Law and Corporate Social Responsibility

Practice Groups and In-House Counsel Working Group Teleforum

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On February 25, 2021, The Federalist Society's Practice Groups and In-House Counsel Working Group hosted a lively panel on Law and Corporate Social Responsibility. 

With the start of the 2021 proxy season, the period when many public companies hold their annual shareholder meetings and consider proxy proposals, it seems timely to revisit the discussion around Milton Friedman’s essay, “The Social Responsibility of Business Is to Increase Its Profits.” Fifty years ago he published his view that the responsibility of business is “to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game” and it has been debated by economists, scholars, shareholders, and CEOs since that time.


  • Hon. Myron T. Steele, Partner, Potter Anderson Corroon; former Chief Justice, Delaware Supreme Court
  • Hon. Elad L. Roisman, Commissioner and formerly Acting Chairman, U.S. Securities and Exchange Commission
  • Moderator: Hon. Paul S. Atkins, CEO, Patomak Global Partners; former Commissioner, U.S. Securities and Exchange Commission 

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As always, the Federalist Society takes no position on particular legal or public policy issues; all expressions of opinion are those of the speaker.

Event Transcript



Dean Reuter:  Welcome to Teleforum, a podcast of The Federalist Society’s practice groups. I’m Dean Reuter, Vice President, General Counsel, and Director of Practice Groups at The Federalist Society. For exclusive access to live recordings of practice group teleforum calls, become a Federalist Society member today at


Nick Marr:  Welcome, everyone, to this Federalist Society virtual event on “Law and Corporate Social Responsibility,” open to the public and sponsored by FedSoc’s Corporations, Securities & Antitrust Practice Group, Administrative Law Practice Group, and In-house Counsel Working Group, a new project by The Federalist Society.


      I’m Nick Marr, Assistant Director of Practice Groups here at The Federalist Society. I’m just going to introduce our moderator before he takes the program away. But first, a couple of notes. Please note that all expressions of opinion on today’s call are those of our experts. Second, time permitting, we’ll be taking audience questions via chat, so please send those in, and we’ll take them as we can.


We’re very honored to have this morning as our moderator Mr. Paul Atkins. He’s CEO at Patomak Global Partners and himself a former commissioner of the SEC. With that, Mr. Paul Atkins, thanks very much for being with us. The floor is yours.


Hon. Paul S. Atkins:  Well, thank you very much, Nick. And it’s a pleasure being here, and thank you very much to The Federalist Society for providing this platform and sponsoring this event. I’m looking very much forward to our discussion. And so today, we have two lions of the corporate governance jurisprudence area.


      First, Commissioner Elad Roisman, who’s Commissioner of the Securities and Exchange Commission. And he’s been Commissioner since September 2018. Before that, he was Chief Counsel for the Senate Committee on Banking where he advised multiple committee chairmen on securities and financial regulation in matters coming before the committee. Before that, he served as counsel to SEC Commissioner Danny Gallagher. And before that, he was with the New York Stock Exchange in New York and at the firm of Milbank Tweed. So thank you very much, Commissioner, for being with us today.


And then we also have Justice Myron Steele, who is former Chief Justice of the Supreme Court of Delaware from 2004 to 2013. He’s currently a partner at Potter Anderson Corroon’s law firm and corporate group in Delaware. And Justice Steele has held so many positions in the judiciary. He was 25 years on the bench in various positions, and the Superior Court Vice Chancellor, and, of course, on the Supreme Court of Delaware. He held the deputy AG spot in Delaware and also Delaware State Attorney.


He’s presided over all sorts of major corporate litigation and LLC sorts of governance disputes. He writes frequently on corporate governance issues. He’s an adjunct professor and has been at several law schools, including Pennsylvania and Virginia. And he’s also a retired colonel in the Delaware Army National Guard and was in active service before that. So thank you very much, Justice, for spending some time with us today.


