UCLA School of Law

In 1942, the Securities and Exchange Commission adopted what is now Rule 14a-8, the shareholder proposal rule. Eight decades later, the Commission has proposed rescinding it entirely and leaving the question of shareholder access to the company’s proxy statement to state law and private ordering. In this comment letter, I support rescission.I begin with the Commission’s threshold argument that the Rule exceeds its authority under Exchange Act § 14(a). The Proposing Release correctly adopts the view that “fair corporate suffrage” refers to disclosure and fair solicitation procedures, not to the substance of shareholder voting rights. I then turn to policy. Corporations are not democracies, and Arrow’s analysis of authority-based decision-making explains why shareholder review of board decisions shifts authority away from the board. The Rule imposes substantial costs, much of which is driven by a handful of gadflies. It gives proponents settlement leverage and distracts boards from their core responsibilities. Claimed reliance interests do not defeat rescission, given the Rule’s constant reinterpretation under successive administrations. Instead, they oblige the Commission to justify the change under Fox Television and Regents and to consider transition measures, several of which I propose. Finally, universal proxy, e-proxy, concentrated ownership, and social media have reversed the cost calculus on which the Rule rested. Inclusion was once cheap and self-help expensive. Today the reverse is true.