The National Association of Manufacturers (NAM), represented by Senior Director Ted Allen and Vice President Jake Kuhns, has submitted a comprehensive comment letter to the U.S. Securities and Exchange Commission (SEC) regarding the proposed rescission of Rule 14a-8, which governs the inclusion of shareholder proposals in corporate proxy materials, and amendments to Rule 14a-4. The NAM’s submission, on behalf of the 13 million Americans who work in manufacturing, advocates for a well-managed transition to state-level oversight of shareholder proposals, emphasizing the potential for significant disruption and increased litigation costs for publicly traded companies if not handled carefully.
NAM’s Concerns Regarding the Proposed Rescission
The NAM, as the largest manufacturing association in the United States, represents businesses of all sizes across all industrial sectors and all 50 states. Manufacturers contribute a substantial $2.94 trillion to the U.S. economy, and the association asserts that well-tailored, common-sense governance laws and regulations are vital to sustaining the nation’s manufacturing strength and overall prosperity.
Publicly traded manufacturers dedicate considerable resources to engaging with investors and structuring corporate governance policies to maximize long-term shareholder value. However, the NAM contends that in recent years, the proxy process has been exploited by a segment of professional shareholder proponents. These proponents, according to the NAM, often pursue narrow agendas rather than the broader interests of the business or investor returns. The association highlights that these "special interest" proposals impose significant financial burdens on companies and institutional investors, who must evaluate and vote on hundreds of proposals annually. A 2026 survey by the Weinberg Center at the University of Delaware indicated that public companies reported substantial costs associated with responding to shareholder proposals, with a majority spending over $100,000 annually, and 11% reporting expenses exceeding $1 million, primarily for outside counsel fees.
A History of NAM’s Engagement on Shareholder Proposals
The NAM has a documented history of actively engaging with the SEC and participating in legal challenges concerning Rule 14a-8. In 2023, the association sought to intervene in federal litigation concerning an activist group’s Rule 14a-8 proposal. In this intervention, the NAM argued that the SEC lacks the authority to mandate the inclusion of any shareholder proposal in a public company’s proxy solicitation. The association’s position, as articulated in its motion, stated, "[t]he corporate proxy ballot is not the appropriate venue for policy decisions better made by America’s elected representatives, and manufacturers are regularly caught in the middle as activists on the left and the right bring fights from the political arena into the boardroom." This stance underscores the NAM’s view that corporate governance should not become a substitute for legislative action.
More recently, the NAM has urged the SEC to implement stricter requirements for shareholder proposals. These recommendations included significantly increasing ownership thresholds for proponents, tightening the rules for resubmitted proposals, and clarifying that public companies are not obligated to include proposals that address "significant social policy issues" unless those issues are material to the specific company. These calls for reform reflect a broader concern within the manufacturing sector about the increasing volume and nature of shareholder activism.
Anticipating a Surge in "Last Chance" Proposals
While the NAM acknowledges the SEC’s evolving perspectives on shareholder proposals, the association expresses significant concern that the proposed rescission of Rule 14a-8 could trigger a substantial influx of "last chance" proposals during the 2027 and potentially 2028 proxy seasons. This surge, the NAM warns, could overwhelm public companies and drastically increase the workload for investors involved in proxy voting. The association anticipates that proponents will submit hundreds of proposals, including "private ordering" resolutions. These resolutions would likely encourage companies to adopt bylaws that mirror or even expand upon the requirements of Rule 14a-8 to govern future shareholder proposals. Such proposals are expected to garner support from other activist investors and the two major U.S. proxy advisory firms, further amplifying their impact.
