The National Association of Manufacturers (NAM) has intervened in NCPPR v. SEC to challenge the constitutionality of the SEC‘s Rule 14a-8, known as the “Shareholder Proposal Rule” (the Rule), which protects shareholders’ right to take informed votes on important matters of corporate governance.
In 1998, the SEC modernized the Rule—which is designed to safeguard shareholders from fraud by protecting their right to take informed votes on certain matters of corporate governance—by requiring that certain shareholder proposals are included in proxy statements. Proxy statements are statements that public companies send to shareholders when soliciting shareholder votes ahead of an annual shareholder meeting. By requiring proxy statements to inform shareholders of eligible shareholder proposals in addition to management’s own initiatives, the SEC ensures that shareholders understand what a company will do with their votes once delegated. In short, the Rule protects shareholders from being tricked into giving away their votes on important matters of corporate governance. Under the Rule, the SEC determines what shareholder proposals need to be included in a proxy statement and which ones do not.
NCPPR v. SEC is a case in which NCPPR, a far-right group and shareholder in Kroger, is challenging a ruling from the SEC that determined a proposal from NCPPR did not need to be included in Kroger’s proxy statement.
Intervenor NAM has seized on NCPPR’s case to challenge the constitutionality of the Rule, which was first established in 1942 and has been modernized over time. NAM is making a radical argument: that corporations should not be required to disclose any shareholder proposals in their proxy solicitations. This position ignores—and NAM repeatedly overlooks—the vital function that proxy statements perform in modern corporate governance.
Led by Professor Sarah Haan of Washington & Lee University School of Law, more than a dozen recognized experts in constitutional law—particularly regarding the First Amendment and securities disclosure laws—felt compelled to submit this brief to rebut NAM’s extreme argument and make clear to the court: the Rule is constitutional.
The legal scholars’ brief urges the court to reject NAM’s extreme argument that has no legal precedent and would render the proxy voting system unworkable by eliminating shareholders’ assurance of informed consent.
As the scholars’ brief explains, corporate disclosures required to prevent fraud have generally not been subject to First Amendment review. But even if a court were to decide that the Rule is subject to First Amendment review, it is clearly constitutional, because it advances a substantial government interest—protecting shareholders and potentially preventing fraud—at negligible cost to corporations.
Democracy Forward is representing the scholars in their brief as part of the organization’s commitment to defending constitutional actions by federal agencies that protect the public.
The fourteen legal scholars who submitted the brief are:
- Sarah Haan, Class of 1958 Uncas and Anne McThenia Professor of Law, Washington & Lee University School of Law
- Enrique Armijo, Professor of Law, Elon University School of Law
- Carliss N. Chatman, Associate Professor, SMU Dedman School of Law
- George S. Georgiev, Associate Professor, Emory University School of Law
- Kent Greenfield, Professor of Law and Dean’s Distinguished Scholar, Boston College Law School
- Kyle Langvardt, Assistant Professor of Law, University of Nebraska College of Law
- Amelia Miazad, Acting Professor of Law, UC Davis School of Law
- Helen Norton, University Distinguished Professor and Rothgerber Chair in Constitutional Law, University of Colorado School of Law
- Omari Scott Simmons, Professor of Law, The George Washington University Law School
- Faith Stevelman, Professor of Law, New York Law School
- James Tierney, Assistant Professor, Chicago-Kent College of Law
- Alexander Tsesis, Professor of Law & D’Alemberte Chair in Constitutional Law, Florida State University College of Law
- Anne M. Tucker, Professor of Law, Georgia State University College of Law
- Karen E. Woody, Associate Professor, Washington and Lee University School of Law