Among one of many changes afoot at the SEC under its current Chair Paul Atkins is Atkins’s proposal calling for the agency to reconsider its rule allowing shareholders to include non-binding shareholder resolutions in corporate proxy materials. In the following guest post, Sarah Abrams, Head of Claims Baleen Specialty, a division of Bowhead Specialty, takes a look at Atkins’s proposal concerning shareholder resolutions and considers the potential impact of a rule change on D&O liability. I would like to thank Sarah for allowing me to publish her article on this site.
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During his keynote address at the University of Delaware in October, SEC Commissioner Paul Atkins called for reconsideration of the rule that allows shareholders to include ESG‑related proposals in corporate proxy statements. He questioned whether environmental and social shareholder proposals, typically non‑binding in nature, continue to justify the management time, expense, and distraction they impose on public companies, particularly given their consistently low levels of shareholder support.
If the SEC ultimately adopts Commissioner Atkins’ suggested reinterpretation of Rule 14a-8, particularly as applied to Delaware-incorporated companies, the change could materially alter the shareholder proposal landscape. Companies may be permitted to exclude certain ESG-related proposals as precatory and not a proper subject for shareholder action under state law. While such a shift might appear, at first glance, to reduce ESG-related exposure, it could instead recalibrate D&O risk toward board-level decision-making, fiduciary oversight, and the process by which proposal exclusion decisions are made.
Against that backdrop, the following will examine Rule 14a‑8, Commissioner Atkins’ proposed approach to ESG‑related shareholder proposals, and the potential implications for D&O underwriting and board liability if ESG proposals are more readily excluded from proxy statements.
SEC Rule 14a-8
As D&O Diary readers may recall, a proxy statement is a document that a public company must send to its shareholders before a shareholder meeting, which provides detailed information shareholders may need to vote on corporate matters. Shareholders can either attend the company’s annual meeting to vote on proposals or give someone else (a “proxy”) the authority to vote on their behalf, based on the information in the proxy statement. Section 14a of the Securities Exchange Act of 1934 governs proxy statements, and the SEC issued Regulation 14a to set out the specific rules about what may be disclosed in the proxy materials.
Rule 14a-8, adopted by the SEC in 1942, gives shareholders the right to include certain proposals in a company’s proxy materials for consideration and vote at the annual meeting. Corporate boards often monitor and manage the shareholder proposal process. Rule 14a-8 (i)(2) provides certain circumstances when a company may legitimately exclude a shareholder proposal from its proxy statements. And courts have periodically clarified the limits of Rule 14a-8’s exclusions, offering guidance on when shareholder proposals cross the line from matters of broad policy to issues of day-to-day management.
Most notably, a Third Circuit decision upheld a company’s exclusion of a proposal that asked its board to establish standards for deciding whether to sell products that might endanger public safety or harm the company’s reputation. The appellate court determined that the proposal concerned ordinary business operations, specifically product selection, and that the social policy issues raised in the shareholder proposal did not sufficiently transcend those operational matters.
While not specific to ESG proposals, the Third Circuit’s precedent may support Commissioner Atkins’ position, in that proposals grounded in social or ESG concerns may be excluded when they seek to direct or micromanage business decisions.
The Commissioner’s Keynote
Commissioner Atkins observed that a growing share of shareholder proposals focus on environmental and social issues. He characterized these as “precatory proposals,” non-binding in nature. The Commissioner noted that these proposals are generally immaterial to the company’s business, yet they consume substantial management time and resources while receiving limited shareholder support
The Commissioner further emphasized that, while Rule 14a-8 provides a federal mechanism for shareholders to include proposals in a company’s proxy statement, the inclusion of a proposal still depends on whether it is a “proper subject” for shareholder action under state corporate law. In particular, he discussed the interplay between paragraph (i)(1) of Rule 14a-8 (which allows exclusion if the proposal is not a proper subject under state law) and the fact that many companies are incorporated in Delaware (so Delaware law governs what is a “proper subject”).
In addition, Commissioner Atkins referenced academic and judicial commentary interpreting Delaware corporate law, which stresses that shareholders do not possess an inherent right to vote on purely precatory proposals, as the management of corporate affairs rests with a corporate board under Section 141(a) of the Delaware General Corporation Law. The Commissioner suggested that companies could make the argument under (i)(1) that a precatory proposal is excludable if it is not a proper subject for shareholder action under state law, particularly where a company supports its position with a legal opinion and seeks no-action relief from the SEC staff.
Finally, the Commissioner stated that he has asked SEC staff to evaluate whether the original rationale behind Rule 14a-8 (adopted in 1942) still applies today, given changes in proxy solicitation, shareholder communications, and the state law context.
Discussion
Recent proxy voting data may support, at least some, of Commissioner Atkins’ comments. According to an August Institutional Shareholder Services (ISS) Report found that, as of June 15, 2025, there were over 230 environmental and social (E&S) shareholder resolutions and over 240 governance resolutions that appeared on U.S. company ballots, demonstrating a continued decline in average shareholder support for such proposals.
In a D&O Diary post earlier this year, I queried “What is DEI?” after examining several public company 2025 proxy statements, which included shareholder proposals requesting companies address various DEI initiatives at annual meetings. Most companies rejected shareholder proposals both for and against DEI initiatives, and many DEI proposals did not receive shareholder support. Anecdotally, my findings and the ISS Report align, in part, with Commissioner Atkins’ recent keynote comment that “[ESG] proposals consume a significant amount of management’s time and impose costs on the company,” even though “they almost always receive even lower support than shareholder proposals do generally.” These patterns suggest growing fatigue toward ESG and DEI proposal cycles.
Thus, if the SEC adopts Commissioner Atkins’ suggested reinterpretation of Rule 14a‑8, boards that previously treated ESG‑related proposals as quasi-mandatory may reassess whether to exclude or continue considering them. There may be an immediate impact on corporate board liability if the SEC adopts Commissioner Atkins’ suggested reinterpretation of Rule 14a-8, which would allow companies, particularly those incorporated in Delaware, to exclude ESG-related shareholder proposals as precatory. Boards that have treated ESG-related shareholder proposals as fixed obligations may decide to recalibrate their governance processes to exclude or continue considering ESG proposals. This may result in shareholder scrutiny of a board’s fiduciary oversight.
Particularly, in Delaware, where directors’ duties of care and loyalty are often evaluated under the business judgment rule, a board’s rationale and documentation for excluding shareholder proposals could become central to any future litigation alleging breach of fiduciary duty, failure of oversight, or disregard of shareholder rights. For D&O underwriters, a shift permitting broader exclusion may not necessarily translate to a simple reduction in risk; rather, the profile of that risk would change to heightened scrutiny of the board’s exclusion process.
Shareholder plaintiffs could allege that directors improperly curtailed shareholder rights or failed to follow due process under Delaware law when invoking the “proper subject” exclusion. Boards that appear misaligned with shareholder expectations, or that reverse prior ESG commitments without clear communication, may invite additional scrutiny. For insurers, this dynamic means defense-cost exposure will increasingly hinge on the procedural fairness of exclusion decisions and the transparency of board governance, rather than on ESG disclosure itself.
Whether the Commission ultimately moves to narrow the scope of shareholder ESG proposals remains to be seen, but the debate may shift the focus from disclosure content to governance process, an area of enduring D&O exposure.
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