The SEC Is Shirking Its Duty as a Neutral Arbiter
Editor’s note: The following piece originally appeared at National Review.
With baseball season in full swing, we’re all used to the sight of an umpire calling strikes. But any baseball fan would be horrified if the umpire showed up to the field wearing one team’s jersey. The umpire’s job is to neutrally enforce the rules, so the teams play a fair game.
Unfortunately, today’s U.S. Securities and Exchange Commission — the umpire of the American business world — is wearing one team’s colors. When it comes to shareholder concerns about hot-button social issues, the SEC has been anything but neutral.
One of the agency’s roles is to referee shareholder meetings by keeping certain proposals off the proxy ballot for a company’s annual shareholder meeting. One way it does so is by excluding proposals that deal with ordinary business operations but protecting ones that focus on high-level decision making. The “ordinary business operations” rule serves a useful purpose. If business executives had to spend shareholder meetings talking about mundane details — like whether their website should use a blue font — it would take away from the substantive discussions that businesses should be having with their shareholders.
While website color doesn’t rise to the level of a shareholder meeting, business practices that damage morale, create a toxic work culture, or tarnish a company’s public image usually do. And the same should go for policies that allow businesses to de-bank, de-platform, or otherwise discourage large swaths of consumers from doing business with them. All of these are serious concerns for anyone invested in a company’s success.
Unfortunately, many common-sense proposals to address such concerns never make it to the ballot. If a company believes a resolution focuses on ordinary business matters, it can ask the SEC whether the proposal should qualify for the ballot. The SEC’s responses are technically non-binding, but companies, shareholders, and even courts all treat them like law.
My colleagues and I at Alliance Defending Freedom point out in our friend-of-the-court brief filed with the U.S. Court of Appeals for the Fifth Circuit that, since 2018, the SEC has allowed corporations to keep conservative proposals off the ballot 72 percent of the time. Meanwhile, the SEC agrees to companies’ requests for a no-action letter only 46 percent of time when the proposal originates from the left. It does so by relying on an exception that the SEC bestowed upon itself in 1998 that allows it to protect any proposal focusing on a “significant social policy.” This exception is malleable and subjective, and lends itself to partisan enforcement even from well-meaning SEC officials because it makes them determine whether an issue is sufficiently popular or important for shareholders to consider.
The SEC, through its “significant social policy” exception, is violating the First Amendment by discriminating against religious and conservative views.
The SEC excluded a proposal on viewpoint discrimination in the workplace at Kroger in 2023. But it has protected proposals concerning other types of discrimination and civil-rights impacts from those on the left. That prompted a lawsuit from the National Center for Public Policy Research and other individual shareholders, whom we support in our brief.
As the brief explains, the SEC is excluding conservative proposals (but not pro-ESG ones) on issues like gun control, political giving and speech, access to financial services, and the financial impacts of ESG. It is also choosing which issues are significant based on viewpoint. The brief cites 13 issues the SEC deemed “significant social policy” — ranging from state abortion laws to animal rights — all while the SEC allows companies to ignore proposals on topics like viewpoint discrimination in employment, politicizing financial services, and limiting customer speech. And it is doing so based on an unworkable “significant social policy” rule that invites discriminatory enforcement.
No government agency can gift itself complete discretion to decide which ideological positions count as “significant,” as the SEC has. The First Amendment, with few exceptions, forbids the government from favoring one opinion and discriminating against another, and the SEC’s power grab does not hold up to First Amendment standards.
To be clear, the First Amendment in this context doesn’t require equal numbers of conservative and liberal proposals. Instead, it requires the SEC to make decisions in a viewpoint-neutral manner that respects shareholders’ First Amendment rights. For that to happen, the SEC’s “significant social policy” rule needs to be replaced with specific and objective guidelines that still allow resolutions of issues significant to the company.
As an example, the SEC should allow shareholders of social-media corporations to consider the reputation risks presented by de-platforming users based on political beliefs. Under its current application of the “significant social risk” policy, however, the SEC has effectively stonewalled these proposals, which prevents shareholders from considering an important issue that can affect the company’s bottom line.
Now is the appropriate time for the court to step in to put a stop to the SEC’s flagrant violation of the First Amendment. Shareholders have every right to hold the businesses they own accountable, and they deserve a fair umpire, regardless of their political persuasion. Today, the SEC’s unfair calls favor left-leaning causes. But political winds change. Tomorrow, the SEC could favor another team. That’s why it’s better for everyone that the SEC returns to viewpoint neutrality in its rules and decision-making.
