Ann Lipton spotted something really interesting:
this April Executive Order in which Trump declares:
The majority of financing in the United States is conducted through its capital markets. The United States capital markets are the deepest and most liquid in the world. They benefit from decades of sound regulation grounded in disclosure of information that, under an objective standard, is material to investors and owners seeking to make sound investment decisions or to understand current and projected business. As the Supreme Court held in TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976), information is “material” if “there is a substantial likelihood that a reasonable shareholder would consider it important.” Furthermore, the United States capital markets have thrived under the principle that companies owe a fiduciary duty to their shareholders to strive to maximize shareholder return, consistent with the long-term growth of a company.
(emphasis added),
As readers of this blog are likely aware, academics love to argue over whether existing law requires that corporations be run solely to maximize stockholder wealth, and of course over whether such law – if it exists – is a good idea or a bad idea. See generally Joan MacLeod Heminway, Shareholder Wealth Maximization as a Function of Statutes, Decisional Law, and Organic Documents, 74 Wash. & Lee L. Rev. 939 (2017). Usually, however, these battles occur in the context of state law. And while federal law – securities regulation, and so forth – often implies a corporate purpose of wealth maximization, I have to admit, I don’t recall seeing so blatant a statement about it before.
In any event, this section of the Executive Order directs the Department of Labor to review its existing guidance re: ERISA plans’ involvement in ESG matters. It’s a follow-up to last year’s Labor Department release – which I blogged about here – warning that ERISA plans may violate their duties to plan beneficiaries if they engage on ESG matters, or vote for ESG-related proxy proposals, for reasons other than plan wealth maximization.
She goes on to note that this might impact the SEC's proxy process review:
As I’ve previously discussed, the SEC is currently reviewing rules governing the proxy process – including the role of proxy advisory services – to determine if additional regulation is needed. Much of this fight is, of course, about shareholder involvement in ESG matters and corporate governance more generally. I assume from this latest Executive Order that we’re about to see something of a two-pronged effort to limit shareholder power, with new guidance and/or regulations issuing from the SEC on one side and the Labor Department on the other.
I hope somebody at the SEC is reading my paper, Preserving Director Primacy by Managing Shareholder Interventions (August 27, 2013). Research Handbook on Shareholder Power and Activism, p.231 (edited by Jennifer G. Hill & Randall S. Thomas, Edward Elgar Publishing, 2015), available at SSRN: https://ssrn.com/abstract=2298415, in which I argue that:
Even though the primacy of the board of directors is deeply embedded in state corporate law, shareholder activism nevertheless has become an increasingly important feature of corporate governance in the United States. The financial crisis of 2008 and the ascendancy of the Democratic Party in Washington created an environment in which activists were able to considerably advance their agenda via the political process. At the same time, changes in managerial compensation, shareholder concentration, and board composition, outlook, and ideology, have also empowered activist shareholders.
There are strong normative arguments for disempowering shareholders and, accordingly, for rolling back the gains shareholder activists have made. Whether that will prove possible in the long run or not, however, in the near term attention must be paid to the problem of managing shareholder interventions.
This problem arises because not all shareholder interventions are created equally. Some are legitimately designed to improve corporate efficiency and performance, especially by holding poorly performing boards of directors and top management teams to account. But others are motivated by an activist’s belief that he or she has better ideas about how to run the company than the incumbents, which may be true sometimes but often seems dubious. Worse yet, some interventions are intended to advance an activist’s agenda that is not shared by other investors.
This chapter proposes managing shareholder interventions through changes to the federal proxy rules designed to make it more difficult for activists to effect operational changes, while encouraging shareholder efforts to hold directors and managers accountable.