So I think the thing that has precipitated our discussion here and our topic regarding corporate governance and social responsibility of corporations is the 50th anniversary of a role, a very important article that Milton Friedman published back in September 1970, where he outlined his ideas regarding -- the title of the piece was The Social Responsibility of Business is to Increase Its Profits. And back in those days was the start of corporate social responsibility, CSR, which we’ve seen now 50 years later still very active. It’s transformed, even in nomenclature, and we call it now environmental social and governance issues for corporations, including some folks who call it stakeholder governance rather than shareholder governance.


But Milton Friedman was truly the happy warrior, and there is no better ambassador of free markets and free enterprise than Milton was. He always had a smile on his face and always a funny quip to make his points. And so for those of you who are listening, and if you’ve never seen him do his discussion with Phil Donahue, who was a talk show host back in the ‘70s and ‘80s, that is one that you should look up on YouTube or elsewhere. But Milton just had very superb responses and deflections of Phil Donahue’s loaded, one-sided questions that left the always loquacious Phil Donahue completely speechless. So that is something to watch, and I really commend it to your time.


So let’s dive into some of the topics that we have today because we don’t have that much time. And so I thought maybe to try to lay the groundwork, maybe we should start with Justice Steele and just talk a little bit about the aspect of Delaware law with respect to fiduciary duty of a corporation and of directors because the discussion between maximization of shareholder value that Milton was expounding versus some of the folks who say, “No, no, no, that is not right,” that we should have more of a stakeholder capitalism sort of approach. Where does that fall in Delaware jurisprudence, and how do the courts in Delaware look at such a question?


Hon. Myron T. Steele:  There was a time when I could tell you exactly where I thought the Delaware courts were going with some confidence because I had a role in the outcome. Nevertheless, I think Delaware has built a foundation over the years of predictability, consistency, and clarity that allows me to suggest where Delaware would come out in any debate concerning the concept of either stakeholder governance, or ESG, or whether they are conflated in some way.


People should think two things. First, 51 percent of the publicly traded corporations in the United States are chartered in Delaware in 67 percent of the Fortune 500. That means Delaware has a role of some significance. I would urge people not to conflate stakeholder governance with ESG. Delaware’s law and its framework and policy that underlies that framework is a nonprescriptive enabling general corporation law with fiduciary duty overlay with standards of review that examine fiduciary’s conduct.


Delaware cases that I think Delaware policy will still reflect is something that’s very important, and that’s that fiduciary duties are owed to the corporation and the stockholders. Sometimes, because of the nature of the facts in a case, they’ll be a reference to the stockholders, sometimes to the corporation. But I think it’s important when you’re analyzing potential impact with Delaware law in this new paradigm, as Marty Lipton likes to refer to it, the ultimate duty is owed to the corporation itself.


It’s difficult enough for directors in today’s world with a stockholder base that is quite diverse with very disparate interest on the part of the investors to manage what’s in the best interest of stockholders as if they were a monolithic group with everyone with the same interest. It’s simply not the case any more than it is with individual corporations having the same interest. Fiduciary duties are owed to people that are beneficiaries of the relationship, and the managerial duties that directors and officers have with respect to those constituents is first owed to the entity itself.


Though, if the heart of Delaware law is focused on fiduciaries acting in the best interest consistent with their duty of loyalty and care for the beneficiaries, that means the corporation’s best interest is paramount. Now, Delaware is unlikely, either by statute or by judicial fiat, in my view, to alter any of the enabling concept or private ordering concepts that are inherent in Delaware law. I do not see the Delaware courts mandating that directors and officers fiduciary duties now are expanded to be owed to entities or persons outside those who are actual fiduciaries and primarily focused on, again, the corporation itself.


Now, what is important is, is Delaware going to be some form of obstacle to one of its chartered corporations adopting ESG principles? And I think the answer to that is no. Delaware will not be an obstacle, largely, because of that fiduciary duty overlay and the focus on a board of directors and officers that drill down on, consistent with their duties of loyalty and care, on ESG principles being a benefit to the corporation in the social world in which corporations operate, and therefore, adopting ESG principles.


If it’s a thoughtful process that produces a reaction by directors that goes beyond disclosure and adopts a wider constituency, the Delaware courts are going to apply the business judgement rule and not suggest that those directors, that the Delaware judiciary or the Delaware General Assembly is a better judge of the direction that the corporation ought to go than the directors who were charged with the fiduciary duties in the first place.