The Impact of Withdrawing SEC Guidance
Adding to these concerns is the SEC staff’s August announcement that it would cease providing Rule 14a-8 no-action letters to companies. The staff also indicated it would not issue "no objection" letters for the 2026 proxy season, a practice it had previously followed. The NAM is concerned that this withdrawal of guidance will compel companies and proponents to resort to litigation to resolve disputes regarding a proponent’s eligibility or the inclusion of a specific proposal. The past proxy season saw at least six proposal-related lawsuits with mixed outcomes, according to a memo by Sullivan & Cromwell. The NAM predicts a significant increase in litigation leading up to the 2027 proxy season, particularly given the proposed rescission and activists’ desire to submit proposals widely before Rule 14a-8 is formally repealed.
The Transition to State Oversight: A Complex and Uncertain Path
The shift of shareholder proposal oversight to state law presents a complex and potentially protracted transition. Currently, only Texas has enacted specific legislation addressing investors’ eligibility to file shareholder proposals, and only a limited number of companies have voluntarily adopted compliance with this statute. Delaware and Nevada, the two leading states for public company incorporations, have yet to establish frameworks for addressing this contentious issue.
Given the typical legislative calendars in these states, which often run through the winter and spring, it appears unlikely that lawmakers will be able to draft, debate, and enact comprehensive legislation before the spring 2027 proxy season. Following the enactment of any new state laws, public companies will require additional time to assess and potentially modify their bylaws to manage shareholder proposals, floor-presented proposals, and other forms of shareholder activism.
The SEC’s own proposal acknowledges these transition challenges, noting in its Rescission release that "The rescission of Rule 14a-8 would require both groups to develop new frameworks and practices during a period of legal uncertainty, before State legislatures and courts have taken any steps to address unresolved questions left by the rescission of the Federal rule." The Commission further observed that "The transition period may also be associated with elevated litigation costs, to the extent that the frequency of disputes about whether a proposal is a proper subject for shareholder action under State law increases following the proposed rescission." The SEC admitted that the magnitude of impacts and the duration of this transition period are uncertain, depending on the development of state law and private ordering frameworks, the pace of legislative and judicial action, and the ability of companies and shareholders to agree on new practices.
NAM’s Recommendations for a Smoother Transition
In light of these significant transition risks and costs, the NAM has urged the Commission to consider interim steps to facilitate a smoother transition from federal oversight to state law. While the specific interim steps were not detailed in the provided text, the NAM’s overarching goal is to mitigate the disruption and uncertainty that the proposed rescission could introduce.
The NAM emphasizes that if the Commission were to resume providing 14a-8 no-action or no-objection letters, this process would not preclude litigation but would offer a less costly and more efficient method for resolving disputes. Federal litigation, the association argues, is often ill-suited for addressing the legality of specific proposals due to tight deadlines and the limited experience of many federal judges in interpreting Rule 14a-8, unlike the SEC staff. In the absence of SEC guidance during the transition, the NAM suggests that a more expedited rescission of Rule 14a-8 might even be beneficial for public companies seeking clarity.
Broader Implications and Future Outlook
The proposed rescission of Rule 14a-8 signifies a potential paradigm shift in how shareholder proposals are managed in the United States. For decades, Rule 14a-8 has served as the primary mechanism for shareholders to bring their concerns directly to the attention of corporate boards and fellow shareholders. Its removal could lead to a more fragmented and state-specific regulatory landscape for shareholder advocacy.
The NAM’s commentary highlights the critical need for careful planning and a phased approach to this regulatory change. The potential for increased litigation, the burden on companies to navigate evolving state laws, and the impact on institutional investors’ ability to efficiently exercise their voting rights are all significant considerations. The manufacturing sector, a cornerstone of the U.S. economy, is particularly sensitive to regulatory uncertainty and increased compliance costs.
The NAM’s proactive engagement with the SEC demonstrates the industry’s commitment to ensuring that corporate governance practices support long-term value creation while remaining efficient and predictable. As the SEC moves forward with its proposal, the recommendations and concerns raised by the NAM and other stakeholders will be crucial in shaping the final rules and ensuring a responsible transition that balances the interests of companies, investors, and the broader economy. The association looks forward to continued collaboration with the Commission on this important topic.
