Corporate Governance

Business Roundtable v. SEC: Law Professors Weigh In

By J Robert Brown Jr.

The other interesting brief filed in the case was on behalf of 37 law professors (with a number of notables signing on, including Jim Cox at Duke and John Coffee at Columbia.  Many of those signing on were on the professors' brief filed in Matrixx v. Siracusano, a case before the Supreme Court on the definition of materiality under the antifraud provisions of the securities laws.  The brief deals with only one issue, the assertion that the shareholder access rule violates the First amendment. 

We are not first amendment experts at this Blog.  But it seems obvious that if Rule 14a-11 somehow violates the first amendment because it requires public companies promulgate speech by third parties, then other parts of the proxy rules, particularly the entire shareholder proposal rule, would likewise be invalid.  This would result in a substantial change in a regulatory structure that has existed for more than a half century.

Moreover, while mandating disclosure in the proxy statement, public companies can avoid the need to distribute a proxy statement.  The requirement to solicit proxies is a requirement of the stock exchanges.  To the extent companies delisted (and traded in the OTCBB for example), they could avoid the requirements of Rule 14a-11.  Although public companies in general would not delist over such an issue, it does not change the fact that they could, thereby avoiding the disclosure requirements. 

Although the brief will be part of the record, it has not been officially allowed.  The law professors have filed a motion for leave to submit an amicus brief (attaching the brief as a copy).  The Petitioners have opposed the request.  See Petitioners' Opposition ("Law Professors' motion should be rejected because it is filed out of time and they have not demonstrated that filing a joint brief with the other amici was not practicable. Moreover, the Law Professors seek to exceed the Court's word limit for amici, but have neither moved for leave to do so nor provided a justification for doing so.").  

Law professors, in their response, noted that the brief was timely and that it could not be filed with the CII brief because:

• not all [law professors] agree with the Institutional Investors' position that Rule 14a-11 'will significantly improve shareholders' ability to ensure that corporate stewards maximize shareholder wealth' (Institutional Investors' Brief at 1), and thus represent fundamentally different interests. The Law Professors therefore offer a unique perspective on Rule 14a-11, and it would not have been practicable to for them to file a joint brief with the Institutional Investors.

As for the allegation that the brief is too long, the Professors label the position as "simply wrong." 

The DC Circuit has already denied the motion by TIAA-CREF to file an amicus brief in the case.  Law Professors were treated differently.  On Thursday, the panel approved the motion to file the brief. 

Primary materials, including all of the briefs and motions, are posted on the DU Corporate Governance web site.

Full post as published by The Race to the Bottom on February 11, 2011 (boomark / email).