The Securities and Exchange Commission has just proposed to repeal Rule 14a-8 governing shareholder proposals. The new proposal would return shareholder-proposal regulation to the states, whose laws govern those proposals in the first place. The legal diagnosis is correct. But the timing and state-law aftermath are a problem.
It’s a case of shutting the barn door after the corporate horse has escaped—and the free-market-oriented SEC commissioners are not going to try to recapture the horse.
After the election of Ronald Reagan and a Republican-controlled Senate in 1980, the activist left found itself out of power in Washington, D.C. As described in Jarol Manheim’s book, Biz War and the Out-of-Power Elite: The Progressive-Left Attack on the Corporation, leftists decided they would try to use shareholder status to capture control of publicly traded corporations for the purpose of advancing their social and political agenda. And they eventually did. Witness the current phenomenon of “woke” corporations.
Starting in the 2000s, free-market-oriented shareholder activist groups, like the National Center for Public Policy Research’s Free Enterprise Project, sprang up to push back against the leftist campaigns camouflaged by euphemisms such as “corporate social responsibility” and “socially responsible investing.” As the opposition had success, the leftist shareholders rebranded and pressed ahead during the 2010s under the moniker of “environmental, social, and governance” (ESG) investing. Huge swaths of corporate America were captured, including financial firms, Big Tech, and brand-name consumer-product companies.
And that is where we are now— even after the ESG branding was damaged in recent years by activist groups like the Free Enterprise Project, anti-ESG red states and the Trump administration. The left still controls much of corporate America and supporting infrastructure such as asset managers, investment advisors, and proxy advisors.
Despite the damage done to the ESG brand, leftists haven’t gone away, and they haven’t given up the corporate territory they’ve captured. They are merely laying low, and sometimes even feigning rapport with the Republicans who control the White House and Congress.
But it’s just an act. Whenever Democrats regain power in Washington, D.C.—and that could start as soon as 2027 or 2029—the leftists who run corporate America will re-emerge and resume using corporate power for their social and political ends.
This brings us back to the SEC proposal.
Free-market-oriented shareholders alerted Americans to what leftist activist shareholders were doing. They fought back and, as a result, the damage to corporate America has been limited. But now the SEC wants to declare the game over—with the left in control of corporate America.
The Trump SEC’s proposal is correct that the SEC had no statutory or constitutional authority to empower leftist activist shareholders in the first place. However, treating the situation like a game of musical chairs and opting to end it now, especially when the leftists occupy all the chairs, is foolish.
Returning shareholder proposals to the states will lock in the left. Once Rule 14a-8 is gone, the right to get a proposal onto a company’s proxy will depend on the state of incorporation and on charters and bylaws written by the boards already in place.
Red-state legislatures and managers will raise ownership thresholds, tighten advance-notice bylaws, and use broader discretionary voting to keep activists off the ballot—because managements dislike proposals of any kind.
Blue-state lawmakers and left-leaning boards will do the same thing for the opposite reason: to protect the political uses of the corporation they already control. In both cases, the federal on-ramp that free-market shareholders used to contest ESG disappears, allowing those who captured the boardroom to dictate the rules for future challenges.
Milton Friedman was right: The social responsibility of a business is to increase its profits while staying within the rules of the game. Businesses are society’s wealth-creation machines, not governments, charities, or political campaigns.
If the SEC is going to repeal Rule 14a-8, it should not pretend that handing the proxy to today’s boards and statehouses restores that rulebook. Those who still believe in the company as a profit-seeking firm should say so now: Rescind the federal mandate if you must, but do not let captured managers write bylaws that lock the door behind them. Otherwise, the Commission will not have returned corporate law to the states. It will have locked in Marx and locked out Friedman.
