During proxy season, American companies are compelled to engage in debates on social issues through the submission and dissemination of shareholder proposals. These proposals are published in annual proxy materials, with the company and shareholders presenting arguments for and against the proposed reforms.
In 2023, a significant number of proposed resolutions focused on social policy issues, with climate change and other social issues like racial equity and diversity initiatives being prominent topics. While some proposals were excluded or withdrawn, a small percentage ultimately passed after being voted upon.
The government compels companies to include shareholder proposals in their proxy materials through Rule 14a-8 of the Securities and Exchange Commission. This rule mandates the publication of proposals that raise controversial social issues, raising concerns about potential violations of the First Amendment’s protection of freedom of speech.
The constitutionality of Rule 14a-8 raises questions about corporations’ negative speech rights and the extent to which corporate speech is protected under the First Amendment. While natural persons have both positive and negative speech rights, it is unclear if corporations enjoy the same protections due to their artificial nature.
The intrinsic and instrumental rationales for the freedom of speech apply differently to corporations, with their speech rights primarily justified by the instrumental rationale. The intrinsic rationale, based on the natural right to autonomy in thought and speech, may not be as applicable to corporations.
In the context of negative speech rights, where individuals have the right to refrain from speaking, the intrinsic rationale becomes crucial. Silence from corporations may not contribute to improving democratic deliberation in the same way as silence from natural persons. The protection of negative speech rights under the First Amendment has traditionally been rooted in the concept of “conscience” for natural persons. However, corporations, being artificial entities, do not possess conscience in the same way that individuals do. Therefore, the basis for negative speech rights for corporations must be reevaluated.
One approach to justifying corporate speech rights is to focus on the natural persons who form the corporation, particularly its shareholders. While shareholders retain individual rights, these rights are transformed by the corporate structure. The intrinsic justification for corporate speech rights can be derived from the interests of the shareholders, but this justification is altered by the corporate form.
This article proposes a theory of corporate speech that connects “conscience” to “purpose,” suggesting a basis for protecting corporations’ negative speech rights. The wealth maximization norm is identified as the core purpose of corporations, serving as their internal conscience. When compelled speech aligns with wealth maximization, it is acceptable, but when it does not, it violates the integrity principle and triggers First Amendment protection.
Rule 14a-8 is explored as a context for studying corporate speech rights, particularly in publicly traded corporations where conflicts among shareholders are common. The rule compels speech related to shareholder proposals, often involving social policy issues. This compulsion can lead to violations of the integrity principle and raise First Amendment concerns.
The article delves into the origins and evolution of Rule 14a-8, as well as examining existing literature on the subject. It also analyzes First Amendment doctrine, focusing on the constitutional basis for corporate speech rights and negative speech rights. Ultimately, it argues that Rule 14a-8, particularly in mandating controversial disclosures, infringes on the First Amendment rights of corporations.
By offering a unique perspective on corporate speech rights and utilizing Rule 14a-8 as a case study, this article sheds light on the complexities of balancing shareholder interests, corporate purpose, and constitutional protections within the realm of corporate speech.
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