So the real question becomes if there’s going to be a decision on the part of a board to adopt, wholesale or piecemeal, principles that seem to conflict with the interest of invested stockholders, if it can be shown in a thoughtful way that those steps actually benefit the corporation in the long run and a thoughtful decision is produced to adopt some or all of ESG’s principles, I don’t see the Delaware courts saying doing so is a breach of fiduciary duty.


If a stockholder -- the bottom line -- and I’ll finish with this. If a stockholder were to bring a breach of fiduciary duty suit saying, “You’re spending too much money on addressing issues of climate change that you can effectively address. By addressing them, you are increasing capital flow to the company. You’re increasing the opportunities to market the products because of the perception that you’re interested in issues that go beyond the interest of the stockholder,” that suit will not be successful if there’s a plan in action that will convince the court that an unconflicted board, acting consistently with their duties, has the best interest of the corporation itself at heart. The Delaware courts are not going to interfere, and second guess, and substitute their judgement for that of the board of directors or the officers.


And I’ll end with that as sort of an introduction to where I think the Delaware courts and the Delaware General Assembly will be going forward.


Hon. Paul S. Atkins:  All right. Well, thank you, and we can return to that in a few minutes. But, basically, this is judgment rules of the day. So, Commissioner Roisman, you’ve been obviously very outspoken and a leader with respect to the SEC’s venture into looking again at its corporate governance rules, proxy, shareholder proposal rules, and that sort of thing, on the proxy side.


The SEC has waded into the corporate governance area at times in the past and had its knuckles rapped, most notably in BRT v. SEC with an ill-fated one share, one vote rule. Where do things stand now as we enter now a new executive administration and the governments where there will probably be some relooking at what the SEC has done in the past few years? What’s your outlook, and what’s your point of view with respect to what we’re doing?


Hon. Elad L. Roisman:  Thank you, first of all, for The Federalist Society for having me. The lion of the field is Chief Justice Steele, and thank you for your many forms of service to this country. I really do appreciate it. And thank you, Commissioner Atkins, for your willingness to moderate today. So I’ll quickly just give my standard disclaimer, since I am still here at the SEC, that my views are my own and don’t necessarily represent that of the commission or my fellow commissioners.


      And I want to just note that I really enjoy forums like this for multiple reasons. One is it provides a dialogue with people that I don’t always get to speak publicly with. But two, it allows for interaction. And hopefully, if you take nothing else from today’s discussion is that I really want to engage with people who are interested in this topic because I think it’s something that we will be focusing on.


And more importantly, tying it back to today’s discussion, I really always enjoy rereading important works in the business, in the financial industry, and certainly, Milton Friedman’s piece is certainly one of them. And one of the things I think we can all agree is every time we reread something, we appreciate something that we hadn’t necessarily focused on before. And the thing that struck me when I reread his essay is, frankly, how evergreen many of the topics that he tackles are.


And it was a good reminder to me that certainly frustration with political process has, throughout time, led many people to search for new paths to achieve goals. And citizens, politicians, businesses have long pursued various avenues to further their particular ideas of what would improve society, resulting, I’d say, in occasional disagreements and discussions about their perspective and proper roles and furthering society.


And what it also reminds me that there’s always a propensity to argue that the present crises are the worst, and things are at their bleakest. And I always think back to something that Sir Edward Coke wrote in 1602, which was, “Fraud and deceit abound in these days more than in former times.” So certainly, I’d say, cynicism has definitely spanned centuries, but despite that, we’ve always persevered and improved. And, to me, I think that’s something we should always take to heart.


So what’s new today that was not new in the previous decades that Friedman wrote? Well, unarguably, society has definitely changed and so, in some cases, frankly, the markets and the laws. However, when it comes to, I’d say, the role of the corporation, changes have been governed by state law, something Chief Justice Steele talked about, and frankly, not federal law.


