In recent years, shareholder proposals about social matters have increased significantly. While an average American may think such proposals are matters solely between a publicly traded corporation and its shareholders, the United States Securities and Exchange Commission (SEC) plays a key role in determining whether a particular proposal may be raised at a shareholder’s meeting through its regulatory review process.
As social issues have become increasingly significant in corporate spaces due to the rise of environmental, social, and governance considerations, both scholars and courts have begun to examine the intersection between the SEC’s regulatory regime and the First Amendment. This Article contributes to that examination by analogizing corporate proxy statements to limited public forums under the First Amendment and explaining how such an approach may result in some forms of the SEC’s regulatory review of shareholder proposals being declared unconstitutional. This is because those regulatory determinations prevent certain shareholders from speaking based on normative judgments and thus create the potential for viewpoint discrimination.
To demonstrate this, the Article first examines the history of the SEC’s regulatory review of shareholder proposals that involved social or political concerns. This review reveals the inconsistencies inherent in the SEC’s approach to such shareholder proposals and its repeated difficulties in developing a consistent and workable standard for reviewing such proposals. Next, the Article considers the SEC’s latest regulatory approach to shareholder proposals and examines how the SEC may exercise its discretion under that approach to advance or inhibit particular views.
Given the historic nature of the shareholder meeting and the Supreme Court’s description of such meetings, this Article then argues that shareholder proposals are raised in a manner akin to a limited public forum, rendering the SEC’s existing oversight of the shareholder proposal process constitutionally suspect. But removing the SEC from the process of screening shareholder proposals may not be bad for corporate governance. Although there is a risk that shareholders may abuse the proposal process absent SEC oversight, there is a potential benefit to allowing proposals to proceed to shareholder votes as this is consistent with the information-providing aspects of shareholder proposals and better enables private ordering to assess each proposal’s merits.
