Kyle Pinder on shareholder proposals under Delaware law

Summary

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Shareholder Primacy – Kyle Pinder on Shareholder Proposals under Delaware Law

Podcast: Shareholder Primacy
Episode: Kyle Pinder on Shareholder Proposals under Delaware Law
Date: November 19, 2025
Host: Mike Levin
Guest: Kyle Pinder, Partner, Morris Nichols, Wilmington, Delaware

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Episode Overview

This episode features a deep dive into the legal status of shareholder precatory proposals under Delaware law, guided by guest Kyle Pinder. Pinder, an attorney and recent author of a widely cited paper, discusses his findings following SEC Chair Paul Atkins' public comments, the silence of Delaware statutes on the matter, and the broader implications for corporate governance and future regulation. Host Mike Levin navigates the conversation, highlighting issues around board and shareholder rights, looming federal reforms, and how private ordering may fill governance gaps.

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Key Discussion Points & Insights

1. Introduction and Context

• Ann Lipton is away; Mike Levin hosts solo and welcomes Kyle Pinder.
• Pinder received prominent recognition from SEC Chair Paul Atkins regarding his paper on Delaware law and shareholder proposals.
• The paper’s title: Non Binding Reframing Precatory Stockholder Proposals under Delaware Law.

2. Defining Precatory Proposals

• Precatory proposals: Non-binding resolutions by shareholders requesting or recommending board action.
  • Examples: “Prepare a report on climate risk”, “Make efforts to diversify workforce”, “Amend bylaws in a particular way”.
• Governance vs. social/environmental proposals are distinguished.
• (04:24) Quote

  "A precatory stockholder proposal is a resolution the stockholder would raise at a meeting and effectively make a request or a recommendation to the board." – Kyle Pinder

3. Delaware Law’s Silence on Precatory Proposals

• Delaware General Corporation Law (DGCL) is silent about non-binding/precatory proposals (03:02).

  • Section 211(b): Broadly grants annual meetings authority to transact “other proper business,” but lacks specifics.
  • Section 141(a): Vests the board with authority to manage company business and affairs; this board-centric regime “fills in the gaps” where the law is silent (07:10).

• Delaware’s approach favors director primacy over shareholder primacy.

• (07:59) Quote

  "A board centric governance regime would suggest that in the absence of express delineation of authority, that authority rests with the board." – Kyle Pinder

4. Shareholder Fundamental Rights under Delaware Law

• Three core rights:
  • Vote (especially in director elections and on matters required by law)
  • Sell shares (“Wall street walk”)
  • Sue (for breach of fiduciary duty, etc.)
• Rights to nominate directors or propose bylaw amendments flow from (“subsidiary to”) voting rights (12:08).

5. What Can Shareholders Vote On?

• Delaware courts recognize shareholder votes only in three principal categories (16:31):

  • Director elections
  • Matters committed to shareholders’ vote by law or governing documents (e.g., DGCL, federal rules like say-on-pay)
  • Matters the board chooses to submit for shareholder approval (auditor ratification, etc.)

• Precatory proposals, absent board approval, do not fit these categories: “You can't raise it over the board's objection.” (18:28)

• (19:01) Quote

  "If a shareholder will go to Chancery Court ... Chancery would have almost nothing to work with. There's no statute to refer to and very little case law. But there's no inherent right..." – Mike Levin

6. Practical and Policy Arguments

• Supporters of shareholder proposals cite accountability and shareholder communication.
• Accountability: Precatory proposals are largely ineffective (21:10)

  "As accountability measures go, it's pretty weak." – Mike Levin

• Communication: Many new tools (universal proxy, withhold campaigns, exempt solicitations, social media) make Rule 14a-8 less essential.
  • (21:50) Quote

  "It's just not the most efficient or effective means of communication anymore." – Kyle Pinder

7. Federal vs. State Law – Clarifying the Distinction

• Pinder’s paper is about meeting agendas under state law—not directly about proxy materials, which are governed by federal law (Rule 14a-8).
• The federal regime affects proxy disclosures but doesn’t create state-law rights for proposal inclusion (23:16).

8. Paper’s Origin and Significance

• The idea came amid speculation the SEC might drastically reform or repeal Rule 14a-8 (27:08).

• If the federal regime is reformed or repealed, gaps may be filled by state law or private ordering (charter/bylaw changes).

• (29:31) Quote

  "No matter what flavor of reform the SEC pursues, there will be gaps that either state law or issuers are going to need to, or may perhaps want to fill or at least understand." – Kyle Pinder

9. Private Ordering and Bylaws

• Companies can use charters to define or restrict proposal rights, but amendments require shareholder approval.
• Bylaws are more flexible and can be changed unilaterally by boards or shareholders.
  • Unclear if bylaws can restrict non-mandated precatory proposals without violating Delaware law (32:30).
  • Risk: Any new bylaw may face litigation, as the law is not settled and there could be backlash.
  • Ideal: Delaware Legislature could clarify and authorize proposal regulation by bylaw (34:08).

10. Paper's Reception & Potential Implications

• The paper gained attention after being cited by SEC Chair Atkins at the Weinberg Center—Pinder was present and found the experience “flattering and humbling” (34:47).
• In-house and public company lawyers see the piece as a guide but are cautious of litigation risk and investor backlash (37:55).
• Not likely to trigger mass exclusion of all proposals, especially on governance topics (38:28).
• Most environmental/social proposals already face exclusion under “ordinary business” (Rule 14a-8(i)(7))—the significant policy exception is difficult to parse (40:19).
• Delaware courts retain board-centric bias, unless the Legislature or courts shift toward shareholder primacy (42:17).

11. Notable Quotes and Memorable Moments

• (21:10) Mike Levin: “As accountability measures go, it's pretty weak.”
• (34:47) Mike Levin: “So you were at the dinner where ... the chairman of the SEC is talking about your paper?”
• (35:18) Kyle Pinder: “First you have to start with state law and Then go to 14a-8. 14a-8 wasn’t meant to give just a broad referendum right on environmental and social proposals.”
• (43:10) Kyle Pinder: “Our main role is advisory and counseling… I help out with public company M&A… but you won’t see me in court.”