And in fact, to address some of the ideas about the multiple goals and purposes of corporations, states have been very thoughtful in their delineation, to Justice Steele’s points, about the business judge role in other facets of the law, but they’ve also expanded the scope of types of corporations. And I often think about beneficial corporations and B corps.


And that probably leads to the question of why am I here? Well, the role of the SEC is actually, frankly, very limited in corporate governance. And if you look at our history, one thing that the Exchange Act, which created us, is frankly silent about, and I think purposely for, is actually corporate governance. And someone recently pointed out to me if you look at the legislative history, there was actually a provision in the original bill for the Exchange Act that was ultimately struck. And I want to just get it right, and it is nothing in this title should be construed as authorizing the commission to interfere with the management of the affairs of an issuer.


However, ultimately, it didn’t make it into the final bill. And the reason was, according to legislative history, was it was deemed “unnecessary, since it’s not believed that the bill is open to misconception in this respect.” However, there’s clearly pressure to use our disclosure rules to redefine the purpose of the corporation and also redefine and shape society. Needless to say, I’m concerned about us deviating from our historical role and, frankly, legislative mandate of setting the rules of securities.


So the message of -- I’d say the mission of the SEC, which is protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation, and frankly, our historical precedent are the lenses I’ll be looking through as to what changes the SEC will consider in the future. And to your point, Paul, there will be continued efforts, I think, in this space in the foreseeable future. And then certainly, it’s front and center today.


Hon. Paul S. Atkins:  Well, so just to follow up on that, then, some of the aspects of what people are asking for today is what they call a type of clinical investor materiality standard with respect to disclosures from corporations, which arguably cuts to the heart of the whole SEC’s mission and both the Securities Act and the Exchange Act.


So that will be, I’m sure, litigated through the coming years if the SEC goes down that road. But how do you view that with respect to the arc of history, TSC Industries, and Basic v. Levenson, and those sorts of things? What’s your view with respect to materiality?


Hon. Elad L. Roisman:  Paul, I think you’re right to focus on materiality here because our disclosure requirements for public companies historically have been grounded in materiality. And the materiality standard, as you mentioned, comes from the Supreme Court decisions, and it’s based on what I would -- I’m simplifying it significantly, but what a reasonable investor would consider to alter the total mix of information available.


So notice the reference here is the reasonable investor, and if you look at what the definition of investor is, it’s someone who puts in money into financial plans, property, etc., with the expectation of a profit. So, to me, when we talk about reasonable investor, it’s making clear that information that’s material is information that is tied to the financial value of the company. And as an aside, you look at our historical -- what we regulate. We are at the Securities and Exchange Commission; we regulate securities.


A very famous case called Howey defined how an orange grove could potentially be viewed as a security, but one of the tests, parts of the test, talk about an expectation of profit through the work of others. So the idea of value has been inextricably tied not only in our disclosure regime but also in how we view securities. So what do public companies currently do? They are required – and let me be clear about this. They are required to provide information that’s material to investors.


So there is information already today with respect to ESG that is material to companies, and they are required to do so. And the commission has recognized this for long periods of time. There is certainly commission level guidance from 2010 talking to companies about what they should consider disclosing in terms of environmental risk so that investors have enough information. This is also to an important point that shows that materiality can change. It can evolve.


If you look at public companies’ disclosure, certainly, I don’t think prior to this year or, I’d say, last year, people weren’t talking about the risks of pandemics and how supply chains can be impacted by it. But you look at public companies today, it is a large portion of the disclosure they provide today because things have changed. So to my point is things can change, and the real question, for me, is what about our current materiality standard and our rules are insufficient that we would need more granular or something new.


And I’ve spoken to many people who come in and say, “We need more prescriptive line-item mandatory disclosure in this space.” And the question I always ask for them is what exactly are you missing? What piece of information actually is material to investors and would actually be useful across all companies? Every company is different. Every industry is different. And something that is certainly material to one may not be for the other.


But rest assured, this is a conversation that’s been going for a long time, and I’m sure will continue. And as I said in the beginning, if people take nothing else from today is that I am certainly open and eager to engage with people on this because, ultimately, I do think there’s a path for expanding what our current viewpoint of materiality is, but it should always be grounded to the principles that we’ve put in place, the Supreme Court doctrine that defined materiality, and frankly, our historical precedent.


