Stetson law professor Ciara Torres-Spelliscy, an expert on dark money and its pernicious impact on both public and private governance, has submitted an excellent and very persuasive comment to the SEC on the proposed rules for limiting shareholder proposals. The full text is in the link below.
[T]he rule proposed by File No. S7-23-19 would make shareholders’ ability to ask for accountability from publicly traded companies more difficult by shrinking the pool of eligible shareholders who could legally offer shareholder proposals on dark money as well as a host of other issues of interest to investors.
This proposed rule does not seem consistent with the binding legal precedent of Medical Committee For Human Rights v. SEC which recognized the rights of shareholders to raise social and political issues on corporate proxies under Rule 14a-8. As the Medical Committee for Human Rights Court stated:
It is obvious to the point of banality to restate the proposition that Congress intended by its enactment of section 14 of the Securities Exchange Act of 1934 to give true vitality to the concept of corporate democracy. The depth of this commitment is reflected in the strong language employed in the legislative history:
Even those who in former days managed great corporations were by reason of their personal contacts with their shareholders constantly aware of their responsibilities. But as management became divorced from ownership and cameunder the control of banking groups, men forgot that they were dealing with the savings of men and the making of profits became an impersonal thing. When men do not know the victims of their aggression they are not always conscious of their wrongs . . . . Fair corporate suffrage is an important right that should attach to every equity security bought on a public exchange.
The language above appeared in a case where shareholders at Dow used a shareholder resolution to try to implore the firm to stop selling napalm. The D.C. Circuit later reiterated the importance of shareholder proposals in 1992.
Moreover, Supreme Court precedent is also clear that the highest court in the land values corporate democracy. The Supreme Court has referred to the federal securities law as providing for “[f]air corporate suffrage.” And in 1991,in Virginia Bankshares, the Supreme Court quoted the legislative history of the Securities Exchange Act of 1934 about the centrality of shareholders’ voting rights: “[a]ccording to the House Report, Congress meant to promote the ‘free exercise’ of stockholders’ voting rights, and protect ‘[f]air corporate suffrage,’ from abuses exemplified by proxy solicitations that concealed what the Senate Report called the ‘real nature’ of the issues to be settled by the subsequent [shareholder] votes.” Even in Citizens United v. FEC, Justice Kennedy writing for the Court referenced “[s]hareholder objections raised through the procedures of corporate democracy…” File No. S7-23-19 runs counter to corporate democracy because it attempts to artificially shrink access to the proxy to either wealthy investors ($25,000) or very long term (3 year) investors. [footnotes omitted but provided in the full text below]