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Important Timestamps

• 03:02 – Delaware law’s silence on precatory proposals
• 04:24 – What is a precatory proposal?
• 07:10 – Section 141 and board authority
• 12:08 – Subsidiary rights and right to nominate directors, propose bylaw amendments
• 16:31 – Three categories of shareholder vote rights
• 18:28–19:01 – Board discretion and lack of shareholder recourse
• 21:10/21:50 – Policy arguments: accountability and communication
• 23:16 – Federal-State law distinction
• 27:08/29:31 – SEC rulemaking, origins of Pinder’s research
• 32:30 – Bylaws, charters, and regulation of proposals
• 34:47 – SEC Chair Atkins references Pinder’s paper
• 37:55/38:28 – Prospects and risks for issuers considering exclusion of proposals
• 40:19 – Use of “ordinary business” exclusion for ESG proposals
• 42:17 – Shareholder vs. board-centric tension

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Tone and Style

• Conversational, reflective, and occasionally wry—especially when discussing Delaware corporate law’s nuances.
• Pinder is precise and careful, acknowledging practical lawyering concerns (litigation risk, institutional inertia).
• Levin pushes for real-world implications, shares the activist investor’s perspective.

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Summary

This episode is an in-depth, practitioner-focused conversation about how Delaware law frames (or fails to frame) the rights of shareholders to make precatory (non-binding) proposals, particularly if federal law changes in the near future. Pinder’s research reveals Delaware’s statutes and case law are largely silent, and prevailing culture remains board-centric. If the SEC scales back or eliminates federal access, the void may be filled by company-specific charters and bylaws—although such moves are fraught with legal risk and reputational implications.

The paper is already shaping dialogue among companies, investors, and regulators. Its central insight: Absent explicit legal authorization, boards have broad discretion—and precatory proposals, unless approved by the board or required elsewhere, are not inherently protected rights under Delaware law. This state law ambiguity foreshadows new battles in governance as federal and state rules continue to evolve.

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Transcript

[Kyle Pinder]

Foreign.

[Mike Levin]

Welcome to Shareholder Primacy from Free Float Media, a podcast about activist investing, securities law, and all the ways the financial and legal worlds intersect and collide in real life. As followers here know, I'm usually here with Ann Lipton, a law professor at the University of Colorado who teaches and researches securities and business law. But Ann, alas, is away this week. I think she's got a paper she's presenting at some conference or something. Who knows? So instead, Ann and I invited Kyle Pinder, an attorney and a partner at the law firm of Morris Nichols in Wilmington, Delaware, to talk about a really cool and fascinating paper that he wrote recently. Hello, Kyle.

[Kyle Pinder]

Hi, Michael. Thank you for having me. And I'm sorry. Sorry I can't be here, but I'll try to fill in as best as I can. Choose to fill.

[Mike Levin]

I think you will acquit yourself really well. And you are coming to us from Wilmington, Delaware, I think, right?

[Kyle Pinder]

Yep. Live at the corner of 12th and Market street in Wilmington.

[Mike Levin]

In Wilmington, at that bustling metropolis and center of corporate governance jurisprudence.

[Kyle Pinder]

Exactly.

[Mike Levin]

Kyle found himself in the news in the last few weeks after he got a really, really, I suppose, pretty good shout out from the SEC chair, Paul Atkinson, about this paper that Kyle put together on the subject of how, I hope I get this right, how Delaware law looks at shareholder precatory proposals. Is that the right way to summarize it?

[Kyle Pinder]

Yeah, I think that's a great way to kind of. To tee up the question.

[Mike Levin]

Cool. So we were gonna. So we asked Kylon to talk about the paper and how it came together and what he found and maybe some other fun stuff. So that's what we're going to dig into. Before we do that, I just want to mention this is usually Ann's job, but I'm going to do it today. We encourage everybody to get in touch with us. Send us your comments and your suggestions and your questions and your criticism. Send that to us at Shareholder Primacy. One word at freefloat, llc. Once again, that Shareholder primacyreefloat llc. Please let us know what you think. Kyle, you can even do that, too, if you want to.

[Kyle Pinder]

That sounds good. I'm a regular listener, so. But I haven't heard yet. Maybe this will prompt me some.

[Mike Levin]

Yeah, you need to send us some email anyway. All right, let's start with the paper. The title of the paper, which I should say for everybody and is available in draft form now or working paper [e-mail] is called the Non Binding Reframing Precatory Stockholder Proposals under Delaware Law by Kyle A. Pinder. So let's start talking about it. What did you find? What was sort of the main conclusion from all the work you put into this?

[Kyle Pinder]

Yeah. So I think like the top line takeaway is that Delaware law is, you know, candidly just silent or absent on really on this topic, as are most states, because it really doesn't come up

[Mike Levin]

all that much on the subject of precatory proposals.

[Kyle Pinder]

Exactly. And whether those are a, you know, a proper subject for stockholders to raise

[Mike Levin]

and bring in a meeting at a shareholder meeting.

[Kyle Pinder]

Exactly, exactly. And agm, or yes, theoretically a special meeting, but those few and far between.

[Mike Levin]

So Delaware law, I think what I hear you saying is, doesn't really. There's not much in Delaware law, Delaware statute, Delaware case law, that even talks about precatory proposals. I think that's part of what we found. Is that, is that right?

[Kyle Pinder]

That's right. So I think you start like for most questions with Delaware law, it's the Delaware General Corporation Law, which is the dgcl. Exactly. The DGCL says absolutely nothing about non binding or precatory proposals, generally, whether it's shareholder or management proposals.

[Mike Levin]

Okay. Now before we dig into that, most everybody who follows this would know what a precatory proposal is, but just let's establish that, take 10 seconds and define for us what we mean by these.

[Kyle Pinder]

Yeah. So a precatory proposal or a precatory shareholder or stockholder proposal is a resolution the stockholder would raise at a meeting and effectively make a request or a recommendation to the board. This resolve the shareholders request that the, the board prepare a report on greenhouse,

[Mike Levin]

on the climate or something.

[Kyle Pinder]

Yeah, right, exactly.

[Mike Levin]

Or that the board make every effort to create a diverse workforce.

[Kyle Pinder]

Exactly.