Hon. Paul S. Atkins:  Yeah. The one thing that is very striking, I think, is that if you depart, I would postulate, if you depart from a strict objective standard for materiality as enunciated in TSC Industries, and Basic v. Levinson, and those sorts of cases, then you get down to -- and if it’s like some groups, like SASB and others, talk about “investor materiality,” then you get into a very subjective realm where, ultimately, it becomes what three people of the five on the SEC think at any one time is material or should be disclosed by shareholders. And I would think that the courts might have a little bit of a problem with that ultimately, if the SEC turns out to be a self-appointed arbiter of that. But we’ll see.


So maybe we’ll go back to Justice Steele. And with respect to the materiality discussion, I assume that from what you were saying there, as far as Delaware courts go, that’s really not part of the law in Delaware, and that they’re not really -- they would not be focused on these disclosure aspects that’s with respect to the federal rules and not Delaware corporate law.


Hon. Myron T. Steele:  There’s no question that throughout the years, as my successor Chief Justice Leo Strine has pointed out many times, that there’s a federal lane and a state lane, and Delaware tries to stay within its lane. We do have a common law duty of disclosure, but it’s focused on two things.


When the Delaware law calls upon stockholder action, the information from the company that suggests to the stockholder the facts on which that decision should be made, that’s common law disclosure in Delaware. And the Delaware courts would determine whether or not the factors that a stockholder might claim in litigation were material to the decision, or were either not disclosed, or not truthfully or fairly disclosed, that could result in liability under state laws, a breach of fiduciary duty.


This truthful disclosure, and necessary disclosure, is a subset of the duty of loyalty and the duty of care, whether it’s an act that was ignored or an act that was intentionally misleading and therefore breached in the duty of loyalty or simply breached their duty of care because of inattentiveness to the information that was available that might have been and should’ve been disclosed. That could result in inaction now. Duty of care typically is 102(b)(7)’d out of the picture, but it’s a breach of duty of loyalty where most plaintiff’s counsel would cast it, is a serious matter.


I saw a question in the chat that I’d like to respond to if that’s okay with you, Mr. Atkins?


Hon. Paul S. Atkins:  Sure. I was about to ask. Sure.


Hon. Myron T. Steele:  It was a good question, and it’s one to think about. The question basically was, what if stockholders believed that the ESG action taken by the board are not in the best interests of the corporation but in fact are a breach of fiduciary duty because the directors have decided to do it for their own political persuaded views? Would that be action?


And my response to that is, how is that any different than having a stockholder base that consists of Ma and Pa Kettle retail stockholder purchasers and investors, private equity investors, hedge fund investors, vanguard investors, having a different interest in the outcome than other stakeholders?


It’s to be measured by the board, and unless you can show that the board has done something in its own interest, or a controller’s interest, contrary to the interest of the stockholder, it’s not going to go anywhere. If the questioner is old enough to remember, think back to investments in South Africa during apartheid. That was a political issue, and there were companies that made the decision to divest, and companies that made a decision not to divest, but the decisions were made, at least, at the time, in the best interest of the corporation as the director saw it. They didn’t have a personal interest in the outcome. They investigated, and they made that decision.


You can quarrel over it, and you have the ultimate freedom of having invested in a republican governance forum—that’s a little “r,” by the way; I want to emphasize that—as it increasingly becomes the case. You vote the directors out if you don’t like what they’ve done, or you sell your shares in the marketplace because you don’t like what they’ve done.


Don’t count on a Delaware court second-guessing that judgment in the absence of some conflicted breach of duty of loyalty that suggests it was not done. The way it’s typically phrased that there was a reasonable doubt about the objectivity of the directors when they made the decision that they did. Don’t look for relief in the Delaware courts, in my view.


Hon. Paul S. Atkins:  Yeah. Thank you. So, Commissioner, do you have any thoughts in that regard?


