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Tag: Corporate Law

Washington and Lee Law Review - Corporate Law


by Omari Scott Simmons

Shareholder activism—using an equity stake in a corporation to influence management—has become a popular tool to effectuate social change in the twenty-first century. Increasingly, activists are looking beyond financial performance to demand better corporate performance in such areas as economic inequality, civil rights, human rights, discrimination, and diversity. These efforts take many forms: publicity campaigns, litigation, proxy battles, shareholder resolutions, and negotiations with corporate management. However, a consensus on scope is lacking. Should corporations change their own operations to reflect a specific agenda or use their power to influence society on a much broader scale? Distinctions between private and public become blurred in light of the ubiquitous and inevitable influence corporations wield over third parties. Theoretical absolutes on the individualist-communitarian spectrum may underestimate the complex co-dependent and co-responsible interrelationship between corporations and modern society. Critics may fairly question why corporations, arguably society’s most potent institutions, should sit idle on problems like civil rights.

This essay offers a historical account of a seminal civil rights decision, Belton v. Gebhart, in the Delaware Court of Chancery. The circumstances surrounding the Belton case illuminate the limits and potential of shareholder activism to bolster civil rights in the modern context. Examining a historical civil rights example is instructive for thinking about how shareholder activism might advance the modern civil rights agenda.

Part II of this essay examines Belton v. Gebhart in its contemporary context. Part III examines the key differences between past and present civil rights-related shareholder activism. Part IV concludes that Belton v. Gebhart, along with its surrounding circumstances and events, vividly illustrates that advancing civil rights requires a range of tactics that leverage public, private, and philanthropic resources. Shareholder activism works best as part of a multipronged activist strategy, not as a substitute for other types of activism. Recognizing the complex challenges associated with advancing civil rights, this essay raises key questions about the nascent environmental, social, and governance (ESG) framework with which scholars, practitioners, and other observers must contend.

This article builds upon the author’s remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.


by Virginia Harper Ho

In 2017, shareholder proposals urging corporate boards to report on their climate-related risk made headlines when they earned majority support from investors at ExxonMobil, Occidental Petroleum, and PPL. The key to this historic vote was the support of Blackrock, State Street, and Vanguard, which broke with management and cast their votes behind the proposals. The 2018 proxy season saw several more climate-related proposals earn majority support, and in 2018 and 2019 record numbers of proposals were withdrawn after the companies agreed to respond to shareholders’ requests.

The highly visible 2017 proposal illustrates a number of key aspects of shareholder activism today. The first is the mainstreaming of shareholder activism from its origins in the civil rights and socially responsible investment movements to a point where the largest institutional investors are integrating “environmental, social, and governance” (ESG) or “non-financial” factors into their voting and investment policies. Second, the proposal shows how the focus of shareholder activism around ESG matters has broadened beyond the civil rights, labor, and human rights issues that were its major target throughout much of the twentieth century. Climate change risk and corporate environmental impacts are now among the top subjects of shareholder proposals today. Third, as explained below, mainstream investors like Blackrock and Vanguard are supporting ESG-oriented activism for economic reasons, not only or even necessarily because of commitments to a particular ethical or political position. And finally, this proposal is one of many ESG proposals (about 20 percent of all environmental and social proposals in 2018) that seek greater corporate transparency about non-financial risks and impacts, either to better inform investor decision-making or to prompt changes in corporate practice.

This Article focuses on the challenge of achieving corporate transparency for investment purposes and considers whether shareholder activism is the best way to achieve it. Many in the business community appear to think so. For example, in 2016, many corporations and law firms offered comments to the Securities and Exchange Commission (SEC) on the question of whether the agency should develop new ESG-related disclosure rules. Nearly all took the position that shareholder engagement and other forms of shareholder activism were the best way to improve ESG disclosure and that the SEC should leave well enough alone.

