We are at a crucial moment in the history and future of our securities laws. I am delighted to have a chance to share my thoughts on the critical work that Proxy Preview is doing to help investors hold American corporations accountable to ordinary American investors.
A common refrain among corporate counsel is that certain issues are insufficiently important to warrant a dialogue with investors. It’s a familiar pattern: investors express interest in a subject, but corporate lawyers— bolstered by bureaucrats in Washington—respond that your proposal is immaterial “social policy.” This argument is contrary to both the history and purpose of American securities law. And I want to call upon all investors to continue their fight to prove it.
Of course it’s true that materiality—the importance of a subject to a reasonable investor—is the touchtone of our securities laws. But too much of corporate America has forgotten who decides what is material. During my first year in office as an SEC commissioner, I have been astonished by corporate lawyers’ comfort with speculation about what is or is not important to investors. With reference to little more than their own guesswork or personal value system, many counsel—and even fellow Commissioners—seize for themselves the judgment about what’s important to investors.
The hubris implicit in that approach has produced some of the more head-shaking episodes in the history of our Division of Corporation Finance. It was that argument that briefly persuaded the Division that proposals related to executive pay were too related to the company’s ordinary business operations to warrant a shareholder vote. Similar thinking drove the Division to exclude proposals on disclosure of corporate political spending for years. But the investors behind those proposals kept fighting—which is why corporations regularly disclose in both areas today.
So I want to remind everyone, and the corporate counsel with whom shareholder proponents engage with each year, that it is the investor who tells us what’s important. It is not the SEC’s role to impose from Washington the views of Commissioners about what’s important upon millions of American investors. We should be looking to the issues that investors deem important—the proposals most frequently raised by shareholder proponents, the disclosures that stock returns show are meaningful—when deciding these matters. History has always looked unkindly upon the SEC when we take the other approach.
We need help from shareholder proponents and investors who support them. If I’m right that investors should help determine what’s important to investors, the future of American corporate transparency is very much in investors’ hands. Although you, the investors, may sometimes feel discouraged, I ask you to keep up the fight. Keep communicating with management, making your case, explaining to corporate counsel and us at the SEC why you’re asking for the information you do. History shows that it makes all the difference for the transparency of the corporations that will define our economic future.