Hon. Elad L. Roisman:  All right. Far from me to stray into lane of, I think, state law, I think Justice Steele has announced is the right one. But it also raises just a broader issue, which I think is important to think about going forward. And the one thing I think that’s really been exciting about Milton Friedman’s piece is that it has engaged so many people, and there’s a lot of literature, and there is a lot of really incredibly smart and thoughtful people who’ve commented on it, and especially, I’d say, over the last year.


But I think one area which I do think we need to actually think more about, given to something Justice Steele talked about, was the shareholder makeup has changed dramatically, I’d say, for corporations over the last several decades where retail investors used to predominantly own directly most shares in companies, and today it’s actually owned by large asset managers who hold it on behalf of retail investors.


And I think the question of what is the purpose of a corporation is important. I think there should be equal scrutiny and discussion about what is the purpose and role of the fund. And this is an area that I think is getting more increased attention as predominantly significant stakes in public companies are owned by large NDs on behalf of shareholders.


And there has been discussions by academics and others about centralization of decision-making on behalf of investors and just a few entities. There’s a paper by the current Acting Director of Corporation Finance, John Coates, about “The Problem of Twelve” talking about what is the role -- or how we should be thinking about the economic and legal concerns or aspects of 12 individuals potentially pushing corporations to act in a certain way. And I think that’s an important thing for us to think about.


Additionally, I think we should start thinking about whether some of these investors, who are “passive,” are truly passive when they act in ways that I think are uniform and one size fits all. It’s not a question that’s going to be answered today, but I do think it’s an issue we should all start thinking about going forward, given the role that these managers play in today’s, I’d say, not only corporate governance but, frankly, broader economy.


Hon. Paul S. Atkins:  Yeah. And to bring up just the particular instance, most of these managers that you’re talking about file 13Gs rather than 13Ds, of course, depending on their ownership levels. But they also, then, subscribe to groups like this Climate Action 100+ and others where they’re rather open about how they want to influence management in particular ways, be it perhaps not for control of the company but with respect to policies of the corporation. So is it time that SEC looks again at some of these rules regarding disclosure in that light?


Hon. Elad L. Roisman:  I think if we’re looking at disclosure for public companies, I also think we should always look at disclosure for all our regulated entities to make sure that the rules still make sense in today’s place. And I think there’s a real question where some of our rules and regulations were predicated on a market that is just different than it is today. And so should we be considering some of these other things when we require certain disclosure? And again, it’s important to note that we are not merit regulators here. The states can decide what’s a good or a bad corporation.


I am thoroughly involved in bureaucracy of setting processes and disclosure. I don’t want to ultimately effectuate society in a way other than to provide material information for people or, I’d say, enforce laws and bring people to justice who violate those rules and laws. So I don’t want to put my thumb on the scale in that respect, but I do think if people are asking about disclosure, I think we should probably think about it with respect to certainly a large aspect of the marketplace.


Hon. Paul S. Atkins:  Thank you. Let’s turn briefly to shareholder proposals. And Justice Steele, back when I was a commissioner, the SEC entered into an agreement with Delaware, and there was even a statute that was passed by the legislature to enable questions to be certified by the SEC to the Supreme Court of Delaware regarding corporate governance. And we, at least, put one, I remember, to you all at the time. Has that been used since and do you think it would be a -- with all of these questions circulating around, do you think that the Delaware Supreme Court is still open to being a source of information for the SEC and that sort of thing?


Hon. Elad L. Roisman:  Yes, I think, is the answer to that. In fact, the legislature has decided that the court should be. And in my history, now 51 years of practicing in Delaware, the Delaware courts don’t view themselves as social policy managers. They get their direction on social policy from the Constitution of the state and the state legislative acts.


Yes, as long as two things occur. First, the parties that submit the question to the Delaware Supreme Court—or to use the correct term “certify the question,” much like a question certified from the federal district court, the Third Circuit Court of Appeals or whatever—they have to agree on the facts. The court’s not going to get involved if there’s a substantial difference on the underlying fact situation.