[Mike Levin]

Or it could request the board amend the bylaws in a certain way.

[Kyle Pinder]

That's exactly. And that's a big distinction I think, among the different types of these kind of non binding or precatory proposals. There are ones related to environmental, social, civic, political issues. And then they're the governance proposals. Like the true governance proposals. We request the board take all necessary action to destagger and eliminate, declassify. Exactly. But we'll get into. I think your listener, you and your Ann, really did a great job explaining it to the listeners. But when Chairman Atkins gave his speech in Delaware, it was focused on the environmental and social proposals.

[Mike Levin]

Right, right. But I think you're making a broader statement about any kind of precatory recommendation or whatever. Is, is what's on the table here.

[Kyle Pinder]

Right, right.

[Mike Levin]

And you, you, you Know, in the paper you went into all sorts of detail to say that basically Delaware law doesn't grant any kind of inherent right to a shareholder to have the board included on the agenda for shareholders to vote on it and so on and so forth.

[Kyle Pinder]

I think that's, that was, that's, that's exactly right. So going back kind of starting at the statute there. Yeah.

[Mike Levin]

Okay. Going.

[Kyle Pinder]

There are two relevant provision that could be cited one way or the other on this, on this relatively novel question.

[Mike Levin]

Yes.

[Kyle Pinder]

The first One is section 211B of the DGCL, which relates to annual stockholder meetings.

[Mike Levin]

Let me write that down real quick. 211B. Okay, go ahead.

[Kyle Pinder]

Yeah, so that authorizes the transaction of any, quote, proper business or other proper business other than the election of directors.

[Mike Levin]

Okay.

[Kyle Pinder]

And there are two ways to look at that. One is, that's just a very broad catch all that, you know, anything and everything is, you know, it's like anything can happen.

[Mike Levin]

Can talk about all sorts of stuff at meetings.

[Kyle Pinder]

Yeah. And then the other section and the other way to look at it is, you know, it's, it is a catch all. It's. It's proper business, but it's not defined. So you kind of have to look to the other confines of the statute to figure out what that means.

[Mike Levin]

Yes. All right.

[Kyle Pinder]

The other relevant provision is one that's near and dear to most corporate Lawyers heart is DGCL section 141.

[Mike Levin]

I was going to say 141. I'm not even a lawyer. How's that?

[Kyle Pinder]

Yeah, exactly. That's the one that gets all the, that, that gets all the press. So that's the provision that confers on a board of directors the power and authority to manage both the business and affairs of the company.

[Mike Levin]

Right. Okay. So. And those are, but those are really very kind of basic in general. I mean the word precatory proposals come up any place or proposals or whatever in either part of those statutes. Okay.

[Kyle Pinder]

But I think it's kind of the. How you, how one looks at the, the interplay of those two sections or generally how 141A flows through the DGCL. Yeah, that, that, I mean, that's going to color, I think, where, where someone's going to come out on this, on this question whether they agree with me or if they take the contrary position.

[Mike Levin]

Yeah. Okay. Oh, interesting. All right, so.

[Kyle Pinder]

Okay, okay.

[Mike Levin]

So there's those two part, there's those two parts of statute.

[Kyle Pinder]

Yeah.

[Mike Levin]

And historically conceivably bear on this question.

[Kyle Pinder]

Exactly. And I think historically The Delaware courts have, in interpreting section 141A, they've adopted nomenclature such as Delaware subscribes to a board centric governance.

[Mike Levin]

Yeah, right, right.

[Kyle Pinder]

So I mean, and when you hear a term like board centric and, you know, managerial primacy, that, that kind of pushes you to, at least from the kind of practicing here and thinking about how boards operate and how, how decisions are made, I. That, that pushes us to kind of view 141A as almost like a gap filler. So it is. Yes, you have, you have all the authority that, you know, the board has under the code. But on top of that, you know, to the extent there is, you know, there's. There's silence, a board center governance regime would suggest that in the absence of express delineation of authority, that authority rests with the board.

[Mike Levin]

Okay. So the boards can sort of in some sense do what they want here.

[Kyle Pinder]

It's the difference. It's the theoretical difference or the debate between director primacy and shareholder privacy.

[Mike Levin]

And here we're about shareholder primacy here. But we can talk about that in a little while along some of the implications. All right, so keep going. So those are the two parts of statute that bear on this question. Are there other parts of the law that you needed to read to kind of get to your conclusion?

[Kyle Pinder]

Yeah, so, yeah, exactly. That's kind of where. From there it's like, well, that tees up the framework for the question, but it doesn't really answer it.

[Mike Levin]

Right.

[Kyle Pinder]

So then from there, looking at Delaware law and shareholder rights generally, the way courts have articulated those in the past, there are three fundamental rights. When you buy shares, it confers on you the ability to do three things, to vote, particularly in the election of directors. Because that is and has been considered the most important.

[Mike Levin]

Yeah, that's the most important subject for your votes. But we vote on other things. But voting generally is a right.

[Kyle Pinder]

Voting generally, the right to sell your share. So the Wall street rule, if you don't like what's going on, you can

[Mike Levin]

leave Wall street walk. You can leave. Yeah, right.

[Kyle Pinder]

And then you have the right to sue. So.

[Mike Levin]

Oh, so owning shares gives you, as we would say, I've learned the word standing, correct?

[Kyle Pinder]

Yeah. You have the right to, you know, you are owed directly fiduciary duties by the board. So if there's an action that, you know, I'm not a litigator, so the nuances of direct and derivative claims, and when it belongs to the company.

[Mike Levin]

That's for another podcast.

[Kyle Pinder]

Yeah, but when you own the share, you get you get. You have the right to kind of. To monitor board performance and to make and to kind of. To influence that through. Through litigation. Exactly.

[Mike Levin]

Okay, so, okay, so vote, sell, sue. Vote, sell, sue. Okay, so.

[Kyle Pinder]

So, I mean, those are very, very broad topics. And the right to vote, you know, it's. The question then is like, well, what. What do you get to vote on? It says you get to have the right to vote, but what kind of things do you get to vote on?

[Mike Levin]

Right. And does that right to vote, broadly drawn, include the right of a shareholder? Does it sort of COVID or extend to these precatory proposals?

