Robert Jackson recently discussed an SEC staff ruling that the ordinary business exception for shareholder proposals under Rule 14a-8 did not justify excluding a proposal recommending that the board disclose and let shareholders vote on its policies related to corporate political spending. Jackson opines that “the decision will help bring corporate political speech decisions into line with the interests of shareholders” in the wake of the Supreme Court’s Citizens United decision.
Meanwhile, Jackson’s article with Bebchuk, Corporate Political Speech: Who Decides? 124 Harv. L. Rev. 83 (2010), proposes going beyond merely permitting shareholder recommendations under 14a-8 to, among other things, majority shareholder voting on corporate speech decisions.
The idea of bringing corporate political speech into line shareholder interests sounds unobjectionable until you ask, “which shareholders?” As I discuss in my recent paper, First Amendment and Corporate Governance, shareholder voting on corporate speech could amplify activist business skeptics while muting the diversified shareholders who would prefer that business views be heard.
There’s also the clash between diversified and non-diversified pro-business shareholders. The latter may prefer rules that facilitate costly wealth transfers between firms, while the former want only corporate acts and legal rules that maximize the value of their entire portfolios.
And then we could ask why shareholders’ interests should matter more than those of other stakeholders, particularly including employees, whose political interests may sharply diverge from those of shareholders with broadly diversified portfolios.
The most likely effect (and possible intent) of requiring shareholder voting on corporate contributions would be to burden and therefore reduce corporations’ ability to speak at all. This could promote government censorship of corporate speech, precisely what the Supreme Court said in CU the First Amendment didn’t permit.
I note in my article that it’s far better to delegate business decisions regarding corporate political spending, like others, to the board. I, of course, cite Steve Bainbridge (who posts to similar effect). Corporate law provides many ways to deal with directors who act contrary to corporate interests, including fiduciary duties and shareholder exit. This discipline may be imperfect, but it doesn’t work worse for corporate speech than for other types of decisions where managers’ interests conflict even more directly with those of the corporation.
The main point to emphasize here is that there is no special free speech reason to protect shareholders from managerial control of corporate speech. If anything, the arguments cut the other way. Government control of corporate speech surely raises some voices, and therefore some ideas, above others. And legislators and regulators seek to promote their own interests, which is the First Amendment’s main concern.
The bottom line is that First Amendment should constrain government regulation not only directly of corporate political speech, but also of the governance processes that produce it. The SEC’s 14a-8 ruling and Bebchuk and Jackson’s proposals would move securities regulation toward a confrontation with the First Amendment that has been brewing since 1933. See my article with Butler, Corporate Governance Speech and the First Amendment, 43 U. Kans. L. Rev. 163 (1994).