And secondly, if it’s solely a question of Delaware law, I think the Delaware Supreme Court would take the certification if the SEC requested it. I don’t think there’s a doubt about that. After all, the Supreme Court’s job is to clarify Delaware law, and if we can do it for the high court of the other states, for the federal court system and bankruptcy court as well, why not the SEC? It’s very important to us because of our interplay, staying in our own lane at all times, with the SEC.


Hon. Paul S. Atkins:  Well, and the reason why I bring that up is, Commissioner, obviously, some of the discussion now is to look again at 14a-8 and some of the things that were done in the last couple of years. And so as far as if new proposals ever come up with respect to -- that create some kind of organic corporate law of Delaware or other states, that might be an interesting thing to have questions certified over.


But with respect to 14a, obviously, the process has been weaponized by what I like to call politicized investors. Do you think that the rules that you all adopted are sufficient to protect shareholders overall from the squeaky wheels, the ones who are not necessarily representative of all the shareholders, where their proposals get voted down year after year?


Hon. Elad L. Roisman:  So thanks for that, and I appreciate following Justice Steele’s discussion of this. So, I’d say, for those less familiar, rule 14a governs the process for a shareholder to have a proposal included in a company’s proxy statement for consideration. As I talked before, we don’t decide the merits of whether a shareholder proposal is a good idea or not. That’s up to the other shareholders to do.


But what we do do is if people want to submit a shareholder proposal on a company’s proxy and ultimately have other shareholders pay for it, we require certain thresholds of ownership and levels of interest by other shareholders, if you want to resubmit them, for inclusion in the company’s proxy statement.


And this is a rule that has been around for decades and consistently been reviewed and tweaked to, I think, reduce the potential for abuse and, in some cases, abuse. The rule ultimately is very beneficial for certainly the shareholder proponent. They have the ability to engage with companies, management, directors—that’s important—other shareholders, and it’s something, frankly, I think uniquely American and fantastic because nowhere else in our other regimes do we have that ability.


But I want to be clear, in my views, the rule was never intended to empower a few shareholders to repeatedly impose direct and indirect costs for pursuing a proposal. It ultimately garners very little support, frankly, costs that are born by all shareholders. And what we did recently is we’ve made some, I would say, incredibly modest changes to the thresholds.


And I want to give a few points on that. And I think, I’d say, if you look at something that we cited, there was a study from several years ago where we tracked all individual shareholder proposals, and five individuals were responsible for 78 percent of all individual shareholder proposals that companies saw. And I certainly believe that here everyone has a right to their soap box in America, but the key piece is you’re not entitled for other people to pay for it. And so what we try to do is we try to align the long-term interests of the shareholders with those who are the proponents. And the threshold for being able to submit a shareholder proposal is actually, I think, objectively low.


Prior to our changes, it required that someone owned $2,000 worth of stock in a company for one year. And to further align, I’d say, the long-term interest, one of the changes we made was saying you have to hold it for three years, showing, I think, a longer-term interest in a company and not just an interest in providing a proposal to a company based on what arguably would be a very short-term investment horizon.


We made other changes to this, including providing for people who want to hold it for one year. They just have to own a little bit more, and the same for two years. But all these changes were predicated on the idea that we want to ensure that the system isn’t creating perverse incentives for some and ultimately causing a cost of both money and time, not only for boards, management, but really, ultimately, other investors. I’m hopeful that if we let these changes take effect, people will see if there’s actually an impact or not because a lot of work went into this, a lot of study, a lot of effort, and a lot of expertise.


Hon. Paul S. Atkins:  Well, speaking of a few people trying to drive the train there for everyone else, we’re seeing that arguably with respect to some of the requests for more ESG disclosure, especially on the environmental side, where a lot of what people are asking for is speculative disclosures by companies based on all sorts of assumptions, and scenario modeling, and that sort of thing.


Arguably, if the SEC were to require some of this, it could maybe fall under a forward-looking statements, language from the PSLRA, but arguably not, as well. And so companies obviously—and shareholders too, I would think—would be very concerned about the potential liability and of people pursuing that. You think that the current rules are sufficient to cover what some of these demands might be, or do you think that Congress would have to -- or SEC would have to look at that?