[Kyle Pinder]

Exactly. So, yeah, they're related questions. So.

[Mike Levin]

Right.

[Kyle Pinder]

From the fundamental rights. And I guess we'll touch on this first, the Delaware courts have acknowledged subsidiary rights, and those are rights that flow from, you know, the right to vote, and they're related to.

[Mike Levin]

Or. But so Delaware courts, over decades have interpreted it to mean what you're about to talk about.

[Kyle Pinder]

Yeah, what I think, when I think subsidiary right, it's. It's essentially the fundamental right would be meaningless if you couldn't take the action granted by a subsidiary. Right. So you have the right to vote on director elections. That's kind of stupid if you can't nominate your own slate.

[Mike Levin]

Oh, okay, interesting. So. So, so an extension of the right to vote on directors is the right to nominate directors.

[Kyle Pinder]

Exactly. And you have the right. Stockholders have the right to unilaterally amend the bylaws. That would be stupid if the only thing they could vote on were bylaw amendments the board says are a good idea.

[Mike Levin]

Right. So. So, so the right to vote on a bylaw amendment indirectly is the right to propose. Right to propose a bylaw amendment, which is a big project of mine or a big thing of mine. All right, go ahead.

[Kyle Pinder]

Exactly. So from there, in order for the, you know, the precatory proposal right to be a thing, it needs to. It needs to flow from the voting rights. That takes you to. Well, looking at Delaware's voting rights jurisprudence, right. To date, has the court ever acknowledged that stockholders have the right to vote on this type of precatory proposal that's not brought either as required by law or by management.

[Mike Levin]

Okay. Oh, interesting. And the answer. All right, go ahead.

[Kyle Pinder]

Yeah, the answer to that is, to date, no, the courts have not acknowledged that that's a voting right.

[Mike Levin]

So you've looked high and low all through all the cases, whatever. And really. And you and others, you're not the first one to think about. About this and have not really found the Delaware Chancery Court considering or taking a position on this kind of question.

[Kyle Pinder]

Yeah. So the closest the Delaware Chancery Court or the Court of Chancery, as my litigators yell at me if I said that.

[Mike Levin]

Okay, go ahead.

[Kyle Pinder]

As they've come is a case in the 1980s involving actually a books and records inspection demand where a stop. At Chevron's 1987 annual meeting, one stockholder submitted a 14A proposal on a precatory. As a precatory proposal requesting the company to cease their Angolan drilling.

[Mike Levin]

Sure, sure, sure. Okay.

[Kyle Pinder]

A separate stockholder sought books and records to communicate generally about Chevron's, you know, their drilling practices in Angola and about that precatory proposal.

[Mike Levin]

So they asked for under Delaware 220, which we can talk about another day. They demanded books and records on the subject of this proposal.

[Kyle Pinder]

Yeah, they wanted the stock list to be able to talk to people.

[Mike Levin]

Oh, oh, interesting.

[Kyle Pinder]

About generally Chevron's drilling practices in Angola. And more specifically, a separate purpose was to talk about the proposal.

[Mike Levin]

Okay, sure. All right, go ahead.

[Kyle Pinder]

So one of the arguments that Chevron, hard to say how hard they relied on it, but the company said, well, you know, it's not really something that's proper. So that's not, if the, if the precatory proposal is not really a proper matter, then it's not a proper purpose for you to get a stock list to talk about.

[Mike Levin]

Oh, interesting.

[Kyle Pinder]

Okay. So as an initial matter, the court overall just found the. Yeah, the topic of their, the company's drilling practices is something that, you know, is related to the, to the stockholders interests as a stockholder. Sure. So it's, it is proper. That's, it's a proper means to get books and records to talk to other stockholders about just the general business kind of decision. The court did indict without citation, say. Well, yeah, you know, I guess the court, you know, stockholders may, may want to have a vote on that. And there's nothing that's, you know.

[Mike Levin]

Right.

[Kyle Pinder]

Uncouth about that.

[Mike Levin]

Okay, but it didn't, okay, but it didn't actually go out and say okay, it didn't establish the right that we've been talking about. That's.

[Kyle Pinder]

Yeah, it's, yeah, it's dicta. It's, it's, yeah, it's, it's a one sentence kind of maybe two sentence throw away. So it's, it's definitely, I mean it's support for the contrary view, but it's not controlling authority. So. And it's one that I address in the paper But I kind of, for the high level reasons I just talked about, I don't, I don't view as answering the question.

[Mike Levin]

All right, so cool.

[Kyle Pinder]

Going back to voting rights though, I think today to date there, there are really three categories or three matters that the court have said. Yeah. Stockholders have every, every right to vote on these.

[Mike Levin]

So these are the three, these are three rights that flow from that right to vote we referred to.

[Kyle Pinder]

Well, these are, these are actually just the right to vote. So this is just what the, like, these are the fundamental right. You get the right to vote on these things.

[Mike Levin]

Oh, these three things. Okay.

[Kyle Pinder]

So it's director elections, obviously.

[Mike Levin]

Sure.

[Kyle Pinder]

It's matters that are committed, quote, committed to stockholders for a vote by law or governing document. And law could be the DGCL or, you know, federal regulation or rule to the extent the company is subject to it. So.

[Mike Levin]

Right, okay.

[Kyle Pinder]

The say on pay vote for Dodd Frank.

[Mike Levin]

Oh, sure. So that, that creates.

[Kyle Pinder]

That is a, that is a federally mandated right. Yeah, that's a federally mandated.

[Mike Levin]

Delaware has nothing to say about that. That's basically that was handed out from the sb.

[Kyle Pinder]

Exactly, exactly.

[Mike Levin]

Right.

[Kyle Pinder]

And then the last tranche of voting rights or the categories of things stockholders could vote on are those matters that the board is determined to submit or can be submitted for a stockholder vote.

[Mike Levin]

So that's up to the board to decide what they want to hear.

[Kyle Pinder]

Auditor ratification.

[Mike Levin]

Okay.

[Kyle Pinder]

Auditor ratification. You could kind of put like NASDAQ required votes in there. Those could, you can kind of think

[Mike Levin]

of those either as exchange listing rules that.

