Can Shareholder Proposals Hurt Shareholders? Evidence from SEC No-Action Letter Decisions

This paper studies SEC no-action letter decisions that determine whether companies can exclude shareholder proposals from their proxy statements. During the period 2007–2019, the market reacted positively when the SEC permitted exclusion, suggesting that investors viewed those proposals as value-reducing on average. We also find that a company's stock price drifted down over time while waiting for an SEC decision, suggesting that challenged proposals imposed “distraction” costs on companies. The SEC's decisions can be predicted by regulatory rules, but are also related to a proposal's predicted votes—more popular types of proposals were less likely to be removed. We find no robust evidence that no-action letter decisions differed when the SEC was controlled by Democrats versus Republicans. Taken together, the evidence suggests that managers may be serving shareholder interests in opposing some proposals, and that the no-action letter process may be helping shareholders by weeding out value-reducing proposals