footnote 328: Ertimur, Yonca, et al. 2011. “Shareholder Activism and CEO Pay.” The Review of Financial Studies 24, no. 2: 535–592.
The SEC asserts that: “Although Rule 14a-8 was not adopted to serve as a means of shareholder engagement, we recognize for purposes of assessing the baseline that some shareholders use the Rule 14a-8 process as an engagement tool.” The SEC then describes different engagement methods under the existing regulatory regime that serve as “complements to or substitutes for” the shareholder proposal process. This paper is used to assert: “Academic research has shown that “vote no” campaigns can result in changes to CEO pay and board decisions sought by the shareholder.” Finding that “[f]irms with excess CEO pay targeted by vote-no campaigns experience a significant reduction in CEO pay.” The paper finds that “Union pension funds sponsor most of these initiatives, yet their targeting criteria do not appear to reflect labor-related motives.” And yet, this finding is presented alongside other papers finding the opposite. It includes a larger sample of compensation proposals than Matsusaka et. al. (2019).
Footnote 433: Dessein, Wouter. 2002. “Authority and Communication in Organizations.” Review of Economic Studies 69, no. 4: 811–838.
In SEC’s discussion of Effects on Efficiency, they assess changes to the proxy and Rule 14a-4: “The proposed opt-out structure in Rule 14a-4(c) can also be analyzed as a form of delegated decision-making. If a shareholder returns the company’s proxy card without checking the opt-out box, the company would have discretionary authority to vote the shareholder’s shares on non-Rule 14a-8 proposals in accordance with its disclosed intention. When management is better informed than individual shareholders about the merits of a particular proposal (e.g., because it has greater familiarity with the company’s operations, strategy, or governance), delegating voting authority to management could result in votes that better serve shareholders broadly, which can improve the allocative efficiency of the voting process. This mechanism is consistent with the broader literature on delegated decision-making, which suggests that delegation can improve outcomes when the delegate has an informational advantage and the parties’ interests are sufficiently aligned. Any such benefit would depend on the alignment of managerial and shareholder interests, which may vary across companies and proposals, and on whether a shareholder’s failure to check the box reflects a decision to delegate rather than inattention…” The SEC characterizes this paper as “Developing a model in which a principal prefers to delegate control to a better-informed agent when the incentive conflict is not too large relative to the principal’s uncertainty.”
Yet, the SEC ignores that the incentive conflict can be large especially for environmental and important social issues brought through shareholder proposals. Results from the paper’s introduction detail: “for moderate biases, the principal optimally delegates decision rights to an intermediary with objectives in between hers and her agents.” For further analysis of the agency conflicts between management and shareholders, see Ang et al. (2000).
Section 2: Failure to Address Interconnected Agency Actions
Footnote 432: Loughran, Tim, and Bill McDonald. 2014. “Measuring Readability in Financial Disclosures.” The Journal of Finance 69, no. 4: 1643–1671; Hirshleifer, David, and Siew Hong Teoh. 2003. “Limited Attention, Information Disclosure, and Financial Reporting.” Journal of Accounting and Economics 36, no. 1-3: 337–386.
On May 5, 2026, the SEC issued proposed rulemaking that would allow domestic public companies to elect to issue semiannual interim reporting. The proposed rulemaking on the rescission of Rule 14a-8 does not include a mention of this rulemaking. These two rulemakings are clearly interconnected.
The proposed rulemaking document uses the aforementioned two citations to address “the potential effects of the proposed rescission of Rule 14a-8 and the proposed amendments to Rule 14a-4(c) on efficiency, competition, and capital formation.” They specifically use these papers to assert that: “Research has documented that investors have limited attention and may not fully process all available information in complex or lengthy disclosures, which can affect the quality of financial decision-making”
Companies that move from quarterly reporting to semiannual reporting may experience a lower cost of disclosure. Hirshleifer et al. (2003) models firms’ disclosure choices when investors have limited attention and processing power. It is worth noting that this is a purely theoretical paper that does not provide empirical support for the SEC’s CBA.
Section 3: Key Omissions from Paper Findings and Context
In this section, we highlight instances where the SEC left out key pieces of information.
Footnote 314: Denes, Matthew R., et al. 2017. “Thirty Years of Shareholder Activism: A Survey of Empirical Research.” Journal of Corporate Finance 44: 405–424. SSRN.
In SEC’s discussion of Other Forms of Shareholder Engagement, they offer “Where academic research on any particular form of engagement is limited, the lack of specific data and evidence makes it difficult to quantify the pros and cons of these particular methods. In addition, the costs and benefits of using a particular shareholder engagement method may vary depending on the investor and the company involved. In particular, as noted in various instances below, State law and companies’ governing documents may dictate the form of, restrict, or have other implications for the feasibility and expense of undertaking a given approach.” Later in the section, they assert: “Proxy access” provisions, which allow shareholders to include their director nominees directly on a company’s proxy card (if permitted by the company’s governing documents), is another available avenue of shareholder engagement.”
The SEC fails to mention that typically included in these “Proxy access” provisions is the requirement for 3% company ownership held continuously for 3 years in order to nominate directors directly, making this avenue of shareholder engagement not an accessible alternative for investors except the company’s top shareholders.
Footnote 442: Becker, Bo et al. 2013. “Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable’s Challenge.” 56 J.L. & ECON. 127; Cohn, Jonathan B. et al. 2016. “On Enhancing Shareholder Control: A (Dodd-)Frank Assessment of Proxy Access.” 71 J. Fin. 1623; Matsusaka, John G. et al. 2021. “Can Shareholder Proposals Hurt Shareholders? Evidence from Securities and Exchange Commission No-Action-Letter Decisions.” 64 J.L. & ECON. 107.
In the SEC’s discussion of Effects on Capital Formation, they write that “The proposed changes could also affect the cost of capital if investors regard them as reducing practical access to shareholder-governance mechanisms. Evidence on how investors value particular governance mechanisms is mixed.” The SEC then discusses how investors would view the changes’ impact on governance mechanisms: “The proposed changes would not alter shareholders’ voting rights under State law, and the extent to which investors would view the proposed changes as increasing governance risk is uncertain. The proposed rescission of Rule 14a-8 would affect the inclusion of shareholder proposals in company proxy materials, while the proposed amendments to Rule 14a-4(c) would affect a company’s exercise of discretionary voting authority over proposals presented outside those materials when shareholders return the company’s proxy card without opting out. To the extent investors view the proposed changes as limiting their practical ability to raise governance concerns or influence voting outcomes, they may require incrementally higher expected returns, increasing the cost of equity capital for affected companies. The magnitude of any effect would depend on whether State law, company governing documents, and other governance mechanisms provide comparable means of shareholder participation, and on the extent to which shareholders understand and use the opt-out mechanism.”
The SEC cites these three papers in footnote 442 to elaborate as to how the “Evidence on how investors value particular governance mechanisms is mixed” . The SEC writes “the extent to which investors would view the proposed changes as increasing governance risk is uncertain” yet in the footnote cites two papers, Becker et al. (2013) and Cohn et al. (2016), which show companies lost value when shareholders’ rights in proxy access rule were overturned and gained value from increases in shareholder control through Dodd-Frank; the third paper cited, Matsusaka et al. (2021), shows that company valuation increased when SEC issued a no-action letter concurring with company, despite the fact that the no-action process wouldn’t exist if Rule 14a-8 were rescinded. Thus, none of these papers show evidence in support of rescission. All are in support of value when shareholder rights are in place, including the proposal and no-action process.