Securities and Exchange Commission Chairman Paul Atkins has proposed a significant shift in the regulation of shareholder resolutions, seeking to return authority over these matters to state governments. The proposal aims to roll back nearly a century of federal oversight established under the 1934 Securities Exchange Act, which has given the SEC broad influence over which shareholder proposals companies must include in proxy statements.

Under current SEC rules, companies must navigate a closely monitored process requiring agency permission to exclude shareholder proposals, especially those related to environmental, social, and governance (ESG) issues. The commission’s oversight has drawn criticism for effectively allowing shareholder activists and proxy advisory firms—such as Institutional Shareholder Services—to exert outsized influence over corporate governance by helping investors pressure companies on social and environmental controversies. While most shareholder resolutions fail to gain majority support, companies often incur significant costs fending off these proposals and challenging misinformation distributed by proxy advisors.

The proposed reform would return to a state-based regulatory framework, allowing states to determine the rules governing shareholder proposals for corporations incorporated within their borders. Texas has recently led this movement, enacting legislation that permits companies to exclude shareholder resolutions if the proponent does not meet ownership thresholds, such as holding at least $1 million in shares or 3% of voting rights. Such measures have contributed to prominent firms like Tesla, Coinbase, and Dell Technologies choosing to reincorporate in Texas to take advantage of the more flexible regulatory environment.

Atkins’ announcement has been viewed as a response to concerns from business groups and conservatives that the SEC’s approach has politicized corporate governance. The Biden administration’s SEC, for instance, has tended to uphold shareholder proposals focused on ESG topics, increasing pressure on companies to adhere to progressive agendas. Conservatives, in turn, have adopted similar strategies, filing resolutions designed to counter liberal policies within corporate decision-making. For example, the Heritage Foundation successfully sued Airbnb over its refusal to include a shareholder proposal addressing political divestment risks, which shareholders later rejected.

Critics argue that shareholders sometimes use resolutions to gain leverage in negotiations with company management or to extract private benefits, complicating the SEC’s role as an impartial regulator. By stepping back, the SEC hopes to reduce its involvement in these political and commercial disputes, allowing states to tailor rules more closely to their corporate communities.

While Texas has emerged as a pioneer in reshaping shareholder proposal rules, the SEC notes that no other state has adopted new legislation in this area for more than 80 years. The proposed deregulation could prompt other states to revise their corporate laws and compete with Texas to attract incorporations.

The SEC has invited public comment on the proposed changes, signaling a potential shift away from decades of federal control over shareholder resolutions. If implemented, the new framework would mark a notable retreat by the SEC in its role influencing corporate governance through proxy rule enforcement.