How the U.S. is rebalancing shareholder activism
The U.S. Securities and Exchange Commission (SEC) recently issued Staff Legal Bulletin No. 14M (SLB 14M), the latest turn in a decades-long debate over how to balance shareholder input with managerial discretion. Though technical in format, SLB 14M cuts to the heart of a larger transatlantic discussion. What role should corporations play in society, and how should shareholder activism influence that role?
By Timothy M. Doyle and Robert G. Eccles
This is not a new debate. Rule 14a-8, adopted in 1942, was a post-Depression measure intended to enhance transparency and shareholder input in corporate governance, while balancing concerns about cost, relevance and the risk that social or political agendas could influence business decision-making. Since then, the rule has evolved, gradually expanding and contracting in response to shifting political and economic priorities.
In the 1970s and 1990s, access to the proxy expanded. In the 1980s and mid-2000s, the pendulum swung back toward managerial control. Though the underlying analysis had long been part of SEC practice, SLB 14I, issued in 2017, established the modern articulation of the “nexus” requirement. It clarified that, even where a proposal addresses a significant social policy issue, a threshold for escaping the ordinary business exclusion under Rule 14a-8(i)(7), it may still be excludable if it lacks sufficient relevance to the company’s operations. SLB 14K later offered illustrative examples, such as drug pricing proposals submitted to companies with no pharmaceutical operations, to underscore the nexus analysis.
The last major shift came in 2021 under Chairman Gary Gensler, when the SEC issued SLB 14L. That guidance reinterpreted the ordinary business exclusion by eliminating the requirement that a proposal demonstrate a clear link – or “nexus” – to the company’s core operations. In effect, proposals were judged primarily by their broader societal importance. This opened the door to a wave of shareholder proposals on climate, racial equity, political lobbying and more. Some were supported by broad investor coalitions. Many were not. Companies were required to respond regardless, often spending resources on proposals that had little to do with their actual business.
SLB 14M is a partial course correction. It does not revert entirely to earlier frameworks, but it reasserts that social significance alone is not enough. For a proposal to qualify, proponents must show a meaningful nexus to the company’s business, strategy or financial condition. As the bulletin states, even proposals addressing significant social concerns can be excluded if those concerns lack a clear connection to the company’s core operations.
Some view this approach as a retreat from ESG. Critics on the political left argue that it stifles important conversations and undermines values they believe are essential to responsible investing. Those on the political right argue it does not go far enough, with some calling for the elimination of Rule 14a-8 altogether and a return of shareholder proposal authority to state corporate law. In that light, SLB 14M may be less a retreat than a midpoint and an effort to restore balance after a period of perceived regulatory overreach.
This makes it an important moment to step back. Are companies embracing SLB 14M as a framework for single materiality, the U.S. standard, or are they using it as cover to sidestep issues they would rather not confront? Are legal departments treating it as a stable standard or bracing for the next reversal?
These questions matter well beyond legal departments. They go to the core of how fiduciaries engage with shareholders, how boards assess risk and how the SEC maintains legitimacy in overseeing corporate governance. They also intersect with a global conversation, particularly in Europe, where ESG remains a primary lens through which corporate responsibility is judged. In contrast, U.S. regulators have become more skeptical, emphasizing business relevance over aspirational values. Whether this marks a lasting divergence or a temporary reset is unclear.
If companies internalize the principles behind the nexus requirement, connecting proposals to real business concerns, it could lead to more thoughtful shareholder engagement. Not fewer conversations, but more grounded ones in value, not values. And if the SEC holds this middle ground, it may help the rule withstand future political shifts.
In the end, SLB 14M is not a dramatic departure but part of a longer pattern, tied to an ongoing debate over Rule 14a-8 that has never been fully settled. Since 1942, the SEC has adjusted its stance in response to evolving views about the role of public companies. That process is likely to continue. Still, understanding where we are now, and how we got here, remains essential to shaping what comes next.
Key Takeaways
SEC regulation of the shareholder process shifts with the political winds and evolving views about the role of the corporation in society.
Absent definitive legislation, this process is likely to continue.
Despite this, a constant for companies is to make sure they can connect their sustainability objectives with shareholder value creation.
Similarly, investors bringing shareholder proposals should ground them in a similar way.
Boards of directors need to understand the relationship between sustainability and value creation and be able to evaluate the credibility of shareholder proposals in this regard.
Robert G. Eccles
is a Visiting Professor of Management Practice at Said Business School, University of Oxford.
Timothy M. Doyle
is a public policy and legal expert. He has vast experience at the intersection of governance and sustainability, as well as the U.S. federal legislative and regulatory processes. He has also worked on Capitol Hill for two different House Committees.