[Kyle Pinder]

Exactly.

[Mike Levin]

Okay.

[Kyle Pinder]

Yeah, you could, you can think of those as either, quote, committed by law because, you know, the company is, you know, is subject to those standards or the board has made a determination that we're gonna, we're gonna abide by those standards to have access to the public markets.

[Mike Levin]

Oh, interesting. Okay, so those are sort of the three subjects for votes.

[Kyle Pinder]

Yeah. And the board, I think, whether they do it via bylaw.

[Mike Levin]

Right.

[Kyle Pinder]

Or policy or kind of one off, a board can make a determination not to contest the stockholders precatory proposal or not to object.

[Mike Levin]

Right. They could allow whatever they want. But what your point is, you're coming from a different direction.

[Kyle Pinder]

You can't raise it over the board's objection.

[Mike Levin]

So the board can, you know, include or exclude at once. But a shareholder, if a shareholder will go to Chancery Court of Chancery and sort of litigate this question, Chancery would have almost nothing to work with. There's no statute to refer to and very little Case law. But there's no inherent right that a shareholder would be trying to kind of enforce if it were trying to contest that board's decision to exclude it from, from the, from the agenda. Okay, interesting.

[Kyle Pinder]

Yeah, yeah. Whether it's the Court of Chancery in the first instance or if it ends up at the Supreme Court first, kind of like the CA proxy expense reimbursement bylaw, it ends up there on a certified question first.

[Mike Levin]

Yeah.

[Kyle Pinder]

Admittedly the court is going to be. They're going to have to, they're going to have to write law. And this is like my framework is kind of how I think it should be, how it should be answered.

[Mike Levin]

So for those three things importantly, there's nothing specific that says precatory proposals must be included. That's the key thing.

[Kyle Pinder]

Correct.

[Mike Levin]

Interesting. All right. All right. So the paper also delves into some other aspects of this that I want to make sure we cover because we're going to take a break here in a minute that I want to make sure we cover before we do that. So there's a strong sentiment, at least among these proposers, that there's kind of public policy considerations that kind of override all this, that the climate stuff or the social justice stuff is just so important that it just, it's critical that this be included. And I think you addressed that at least a little bit in what you wrote. What did that have to say?

[Kyle Pinder]

So I think that two of the main policy considerations for 14A8 over time and precatory proposals generally is that they give a medium for intra corporate communication. So for stockholders to talk to each other and for stockholders to talk to management about preferences.

[Mike Levin]

Okay.

[Kyle Pinder]

The other is holding management accountable if management's making bad decisions or decisions the stockholders don't generally support.

[Mike Levin]

Right.

[Kyle Pinder]

We'll take it in reverse order. On accountability, reasonable minds can disagree.

[Mike Levin]

Right.

[Kyle Pinder]

But there are many more effective ways to hold managers accountable than predatory proposal that they can just ignore.

[Mike Levin]

Right? Yes, Correct. So as accountability measures go, it's pretty weak.

[Kyle Pinder]

It's pretty weak. It's pretty weak.

[Mike Levin]

All right.

[Kyle Pinder]

On communication, I think everyone can acknowledge it. It has been, you know, a going on nearly 100 year means of, of allowing stockholders to communicate on the company's proxy materials about matters that would be submitted to a vote. But 1488, I mean, it was adopted in the 1940s.

[Mike Levin]

Oh, sure.

[Kyle Pinder]

So the amount of regulatory and technological development since then have, you know, have kind of, some people think, you know, left Fortune 8 in the dust. It's not the it's just not the most efficient or effective means of communication anymore.

[Mike Levin]

Right.

[Kyle Pinder]

You have universal proxy. You have withhold campaigns.

[Mike Levin]

There's other ways for shareholders to do this communication that are. That go beyond this 500 word limited kind of proposal.

[Kyle Pinder]

Exactly. Exempt solicitations. There's social media. There are a lot of ways that just that weren't available in the 1940s, honestly into the 2000s.

[Mike Levin]

Right. Oh, interesting. All right. I have one other. Actually, I want to make a kind of a quick point here just to make sure that I kind of understand what's going on here, because the way I've been thinking about these proposals generally, but very specifically after, you know, looking at your reasoning, is that we need to make a distinction between what shareholders can consider as part of like a shareholder meeting agenda and what companies are required to include on the written proxy materials. The two are related, but they're actually distinct. And I think it's fair to say that your work on this pertains to the first question, pertains to what companies are required or not required to just include on the agenda, forgetting what goes in the proxy statement. Right. Is that a fair distinction?

[Kyle Pinder]

I think, yeah, it's exactly that. It's from a state law matter. What matters can be there were no federal overlay and there were no advanced notice by law.

[Mike Levin]

Right, yeah, right.

[Kyle Pinder]

What matters would be proper if a stockholder just stood up at a meeting and said, I want to vote on this.

[Mike Levin]

Right, exactly. And importantly, the federal part of this pertains, I think, really only or almost only to the proxy materials. And that indirectly, by requiring something in the proxy materials, it sort of just defaults to needing to be on the meeting agenda. And you were then asking that very basic question about. Let's talk about the meeting agenda.

[Kyle Pinder]

Yeah, exactly. And yeah, 148 generally has been viewed by, I think, historically, I think, though there may be a little bit of debate, but by and large, as a, you know, a procedural grant of authority that allows shareholders to use the company's proxy materials to communicate.

[Mike Levin]

Right? To communicate.

[Kyle Pinder]

Yes, exactly. To solicit proxies on a proposal they intend to raise at the meeting without paying for their own solicitation.

[Mike Levin]

Exactly right. And actually we'll talk about that because I have a couple other questions that sort of get to some of the broader implications of all this, now that we've kind of talked about it. But we're going to do that after a quick break here at Shareholder Primacy.

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[Mike Levin]

Welcome back to Shareholder Primacy. I'm Mike Levin. We've been talking with Kyle Pinder of Morris Nichols about shareholder proposals under Delaware law. And I think we talked pretty thoroughly about kind of the foundational law and reasoning for this conclusion that, you know, companies really don't have to include these under in their, in their meeting agenda and meeting meeting proceedings. I don't think we forgot anything major there. Right. Before I get to some, some big questions. Is that, is that right? I think I kind of. We left out.

