The U.S. Securities and Exchange Commission (SEC) is facing legal challenges following its recent decision to cease providing substantive responses to companies’ requests to exclude shareholder proposals from proxy materials. This policy shift has led to a notable increase in litigation initiated by shareholders seeking to challenge such exclusions.
Historically, the SEC’s Division of Corporation Finance reviewed and issued no-action letters in response to companies’ requests to omit shareholder proposals under Rule 14a-8. However, in November 2025, the SEC announced that, due to resource constraints and a backlog of registration statements, it would not respond to most no-action requests for the 2026 proxy season, except those concerning proposals improper under state law. Companies are still required to notify the SEC and proponents of their intent to exclude a proposal but are no longer obligated to seek the staff’s views or receive a staff response. ([mcdermottlaw.com](https://www.mcdermottlaw.com/insights/sec-steps-back-from-the-shareholder-proposal-game/?utm_source=openai))
This procedural change has led to a surge in shareholder litigation. In February 2026, five lawsuits were filed challenging the exclusion of shareholder proposals. For instance, the New York City Employees’ Retirement System sued AT&T Inc. over the exclusion of a workforce diversity disclosure proposal, leading to a settlement where AT&T agreed to include the proposal in its proxy materials. Similarly, Masters v. PepsiCo, Inc. involved a challenge to the exclusion of a proposal on procedural grounds, resulting in PepsiCo agreeing to include the proposal after a brief legal dispute. ([jonesday.com](https://www.jonesday.com/pt/insights/2026/03/shareholder-proposal-litigation-increases-following-the-secs-revised-rule-14a8-process?utm_source=openai))
The SEC’s decision to step back from the no-action process has raised concerns about increased litigation and the potential for inconsistent interpretations of Rule 14a-8. Legal experts suggest that this trend may influence the SEC’s approach to its planned “Shareholder Proposal Modernization” rulemaking, scheduled for April 2026. ([jonesday.com](https://www.jonesday.com/pt/insights/2026/03/shareholder-proposal-litigation-increases-following-the-secs-revised-rule-14a8-process?utm_source=openai))
In response to the SEC’s policy change, companies are advised to carefully assess the risks associated with excluding shareholder proposals without the SEC’s prior concurrence. The absence of the SEC’s substantive review may lead to heightened scrutiny and legal challenges from shareholders, emphasizing the need for companies to navigate the proxy process with increased diligence.