GW law professor Lawrence Cunningham has a new column out (sadly behind a paywall), in which he criticizes the SEC for designing its recent regulatory proposals so as to facilitate efforts by progressive political activists to influence corporations to achieve social justice and ESG issues that they cannot achieve politically.
Under Chairman Gary Gensler, the SEC is backing the team that views corporations mainly as social institutions, while trying to defeat the team that views corporations as primarily economic ones. ...
Cunningham focuses on the SEC's proposed changes to the rules under Sections 13(d) and 13(g) of the Securities Exchange Act. Those rules basically require investors who own 5% or more of a company's shares to file a disclosure document setting out their holdings, plans, and intentions.
... the SEC would make it easier for political activists to use corporate shareholder voting in campaigns promoting climate control, civil rights and board diversity — policies championed by the environmental, social and governance, or ESG, movement. For instance, the proposal narrows the concept of "group" for this cohort to make it easier for social activists to coordinate campaigns with each other and increase votes for ESG proposals.
... The SEC seeks to handicap traditional economic activists in favor of ESG activists. This runs counter to the SEC's historical mandate to serve the economic interests of Main Street shareholders, not put its weight behind particular political philosophies.
... Starting this year, the SEC has [also] liberalized its approach to the topics shareholders may require companies to put on the corporate ballot. Historically, companies could omit proposals pushing broad social policy unrelated to a company's business.
But now anything having to do with ESG must go on the ballot, with updated guidance noting staff will disregard "the nexus between a policy issue and the company" and instead focus on "the social policy significance of the issue" raised in the proposal. Expect novel proposals spanning from internal civil rights audits to disclosures of every director's sexual preference.... While most shareholders will vote against such proposals as nonstarters ... the costs the SEC is imposing on shareholders are nontrivial.
In short, Gary Gensler has turned a historically apolitical federal agency into an arm of the progressive wing of the Democratic Party.