[Kyle Pinder]

No, I think, I don't think so. I think. Well, we're, we'll talk about the interplay of 14 8i1 here.

[Mike Levin]

Yeah, the, the, the federal, the federal law and so forth.

[Kyle Pinder]

Yes, I think that's right.

[Mike Levin]

I do want to ask how you got the idea. What was the kind of the reason, you know, where this all came from, you know, when you sort. Because, you know, you're like a practicing lawyer. You like, have clients. You don't write, you know, legal.

[Kyle Pinder]

Yeah, I'm not an academic by trade.

[Mike Levin]

Right. You know, and this is actually, this is going to, I think this is scheduled to be published someplace, right?

[Kyle Pinder]

Yes, I think it'll be published in the Michigan Business and Entrepreneurial Entrepreneurial Law Review, likely in mid December, I think.

[Mike Levin]

Oh, wow.

[Kyle Pinder]

So this is mid to late December.

[Mike Levin]

This is happening, man.

[Kyle Pinder]

Yeah, we're in the final site checking phase of the peer review.

[Mike Levin]

You got three anonymous reviewers that are kind of looking it over. Maybe not.

[Kyle Pinder]

Yeah, I'm not sure I'm through the substantive edit. I don't know if it was peer reviewed or just. Or student reviewed.

[Mike Levin]

Okay, cool. But where'd you get the idea? Let's talk about where this came from.

[Kyle Pinder]

So I think that's, for me, probably one of the more important parts of how this all fits together. The genesis of the paper is kind of simple. There's uncertainty regarding the future of the federal shareholder proposal process. And Rule 14.

[Mike Levin]

Right.

[Kyle Pinder]

As everybody knows, 1488 is the rule that allows stockholders to submit those proposals for inclusion in the materials. So our company's proxy materials and the staff or the sec, I think they've made comments over the course of this Year. But starting early in the year, a lot of lawyers and I think folks at companies and probably proponents were speculating that 14A was in for a major reform during the current SEC administration.

[Mike Levin]

Right.

[Kyle Pinder]

And that was after the commission publicized their reg flex agenda for the rulemaking agenda for the. Up for the next, you know, for the, for this term. One of the, I think it was only three or four things on there. One of them was a modernization of Rule 1488. So that kind of confirmed that 14A8 was on the. Was on the table, so to speak.

[Mike Levin]

Right. To be evaluated and reviewed and maybe change or eliminated. Who the hell knows?

[Kyle Pinder]

That idea that 14A8 was in for a large overhaul or I guess potential repeal was kind of solidified during the Chairman Atkins speech at the Weinberg center that you all have talked about. One of his parting words were, I'm also calling for a wholesale reevaluation of Rule 14A8. And whether it does, it achieves its intended purposes, such as they were when it was adopted in the 1940s.

[Mike Levin]

So, so, so, and this isn't new. I mean, there have been over the, over many years different, you know, questions and demands or whatever, mostly from issuers to, okay, we got to do something about this. But, but it really, it really came, it really got heightened in the past, I'm going to say year.

[Kyle Pinder]

Yeah, exactly. And that kind of, from, from that, with that level of uncertainty, I, I started thinking about, okay, well, I'm not quite sure what it's going to look like, but I guarantee no matter what flavor of reform the SEC pursues, there will be gaps that either state law or issuers are going to need to, or may perhaps want to fill or at least understand. Exactly.

[Mike Levin]

Okay. Oh, interesting. Okay.

[Kyle Pinder]

When there are gaps in, effectively in a governance regime.

[Mike Levin]

Yeah.

[Kyle Pinder]

Whether it's as the state or the, you know, the corporate chartering architecture or the federal regulatory overlay.

[Mike Levin]

Yeah.

[Kyle Pinder]

A lot of issuers fill those gaps by private ordering, be a bylaw or charter provision.

[Mike Levin]

Okay. And so you're trying to establish the dimensions of what that looks like.

[Kyle Pinder]

Yeah, exactly. So to the extent there's, you know, there is either question under the federal rules of, you know, what, what you can do in your charter bylaws to regulate these types of proposals, or if there just were no federal regime anymore, how can a company regulate proposals via private ordering to the extent it wants to keep that as a means of intercorporate communication that is candidly less intrusive than a withhold campaign.

[Mike Levin]

Okay. Oh, interesting. So basically Sitting there observing all these potential changes at the federal level, you're asking yourself, okay, where's Delaware fit into this?

[Kyle Pinder]

Yeah. And, and the charter bylaw amendments are the most likely place for a company to kind of. Because Delaware doesn't legislate top down in terms of, here's exactly how you're going to do it and what you're going to do in terms of, you know, proxy access and precatory proposals.

[Mike Levin]

Right.

[Kyle Pinder]

So it's more often than not, I think almost universally it's, it's a grain of authority to companies, to private and shareholders to figure it out.

[Mike Levin]

Right. Oh, interesting.

[Kyle Pinder]

So under the current rules, you know, I started, or Delaware law, I started looking at, well, okay, I guess how could one privately order today if they, if they want, if they were so inclined. Right. Charter, probably. Probably the easier discussion because you generally your, your charter is your, you know, your preeminent corporate document that you can, you can deviate from nearly any default role in Delaware you'd like. If you have, you know, if shares have an inherent right to vote, you know, one vote per share, you can completely divest that in the charter. So if you wanted to divest the right to propose a preparatory proposal or put it there. Regulations on it, put it there.

[Mike Levin]

Right.

[Kyle Pinder]

But that's, that's great for IPO companies or companies with a 75% stockholder.

[Mike Levin]

Right, exactly. Because the charter requires shareholder approval.

[Kyle Pinder]

Exactly. It takes two to tango to change the charter, the board and the stockholder.

[Mike Levin]

Bylaw is different story. You could maybe put.

[Kyle Pinder]

Exactly. Okay, exactly. So the question was. All right, well, so for, you know, midstream public companies that are already out there is a, you know, is a bylaw a unilaterally adopted bylaw, no matter which constituency it's coming from? Is that, is that a, would that be a proper bylaw today? If you did regulate more than just the timeframe for submitting the proposal, if you did try to include an ownership threshold, you need to own, you know,

[Mike Levin]

X dollars, some sort of other procedural thing or whatever.

