Shareholder Proposals on Social Issues are Not 'In the Public Interest'

Shareholder activists on both sides of the political spectrum have increasingly been using shareholder proposals to debate the most pressing and divisive social issues of our times. Responding to these proposals cost corporations tens of millions of dollars each year, not to mention the loss in efficiency caused by distracting management from their focus on company business. Most importantly, they pressure management to take stands on divisive issues. Why does the SEC think it has the authority to compel the insertion of shareholder proposals on social issues, not only when they are not significant to a company’s business, but also when there is not even a “nexus” between the social issue and the company? The only explanation is that the Commission is interpreting the statutory terms, “in the public interest” and “for the protection of investors” (investor protection), to mean that it has almost unlimited discretionary authority to compel shareholder proposals. If so, the SEC has totally misunderstood the term “in the public interest.” This short writing makes a substantive contribution to our understanding of the legal boundaries the SEC must abide by when it considers compelling shareholder proposals into the proxy statements of our public companies. This writing served as the basis for an op-ed that appeared in RealClearMarkets on June 7, 2023