Hon. Elad L. Roisman:  I go back to I’ve always believed that our rules have this concept of materiality, and public issuers are already required to provide information that’s material. So would we need additional -- is there a need for additional line-item prescriptive disclosure on some of these things? I think the question is, what are people looking for? And I don’t think that there is universal consensus.


And I think the problem -- it’s too easy to basically make this not only a partisan issue but a personal issue, where if you’re on one side of ESG disclosure, that either means you’re a cave person, or that you’re an enlightened person, or one’s on the side of right and one side is the wrong. It has nothing to do with actual discussion or debate. It actually cheapens it and makes it, frankly, less fruitful.


I think the question we ultimately have to have is, are companies providing material information to investors that they need for investment decisions? And to your point about some of these line-item disclosures that people are considering, I think when I talk to investors and companies, there’s still a lot of trepidation about putting things in their SEC filings because one, they’re unsure of the granularity that they want to provide, and two, it’s still a nascent field.


I think businesses are constantly trying to figure out what’s best for themselves and their long-term holders, and there’s been various, I think, benchmarks that have been put in front of them. Is it carbon neutral 2050? Is it 2035? Is it one and a half degrees? Is it two and a half degrees? Is it the Paris Climate Accord? Are electric vehicles going to be completely electric by 2035? There’s no necessarily moving consensus, and that’s because things are still being worked out.


So if we are to go down the line of, I’d say, line-item disclosure, I think we have to be very wary of the fact that this could be completely outdated in several years. And so I am for a continuation of our principle-based approach. If we want to provide guidance, what we hear and think is material, then I think let’s have that discussion and actually go down to that level of what actually people are looking for that influences their asset allocation and voting decisions.


So I think a conversation needs to be had, will be had, but I certainly don’t feel like it’s dispositively decided now. And I certainly don’t feel like anyone has made the case to me that one set of required disclosure needs to be in place for all companies and it makes sense for all investors. Again, I’m very open to that conversation. In fact, if anyone on this call or others has an idea what that is, I implore you, please meet with me. I’d love to hear it, and frankly, the staff as well.


Hon. Paul S. Atkins:  Thank you. We’re about at time, but let me pose one last question to Justice Steele. The Delaware law now provides for public benefit corporation and could that -- if we peer into your crystal ball, do you think that that might well be an answer to some of the people who are advocating for a company to have one particular goal versus others who feel strongly that they want to have provision for their retirement, and old age, and good dividends, and all of that?


Hon. Myron T. Steele:  Yeah. With a former commissioner or current commissioner here, I have to perfectly candid when I answer that. And I thought that’s what public benefit corporations were all about in the first place, much like an LLC to a corporation, an alternative entity to do it the way you want to do it under circumstances that attract you, that you think are going to be successful without imposing your will on others in another arena.


So I thought that’s what public benefit corporations were about. Delaware was very quick to adopt them, really, under leadership of Rick Alexander, a Delaware lawyer. And it’s a popular method that is an alternative and ought to be explored by those who want to impose their world view on others.


Hon. Paul S. Atkins:  Well, we’re at time here. Really, we could go on for a lot longer. There are lots of very good questions that have been posed by the audience, but I want to be mindful of everybody’s time. So maybe we can continue this. We can ask The Federalist Society to -- maybe we can do an encore performance, Nick, maybe, if you don’t mind. But anyway, I want to be mindful of everybody’s time, and thank you all very much for gathering today, and very much appreciate Commissioner Roisman and Justice Steele for your time and thoughts today.


Hon. Elad L. Roisman:  Thank you, everyone.


Nick Marr:  Thanks, Mr. Atkins. I’ll just offer everyone on behalf of The Federalist Society for joining in today’s discussion and to our audience for calling in with all your great questions. We’ll look into doing a second one of these, and thank you all very much. Just a reminder to our audience, be checking your emails and our website for announcements about upcoming events. And we welcome your feedback by email at And with that, thank you all again for joining us. We are adjourned.




Dean Reuter:  Thank you for listening to this episode of Teleforum, a podcast of The Federalist Society’s practice groups. For more information about The Federalist Society, the practice groups, and to become a Federalist Society member, please visit our website at