[Kyle Pinder]

Exactly. Or even like a substantive, like yes, you can bring governance related proposals, but

[Mike Levin]

you can't bring climate ones or something.

[Kyle Pinder]

Exactly. So I mean all like Wolf, we'll see where the market goes on the actual terms of the bylaw. But the threshold question is, can you do it by bylaw? You just have so much more flexibility by charter. If there's a fundamental or, you know, inherent right to propose precatory proposals. There's some uncertainty under the dgc.

[Mike Levin]

Well, what kind of bylaw you can do here.

[Kyle Pinder]

Yeah. Because you're restricting a right. A literal reading of the statute says you got to do that in the charter.

[Mike Levin]

Some proponent will sue an issuer over that bylaw, and if the law is as they would like, they'd win and the company would have to handle it. Oh, interesting.

[Kyle Pinder]

Exactly. Because, you know, public companies, Fortune does not favor the bold when it comes to governance reforms and governance innovation for public companies. So, yeah, a company that, you know, wants to do something like this in the absence of, you know, a Delaware statute or a Delaware case, they're. They're setting themselves up for a high likelihood or at least a likelihood of potential litigation.

[Mike Levin]

All right, cool.

[Kyle Pinder]

So that's where I, you know, that was at the end of the paper where I said, yeah, this is my view. And this is why you can do these bylaws today. Yeah. But to avoid the, you know, the, quote, first mover problem, it would be. It. It would be beneficial for the market for the Delaware legislature to say, yes, you can, in fact, you know, regulate the submission of precatory proposals by bylaw.

[Mike Levin]

Okay, interesting. All right. So you were. We talked about how Atkins kind of name checked this whole thing in his. In his speech, basically saying, hey, we're really rethinking all this whole precatory proposal deal at the federal level. But that was at the. The gala Weinberg center dinner and so forth is when he gave the speech. You were there, I think, right?

[Kyle Pinder]

Yeah, I was there. I needed. I desperately needed CLE credit because I'm, you know, I have to report in December. So I was there for the symposium during the day, and then I attended the dinner.

[Mike Levin]

So you were at the dinner where this. The chairman of the sec, is talking about your paper?

[Kyle Pinder]

Yeah. It was both flattering and humbling at the same time. As a Delaware lawyer being.

[Mike Levin]

Did you kind of see that coming, or were you sort of surprised?

[Kyle Pinder]

So I was surprised that the chair of the SEC took that much notice of my paper to kind of use it as at least part of his argument. Part of his argument and his. His call to. I think some people view it as return 1488 to its roots.

[Mike Levin]

Right.

[Kyle Pinder]

To look at it as. First you have to start with state law and Then go to 1488. 14A wasn't meant to give just a broad referendum. Right. On environmental and social proposals.

[Mike Levin]

Of course. Right. So that must have been kind of fun.

[Kyle Pinder]

Yeah, it was both cool and horrifying.

[Mike Levin]

Like you're at a table with your partners, and they're saying they just did

[Kyle Pinder]

he just talk, you know, I got some people looking at me glowingly. I had some people looking at me like, you know, daggers. So it was what happened that was the horrifying part of, you know, seeing some of the law professors look at me with a little bit of disdain.

[Mike Levin]

Right. So now the other question I have is that about, you know, the whole reaction is, so the paper's been out there for at least a couple months or whatever. What, what have you heard? What kind of feedback have you gotten? What, what have you gotten? Lots of some bricks thrown at you or what's the. What's been the reaction here?

[Kyle Pinder]

So both my wife and my homeowners insurance company are both happy that I can report that our windows have not been bricked or, you know, great or egged.

[Mike Levin]

Right.

[Kyle Pinder]

I've had a lot of conversations with in house lawyers and, you know, public company advisory lawyers, the big firms who talk to issuers kind of just about the article where, how Chairman Atkins framed the question up and what just the likely next steps could be if someone decides to get an opinion from a Delaware law firm to the extent they'd issue it, and seek to exclude a precatory proposal on the basis that shorthand precatory is improper.

[Mike Levin]

Okay. Oh, interesting. All right, so there's just go ahead. Yeah, sorry.

[Kyle Pinder]

So one of the topics I talked about with these lawyers and in house folk, is it any precatory proposal? Are we just gonna. Are we gonna see every company, like every company seek to exclude every precatory proposal on the basis of Kyle's bright idea? And I think for a lot of the reasons that I, I think have been talked about in some of the blogs and papers and on the speaking circuit to date. Yeah, I don't, I don't anticipate it being a death knell for all precatory proposals. Two reasons for that is one, you know, there's. Yes, you have the SEC saying it's, yeah, we'll let you exclude it. And yes, you have the support of Kyle's paper that says, you know, it's not proper.

[Mike Levin]

Yes.

[Kyle Pinder]

But there's still, there's still always litigation risk. And some people just don't want to take litigation risk either. On the.

[Mike Levin]

Some issuer issuers will not want to take that litigation.

[Kyle Pinder]

Yeah, exactly. Whether it's in the form of the certified question or it's, you know, in a later litigation. And even if, you know, the, the Delaware Supreme Court and whatever court looks at this, agrees with me, there's always going to the risk of litigation that yeah. Just because you can in a situation doesn't mean you always should.

[Mike Levin]

Always. Well, right, yeah.

[Kyle Pinder]

So there's, there's that kind of litigation risk. Then there's just the, if, if the company's a too heavy handed on, let's say a, a governance proposal that's about destaggering, you know, we request destagger and the company excludes it. Well, what's that investor backlash going to look like at the, you know, the next annual meeting?

[Mike Levin]

Right. They may, they may be thinking, these issuers may be thinking down the road that this is an easier way to deal with these questions than I'd rather hear.

