Press Releases

Today, the House Financial Services Committee, led by Chairman French Hill (AR-02), is holding a hearing entitled, "Proxy Power and Proposal Abuse: Reforming Rule 14a-8 to Protect Shareholder Value." This hearing will examine Rule 14a-8 under the Securities Exchange Act of 1934, which governs shareholder participation in corporate governance.
Read Chairman Hill's remarks as prepared for delivery.

"Good morning. As our securities laws were being considered during the Great Depression and years after, corporate governance policymakers sought to ensure that stockholders had an active voice over any entrenched management, inattentive directors, or a controlling group.

"The intent was that all stockholders could assert their ownership rights around key components of running the business and capital allocation.

"Thus, while our proxy access process was originally designed to empower shareholders and provide them with a voice in company oversight, in recent years it has increasingly been co-opted by activist investors whose primary focus often lies, not in maximizing shareholder value, but in pushing narrow political, social, or personal agendas.

"We have seen the shareholder proposal process diverted away from the critical business strategy and instead become a tool for advancing proposals that distract from companies’ missions, leading to an erosion of shareholder value and additionally costly burdens on companies that are working to navigate today’s complex business conditions and global competition.

"As we examine the shareholder proposal process, we must also consider the role of proxy advisory firms on capital markets as a whole.

"While these firms can offer some valuable perspective, over the past two decades, their influence on corporate governance and voting on particular shareholder proposals has grown significantly.

"We must ask ourselves if these firms are fulfilling their intended purpose of serving in the best interests of shareholders or if they are distracting from the primary goal of enhancing long-term shareholder value.

"As we evaluate the current landscape surrounding Rule 14a-8, it’s essential we also assess the impact of recent regulatory interpretations and guidance and how those have led us to where we are today.

"Particularly, we will look at the SEC’s Staff Legal Bulletins 14L and 14M, which have had a significant impact on influencing how companies and shareholders engage with the proposal process.

"Staff Legal Bulletin 14L, issued in November 2021 under then SEC Chairman Gensler, shifted the focus of shareholder proposal review from the proposal’s relevance to a specific company to whether the proposed issue had broad societal impact.

"Expanding what counts as a ‘relevant’ proposal makes it harder for companies to block items unrelated to their business, letting activists push measures disconnected and immaterial from their performance.

"As a result, we have seen an uptick in proposals that prioritize social or political issues over shareholder returns, which can divert attention from the fundamental goal of maximizing value for all investors.

"As we look at these recent developments, it is crucial to consider how we can reform the regulatory framework to restore balance and ensure that the proposal process serves its original intent."