The U.S. Securities and Exchange Commission’s (SEC) November 2025 announcement that it would no longer adjudicate most Rule 14a-8 no-action requests has ushered in a period of significant flux for shareholder proposals. This shift has led companies to adopt a patchwork of strategies, from including previously contentious proposals in their proxy materials to outright rejecting them. The ensuing legal challenges, with six proponents filing lawsuits against companies for alleged improper exclusion, have illuminated the inherent complexities and potential unworkability of the current regulatory framework, particularly concerning the "ordinary business" exclusion. These legal battles are not merely academic; they are poised to fuel the debate surrounding potential reforms or even the complete rescission of Rule 14a-8, a move that could fundamentally alter the landscape of corporate governance and shift the locus of dispute resolution to state law.
The Rise in Shareholder Proposal Litigation
As the proxy season unfolded, many companies continued to reject shareholder proposals, a practice that has become increasingly common in recent years. However, this proxy season saw a notable uptick in legal challenges. In a handful of instances, proponents took companies to federal court, arguing that their proposals were improperly excluded from proxy statements in violation of Rule 14a-8. These legal contests have resulted in three federal court decisions and three settlements, all of which have grappled with the interpretation of the "ordinary business" exclusion under Rule 14a-8(i)(7).
This specific exclusion permits companies to omit proposals that pertain to their day-to-day operations. However, SEC guidance and a limited body of case law have carved out an important exception: if a proposal addresses a "significant social policy" that "transcends" a company’s ordinary business, it must be presented for a shareholder vote. The challenge lies in the decades-long struggle to consistently define and apply this "significant social policy" exception, a task made difficult by the highly politicized nature of many social issues and the inherently subjective interpretation of what constitutes a "transcendent" policy.
Divergent Court Rulings on "Ordinary Business"
The recent proxy season’s litigation underscores the interpretive challenges surrounding Rule 14a-8(i)(7). Three federal court decisions, in particular, offer a snapshot of these divergent outcomes, even as they ostensibly apply the same legal standard:
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Fonds Des Missions v. UnitedHealth Group Inc.: In this case, a Canadian charitable corporation, Fonds Des Missions, submitted a proposal requesting UnitedHealth Group to report on the health care consequences of its acquisitions over the preceding decade. The U.S. District Court for the District of Columbia ruled the proposal excludable under the ordinary business exception. The court reasoned that the proposal’s expansive scope "could excessively sweep in mundane aspects" of UnitedHealth’s daily operations. While the proposal touched upon the social policy of health care regulation, the court found that this policy was not the "focus" of the proposal, thus failing to meet the threshold for the significant social policy exception.
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As You Sow v. Chubb Limited: As You Sow, an organization focused on climate change activism, filed a proposal urging Chubb Limited to assess its pursuit of subrogation claims against parties responsible for climate-related insured losses. The U.S. District Court for the District of Columbia denied the proponent’s motion for a preliminary injunction, allowing Chubb to exclude the proposal. The court determined that subrogation decisions are "the very core" of an insurer’s ordinary business operations, falling squarely within the Rule 14a-8(i)(7) exclusion. Similar to the UnitedHealth case, the court found that As You Sow had not sufficiently persuaded it that the proposal was "focused" on climate change as a significant social policy, preventing the exception from applying.
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DiNapoli v. BJ’s Wholesale Club Holdings, Inc.: In contrast, the New York State Common Retirement Fund, represented by Comptroller Thomas P. DiNapoli, submitted a proposal to BJ’s Wholesale Club Holdings, Inc., requesting an assessment of deforestation risks associated with its private-label brands and a subsequent report. BJ’s sought to exclude the proposal, arguing it related to ordinary business operations, specifically supply-chain management. However, the U.S. District Court for the District of Massachusetts ruled in favor of the proponent, holding that the proposal "focused" on the significant social policy of deforestation, thereby transcending the company’s day-to-day operations.
Reconciling Seemingly Contradictory Outcomes
At first glance, the outcome in DiNapoli v. BJ’s Wholesale Club Holdings, Inc. appears to directly contradict the rulings in Fonds Des Missions v. UnitedHealth Group Inc. and As You Sow v. Chubb Limited. In each instance, proponents submitted proposals that touched upon both social policy and a company’s ordinary business. Yet, the BJ’s court allowed the proposal to proceed to a shareholder vote, while the courts in UnitedHealth and Chubb permitted exclusion.
