– On July 14th, Rep. Ralph Norman (SC-5) introduced H.R. 4655, the Businesses Over Activists Act, to amend the Securities Exchange Act of 1934 to prohibit the Securities and Exchange Commission (SEC) from compelling the inclusion or discussion of shareholders proposals or proxy or consent solicitation materials. It aims to limit the SEC’s authority in this area entirely and emphasizes the role of state regulations in governing shareholder proposals.
This proposed bill revises Section 14(a) of the Securities Exchange Act of 1934 to rescind the SEC’s power to politicize corporate boardrooms through the compelled inclusion of environmental, social, and governance proposals (ESG) and policy related shareholder proposals.
Currently, the SEC affirms the authority
to compel the inclusion of a shareholder proposal that relates to issues of broad societal impact which encompasses and primarily applies to environmental, social, and governance proposals (ESG), regardless of the issues relation to business operations of the company.
Several industry groups, most notably the National Association of Manufacturers
(NAM), have significantly criticized the SEC’s authority to politicize corporate governance through the forced inclusion of ESG proposals on shareholder ballots, arguing the “the corporate proxy ballot is not the appropriate venue for policy decisions better made by America’s elected representatives, and manufacturers are regularly caught in the middle as activists on the left and the right bring fights from the political arena into the boardroom.”
The SEC’s forced inclusion conflicts with traditionally delegated powers
held by state governments over the regulation of the shareholder proposal process.
In addition to the unconstitutionality of the SEC’s actions in compelling corporate speech through the forced inclusion of shareholder proposals on proxy ballots, the SEC’s rules pose tremendous economic burdens on firms. Over the past fiscal year, ESG shareholder proposals accounted for 61% of all proposals on proxy ballots
, or nearly double the amount prior to the implementation of the SEC’s rules, and the vast majority of proposals are cited to have no tangible positive impact on a company’s financial performance.
H.R. 4655 is critical to both preserving the first amendment rights of corporations and impeding economic damages stemming from the misuse of resources delegated to the management of these politicized proposals.
"ESG is an evil pollutant that must be eradicated from corporations and businesses," said Rep. Norman in a statement on Friday. "Ultimately, this bill would solve a freedom of speech issue. The SEC should not and does not have the authority to compel companies to vote on a proposal, especially if it’s irrelevant.”
The National Association of Manufacturers (NAM) said, "The SEC’s compelled-speech regime under Rule 14a-8 is a clear violation of manufacturers’ First Amendment rights. The NAM applauds Rep. Norman for introducing the Businesses Over Activists Act, which would prevent the SEC from forcing companies to speak on politically motivated activist proposals. Limiting the SEC’s authority to dictate the content of corporate proxy statements will prevent activists from hijacking the proxy ballot and allow manufacturers to focus on long-term growth and job creation."