ContextSpeech by Paul S. Atkins, Chair of the U.S. Securities and Exchange Commission.
Why it mattersExplains why SEC staff stopped arbitrating shareholder proposals, a major change for US annual meetings.
- The shareholder proposal process had become costly and litigious.
- Proxy advisors influence which proposals appear.
- SEC staff stood between companies and shareholders.
- Stop issuing staff no-action letters on proposals.
- Let companies apply exclusion rules themselves.
- Reform the disclosure regime around materiality.
Read the speech summary
1. First principles and a lighter disclosure regime
Speaking in Nashville to corporate governance professionals just after the nation's 250th anniversary, SEC Chairman Paul Atkins said the founders built a limited framework, a trellis rather than a cage, and that US markets recovered from crises by returning to first principles, as the 1933 Securities Act did by relying on honest information rather than regulators' judgment. With the number of public companies down about 40% in recent decades, he argued the SEC should go back to its foundation, disclosure of material information, because accumulated rulemaking has produced piles of paperwork that obscure more than they reveal and cost companies fees and management time. He cited a justice's warning that burying shareholders in trivial information does not help informed decisions.
2. Materiality and Regulation S-K
He said materiality, which the Supreme Court ties to what a reasonable investor would find important, is rooted in financial returns, and that terms like double materiality or decision-useful have no legal footing, with the disclosure framework having been bent toward social and political agendas. In January the SEC asked for feedback on reforming Regulation S-K and received over 100 letters. Some suggest a materiality overlay letting firms omit line items that are not material, which could support a principles-based regime. Some commenters would exempt items such as executive pay, and market forces would still bring out other information investors want, as non-GAAP measures and tailored performance indicators already show; the aim is the minimum effective dose of regulation. But it only works if companies use their discretion: he criticised copying peers' disclosures and called the resulting spiral self-defeating, saying responsibility for the volume and clarity of filings rests with companies.
3. Shareholder proposals
On Rule 14a-8, the staff declined to respond to no-action requests this season, and predictions of chaos did not occur: omission rates stayed similar to last year, only six lawsuits arose, proxy advisers rarely objected and investors reported more direct engagement. He concluded the staff's role as go-between is unnecessary and costly, comparing it to training wheels, and that companies can judge exclusions themselves. The SEC is also reviewing the rule itself, in light of federalism and state corporate law, with the view that the agency's power to make rules in the public interest is not unlimited. He urged that annual meetings not become forums for debates unrelated to investors' financial returns, called on states to keep corporate law from politicising meetings, Companies, he noted, had feared lawsuits and proxy-adviser penalties for excluding proposals, yet one suit was won by the company and three were settled. Recalling his 2008 farewell speech as a commissioner, he noted that the rule may encroach on state law governing shareholder relations, and that amendments since 1942 added complexity without asking what the federal role should be. He also warned of the tyranny of the minority: one individual was lead proponent on about 41% of proposals voted on, of which only 8% won majority support. He closed by saying market strength comes from founding principles, not from expanded government reach: reforming disclosure and rethinking shareholder proposals are, in his words, two expressions of the same resolve to let enterprise flourish without needless friction and let capital flow to its best use.