This article builds upon the author’s remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.


by Sarah C. Haan

What does “corporate democracy” mean? How far does federal law go to guarantee public company investors a say in a firm’s policies on important social, environmental, or political issues? In 1972, the U.S. Supreme Court appeared ready to start sketching the contours of corporate democracy—and then, at the last minute, it pulled back. This Article tells the story of Securities and Exchange Commission v. Medical Committee for Human Rights, in which a national civil rights organization, best known for its work at civil rights marches and protests, fought to expand the limits of corporate democracy and nearly succeeded.

This Article proceeds in three parts. Following the introduction, Part II tells the story of how a civil rights organization advanced the cause of shareholder activism in the late 1960s. It begins with the group’s first, clumsy efforts to use shareholder tools and traces developments through the tumultuous 1970 proxy season, in which major companies’ annual meetings featured confrontations involving police, private security forces, guard dogs, and rock-throwing stockholders. Archival documents reveal that a Yale law student was the original donor of five shares of Dow Chemical Company stock to Medical Committee, and that he helped connect the civil rights organization to the prominent securities lawyers who litigated its case. An important victory came early: Dow stopped manufacturing napalm in May 1969, around the time of its annual shareholders meeting. However, Dow’s management never admitted any concession to the investor insurgency.

Part III describes the legal wrangling that took place in the D.C. Circuit Court of Appeals and ultimately the U.S. Supreme Court. This Part excavates primary documents from the case files of Supreme Court Justices involved in the case, including those of Justice Thurgood Marshall, who wrote the opinion that declared the controversy moot, and Justice William O. Douglas, the former New Deal SEC Chair, who departed from his longstanding practice of recusing himself from securities law cases to dissent. What these documents suggest is that, if it had been decided on the merits, SEC v. Medical Committee for Human Rights would have been a close case. This is especially noteworthy considering that two of the nine Justices who were members of the Court when it granted certiorari—Justices Hugo Black and John Marshall Harlan—had resigned for health reasons by the time the case was argued. In the end, Medical Committee saw its gains for corporate democracy dissolved as fierce maneuvering by Dow’s corporate management and the SEC won the upper hand.

Part IV considers the significance of SEC v. Medical Committee for Human Rights to history. It presents the case as civil rights history, as securities law history, and as corporate governance history, and offers some reflections on the case in light of the current debate about the right of shareholders to have a voice in a company’s manufacture or sale of controversial products.

This article builds upon the author’s remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.


by Lisa M. Fairfax

In 1952, the SEC altered the shareholder proposal rule to exclude proposals made “primarily for the purpose of promoting general economic, political, racial, religious, social or similar causes.” The SEC did not reference civil rights activist James Peck or otherwise acknowledge that its actions were prompted by Peck’s 1951 shareholder proposal to Greyhound for desegregating seating. Instead, the SEC indicated that its change simply reflected a codification of a position the SEC staff had taken in 1945.

Today, the shareholder proposal rule has evolved, giving way to several amendments that now enable shareholders to submit proposals on the proxy statement that involve significant policy issues that transcend economic significance to the corporation. Nevertheless, we continue to grapple with the underlying corporate governance issues raised by Peck’s proposal. Those issues center around at least two questions: First, what constitutes proper subjects for corporate action? Second, what should be the shareholder’s role in advancing those subjects?

My talk today seeks to answer these two questions, particularly as they relate to the theme of this conference and the kind of activism engaged in by shareholders such as James Peck. Put a different way, those questions can be viewed as follows: First, can the pursuit of social justice be a proper subject of corporate action and behavior? My answer is yes. The for-profit company has proven that it can deploy resources to advance economic innovation and change. Art, music, technology, social media, the sharing economy, all of these innovations reached the public through the for-profit corporation. Why not use the vast resources and power of the for-profit corporation to be the engine for social innovation and change?