[Kyle Pinder]

I'd rather hear about it from a proposal that may or may not pass this year that I can, you know, I have some discretion on how and if to implement as opposed to next year something more concrete. Right. Like a withhold campaign or something like that, or like a proxy contest, which, that's the kind of a little bit of a nuclear option. But those are the kind of the judgment calls I think companies are thinking through and being a little bit more judicious with the, the possibility of excluding a precatory proposal under 14i1. And I do think the SEC was thinking along those same lines when Chairman Atkins gave his speech because he did focus on the environmental and social proposals that, I mean, he quoted some data that said historically they don't get as much support, they don't pass nearly as often as governance proposals. And they, I mean they are the, they are the proposals that get the

[Mike Levin]

most heat from the most opposition basic.

[Kyle Pinder]

And even the SEC has kind of been over time, you know, when they were looking at proposals not on the, the broader. Are they just generally precatory proper, but they were looking at it in terms of more proposal by proposal basis. One of the main ways you get an environmental or climate change proposal out is to say it relates to our ordinary business.

[Mike Levin]

Oh, that's the main way to exclude it. Yes, right.

[Kyle Pinder]

Exactly. Yes. So there's a rule 14 8i7 allows a company to exclude a proposal that relates to ordinary business. There's an exception that if it involves a significant policy matter, then it will not be ordinary business. And the SEC has the guidance on what's ordinary business and how to apply the significant policy exception has been back and forth.

[Mike Levin]

Yeah, it's gone all over the place.

[Kyle Pinder]

So it's, yeah, even, you know, I think this is also an acknowledgement that the SEC doesn't want to be the mediator for figuring out ordinary business and what a Social policy. Is that.

[Mike Levin]

So it's going to eventually, to the extent it falls to Delaware. Delaware doesn't have a whole lot of guidance either based on what we've heard from this research. So if you've gotten, presumably you've gotten some criticism, some, you know, is there a way to sort of summarize what, how people have objected to your findings or is that, isn't it, is it too early?

[Kyle Pinder]

I think it's a little early. I think a lot of the objections haven't been necessary to the findings. It's just, you know, the potential that Rule 1488 may not be available or as available, though I think, if I had to, I think it was the end of last week or sometime last week, I, I saw a blog post or like an open letter to the SEC talking about my, my, my article or the draft article. And I think the, the biggest piece of criticism or disagreement is that just because Delaware law is silent doesn't mean it's not allowed. And 211B is very broad. Oh. So it's kind of that how. It's kind of like, it's, it's that, that framework question I started with, which is where do you start from? Is it. Do you start from a place of board centric governance and director primacy or shareholder privacy?

[Mike Levin]

Got it.

[Kyle Pinder]

If it's the latter, then, yeah, I imagine that's. That is how a court would probably, probably come out, which is. Yeah, but if it's, I mean, Delaware law to date at least has been more board centric. So kind of reading the tea leaves from how the courts have deferred to management in certain situations and in many situations, I think based on that, that's why I think my framework is the better way to think of it under current Delaware law.

[Mike Levin]

Got it. All right, cool. Hey, we're running out of time, but I have a couple other quick questions that are only barely related, so I wanted to know, I mean, again, you don't write papers for a living. You deal with clients for a living. Right. So your law practice at Morris Nichols. But you just said a little while ago you don't really go to Chancery Court, Right. You're just.

[Kyle Pinder]

No, yeah, I think I've been a former Delaware jurist, referred to what I do and people like me as being a telephone lawyer. Our main role is advisory and counseling.

[Mike Levin]

So you sit at the desk and sort of help people write bylaws, help people interpret statute and so forth. But you're not doing it.

[Kyle Pinder]

Exactly. And then I'll do some transactional work in addition. So, you know, some. I help out with public company M and A and things like that.

[Mike Levin]

So you'll do deals and so forth, but you're not. You don't actually go to Chancery Court to litigate this stuff. You have partners for that purpose, Correct?

[Kyle Pinder]

Yeah, to the extent that comes up, I'll. I'll be in the background making sure, you know, it's the train stays on the tracks. But, yeah, you won't see me in court. Cool. All right.

[Mike Levin]

And then you've been at Morris Nichols for your whole career. Tell me a little more about some of the origins of all this.

[Kyle Pinder]

Yeah, so I've been at Morris Nichols. I started just over 10 years ago at the end of the summer in 2015. I was a summer associate at Morris Nichols. And I'm a lifelong Delawarean, so it made sense for me to stay home and stay near my roots. And I always found corporate law interesting. We had family friends who were prominent corporate lawyers.

[Mike Levin]

Oh, interesting. So you went into the state. You went into the state business.

[Kyle Pinder]

Exactly, exactly.

[Mike Levin]

You weren't a chicken farmer, so you decided to go into. Into corporate law.

[Kyle Pinder]

Exactly. And I, at the time was soon to be my fiance now, now wife and mother of my two kids. Yeah, she is. She's also a native Delawarean, and she is very much. I refer to her and myself, too, as a country mice, meaning we don't necessarily want to be living in the bustling metropolis of New York or D.C. so Wilmington's a good combo.

[Mike Levin]

There's plenty to do in terms of what you chose in Wilmington. That's plenty.

[Kyle Pinder]

Exactly.

[Mike Levin]

All right. Well, this is great. This is wonderful. So I think we're going to have to wrap up here. Hope you've enjoyed sort of explaining what you had in mind here and sort of figuring out what's next. Probably there's some bylaws to write and there's some more litigation to look at and so forth as we work through this. Does that sound right?

[Kyle Pinder]

That sounds right. I think, at least for me, my next project will be just trying to figure out what that type of precatory proposal bylaw looks like. That both achieves the goal I'd like, but has the compromise effect of making everybody a little unhappy and happy at the same time.

[Mike Levin]

Exactly. All right, cool. Well, we're going to wrap up then. As we said, Kyle, it's been great talking to you about shareholder proposals and Delaware law and these other subjects. This is Shareholder Primacy, hosted by Ann Lipton and me, Mike Levin. I'm an independent activist investor and advisor to investors about their activist situations. I've been talking to Kyle Pinder who is a partner, attorney and partner at Morris Nichols arst and Tunnel. Did I say that right? Tunnel Tunnel tunnel in Wilmington, Delaware. You can find me [e-mail] and you can find. Com kyle@morrisnichols. One word morrisnichols.

[Kyle Pinder]

Com.

[Mike Levin]

Our podcast is produced and distributed by Free Float Media. Thanks for listening. We will talk again soon.