Professor Bainbridge...on law, politics, religion, culture & food

Today’s Shareholder Access Question: Why Not Rule 14a-8 Too?

On Wednesday, I began a new series of posts in response to the SEC's shareholder access proposal. As you will doubtless recall, my first post dealt with the relationship between state law and proposed Rule 14a-11. As you will also doubtless recall, the SEC release states:

If state law permits companies incorporated in that state to prohibit security holder nominations through provisions in companies' articles of incorporation or bylaws, the proposed procedure would not be available to security holders of a company that had included validly such a provision in its governing instruments.

Today, instead of answering another SEC question, I wish to pose a question to the SEC (just over 1% of my hits come from the sec.gov domain, so I know you're listening!): Why not allow corporations to opt out of Rule 14a-8 too? (For the benefit of the uninitiated, Rule 14a-8 is the shareholder proposal rule. There's a good guide here.)

The shareholder proposal rule has become an increasingly costly mechanism for social activists, unions, and public pension fund managers to hijack the corporate proxy statement as a soapbox for multiple proposals that often have little to do with shareholder welfare. Granted, there is increasing use of the rule for what purport to be governance governance, but query how much governance bang we're getting for our buck. If it makes sense to let firms opt out of Rule 14a-11, there is no good reason to forbid them from doing so with respect to Rule 14a-8. (I need to come back to this issue to develop the case for an opt-out from Rule 14a-8 in more detail, but I thought I'd at least get it on the table now. Maybe one of my fellow corporate law/governance bloggers will want to run with it?)