One explanation for these seemingly disparate decisions is that courts are being compelled to make highly nuanced distinctions on often undeveloped factual records, leading to conflicting conclusions. However, a deeper analysis suggests that these cases, while yielding different results, may have applied a consistent analytical framework. The crux of this framework, as articulated by the SEC and subsequent case law, hinges on whether a proposal "plainly focuses" on a social policy rather than merely implicating it. If the focus is on the social policy, then it is considered to "transcend" ordinary business and must be put to a shareholder vote.
Applying this "focus" test, the differing outcomes can be reconciled. In the BJ’s case, the proposal was deemed to be more directly concerned with the social policy of deforestation itself, rather than being viewed primarily through the lens of BJ’s specific supply chain management challenges. Conversely, the UnitedHealth and Chubb proposals, while addressing significant social issues like healthcare regulation and climate change, were seen by the courts as indirectly addressing these policies through the established operational frameworks of their respective businesses – healthcare acquisition strategies and insurance risk management.
This reconciliation, however, leads to a counterintuitive outcome: a proposal with an abstract connection to a company’s operations (deforestation risks on BJ’s supply chains) is allowed to proceed, while proposals more directly related to a company’s core business and its associated social policies (healthcare regulation for UnitedHealth, climate change impacts on insurance for Chubb) are excluded. This interpretation raises questions about the efficacy of the current rule, potentially suggesting that proposals with minimal or no direct business connection might be more likely to pass muster, a scenario that few would argue is the intended outcome of shareholder proposal regulations.
The Unworkability of Rule 14a-8 and the Call for Reform
The inherent complexity and the resulting "Frankensteinian" body of SEC guidance surrounding Rule 14a-8 have made its application "perplexing" for courts. The SEC’s own guidance, such as Staff Legal Bulletin 14M (SLB 14M), has attempted to clarify the "ordinary business" exclusion. SLB 14M states that for a social policy to "transcend" ordinary business, it must be significant in relation to the company. However, this creates a circular logic: if a policy is significant to a company, it inherently relates to the company’s day-to-day operations, thereby making it potentially excludable as "ordinary business."
This circularity highlights a fundamental challenge: for many modern corporations, ordinary business operations are inextricably linked with significant social policies. Healthcare companies must navigate evolving health care policies, insurance providers must contend with the financial implications of climate change, and retailers must manage complex, ethically scrutinized supply chains. In such scenarios, any significant social policy that touches upon a company’s operations effectively becomes part of its ordinary business, potentially rendering almost any proposal excludable. This outcome, where almost all proposals are deemed excludable, is unlikely to be the desired result of a rule designed to facilitate shareholder engagement.
The current state of affairs, marked by litigation and interpretive ambiguity, provides strong ammunition for those advocating for substantial reform or even the complete rescission of Rule 14a-8. The SEC’s anticipated "Shareholder Proposal Modernization" rulemaking, slated for its Spring 2025 Regulatory Flexibility Agenda, presents a potential avenue for addressing these deficiencies. A move towards rescission would undoubtedly shift the focus of shareholder proposal disputes to state law, creating a new and potentially more varied regulatory environment.
Shareholder Proposals Under State Law: The Next Frontier
The potential absence of a federal shareholder proposal regime, should Rule 14a-8 be rescinded or significantly altered, raises the question of how shareholder rights to submit proposals will be defined and managed. States are likely to become the arbiters in this evolving landscape, and companies will face the challenge of navigating this new uncertainty.
The specific approaches states might adopt are unclear. Some could implement a regime mirroring the current Rule 14a-8, while others might opt for complete deregulation, allowing companies to define shareholder proposal procedures and rights through their corporate bylaws. A third possibility involves states enacting clear legislative guardrails, such as minimum share ownership thresholds for proponents.
The implications of such a shift are particularly significant for Delaware, the state of incorporation for a vast majority of U.S. publicly traded companies. If Delaware does not provide legislative clarity, companies will be compelled to establish their own governance frameworks for shareholder proposals through private ordering, likely leading to further litigation as the boundaries of these self-imposed rules are tested.
In this scenario, companies are expected to adopt bylaws that refine proposal submission procedures, moving beyond current advance notice provisions. Some companies might delegate the decision-making authority for shareholder proposals to their boards of directors, aligning with the board’s oversight responsibilities for other corporate matters. It is also conceivable that companies could establish different rules for shareholders seeking to submit matters for a general vote versus those wishing to access the company’s proxy statement.
Regardless of the specific paths states ultimately chart, the era of a one-size-fits-all approach to shareholder proposals is likely drawing to a close. The ongoing litigation and the SEC’s potential regulatory actions signal a critical juncture, demanding a re-evaluation of how shareholder voice is exercised in corporate governance and paving the way for a more decentralized, state-driven approach to shareholder engagement.