This article is based on the author’s keynote address at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.


by Eric C. Chaffee

By understanding the corporation as a collaboration between the government and the individuals organizing, operating, and owning the corporation, the impermissibility of aggressive corporate tax avoidance becomes apparent.The history of the debate over the essential nature of the corporation is substantial. This debate has been reinvigorated by the Supreme Court’s recent opinions, Citizens United v. Federal Election Commission and Burwell v. Hobby Lobby Stores, Inc., which explore the scope of corporate rights. This article examines how essentialist theories of the corporation should inform the permissibility of corporate tax avoidance and argues that aggressive corporate tax avoidance is legally impermissible based upon the essential nature of the corporate form.


by William K. Sjostrom, Jr

In the early spring of 2009, I wrote an article on the federal government’s bailout of American International Group, Inc. (AIG) entitled The AIG Bailout. The bailout was necessitated by AIG’s disastrous multi-billion dollar bets on the United States housing market that brought it to the brink of bankruptcy. At the time, AIG was the largest insurance company in the United States. Because of its size and interconnectedness, and the fact that financial markets were already under serious distress, it was feared that AIG’s failure would lead to the disintegration of the entire financial system. Hence the federal government stepped in with an $85 billion loan, with total aid ultimately reaching $182.5 billion. Many events related to the bailout transpired after my article was published. Hence, this Article serves as an afterword to The AIG Bailout, detailing some of these post-article events. In that regard, the Article proceeds as follows: Part II picks up where Part IV of The AIG Bailout left off. It describes the further restructuring of government assistance through the recapitalization of AIG, details the government’s exit as AIG’s controlling shareholder, and considers the U.S. Department of Treasury’s claim of a $22.7 billion “overall positive return” on the AIG Bailout. Part III delves into the Maiden Lane III transactions, perhaps the most controversial part of the bailout, pursuant to which Société Générale, Goldman Sachs, Merrill Lynch and other AIGFP counterparties were bought out at essentially 100 cents on the dollar. Part IV examines the provisions of the Dodd–Frank Wall Street Reform and Consumer Protection Act (Dodd–Frank), the principal federal regulatory response to the financial crisis, most relevant to what happened at AIG. Specifically, it considers how these regulations would have applied to AIG had they been in place prior to its collapse. Part V concludes the Article. Part IV examines the


by Lyman P.Q. Johnson & Robert Ricca

This is a brief Response to Professor Mohsen Manesh’s extensive response to our original article, The Dwindling of Revlon. Our thesis is that today the iconic Revlon doctrine is, remedially, quite substantially diminished. Although Professor Manesh sets out to establish what he calls “the limits of Johnson’s and Ricca’s thesis,” we here maintain, as before, that there is little remedial clout to Revlon unless directors or others very significantly misbehave. We also criticize Delaware’s continuing use of the standard-of-conduct/standard-of-review construct in the fiduciary duty area. This rubric is unhelpful generally and strikingly so in the Revlon setting, as we note.


by Mohsen Manesh

Nearly thirty years ago, in Revlon, Inc. v. MacAndrews & Forbes Holdings, Inc., the Delaware Supreme Court famously dictated that in certain transactions involving a “sale or change in control,” the fiduciary obligation of a corporation’s board of directors is simply to “get[] the best price for the stockholders.” Applying a novel remedial perspective to this iconic doctrine, in The Dwindling of Revlon, Professor Lyman Johnson and Robert Ricca argue that Revlon is today of diminishing significance. In the three decades since, the coauthors observe, corporate law has evolved around Revlon, dramatically limiting the remedial clout of the doctrine. In this Essay, I show how two recent Delaware Chancery Court decisions—Chen v. Howard-Andersen and In re Rural Metro—underscore the expansive reach of Revlon and, therefore, the limits of Johnson and Ricca’s thesis. Instead, I suggest the dwindling of Revlon, if it is indeed dwindling, may be best observed from what is happening outside the pressed edges of corporate law, where other competing bodies of business law have emerged rejecting Revlon’s fiduciary mandate.