June 23, 1970
Page 20928
S. 4003 – INTRODUCTION OF THE CORPORATE PARTICIPATION ACT
Mr. MUSKIE. Mr. President, I introduce for myself and the Senator from Missouri (Mr. EAGLETON) a bill to expand the right of American shareholders to participate more effectively in corporate decision making.
Few aspects of American life fail to be influenced by the actions of our major corporations.
Decisions made in the board rooms of large corporations have lasting effects on the quality of life of each American. Many American corporations far outstrip in total revenues the production of every nation except our own and the Soviet Union. The financial resources controlled by the giants of industry are greater than most nations.
We rely primarily on the profit motive to guide corporations toward our social purposes. The profit motive often increases public welfare but, on occasion, profit maximization produces results which destroy our countryside or reduce the quality of life in our society.
One way to increase the effectiveness with which corporations serve society is to increase the voice of shareholders on issues which affect them both as owners of corporations and as citizens in their everyday lives. By providing another channel for shareholders to direct their corporations to advance the general welfare, this bill attempts to improve corporate responsiveness to social and environmental issues.
We are a Nation of many stockholders. Some 26 million Americans are direct owners of securities in domestic corporations. Another 100 million participate in the securities markets through investment companies, pension fund, trust funds, and similar types of institutional investing.
Americans are becoming increasingly aware of the need to solve our common problems through available channels. The public is concerned about the environment, housing, mass transportation, consumer protection, and product safety. Expression of these concerns can and should be permitted through corporate democratic processes.
The bill I am introducing grants to the stockholding public the opportunity to participate, in an effective way, in the corporate decision process. However, as was demonstrated recently when General Motors' shareholders defeated shareholder proposals motivated by concern for the general welfare, the likelihood of success for socially motivated proxy proposals is not now very great. Indeed, few shareholder proposals opposed by management are ever accepted by a majority of shareholders. Nonetheless, the value of shareholder proxy proposals rests not alone in their immediate hope for success but also in their ability to apprise management of the intensity of stockholder concern over the manner in which the corporation is conducting business.
Shareholders have three alternatives for expressing their dissatisfaction within the framework of corporate government. They may engage management in a proxy contest by soliciting their own proxies. Or they may request management to include stockholder proposals in management's proxy.
A divesting stockholder has no real effect on corporate policy. By selling, he is only disenfranchising himself.
The second alternative, of soliciting proxies in competition with management, involves extraordinary expense and therefore is not a practical alternative for stockholders wishing to change corporate policies.
The only viable method available to shareholders to communicate with other shareholders and to challenge management's policies is by the use of the shareholder proposal.
Section 14(a) of the Securities Exchange Act of 1934 authorizes the Securities and Exchange Commission to regulate the solicitation of proxies. That section was enacted because the increasing geographic dispersal of shareholders in the 1920's had made personal attendance at stockholders' meetings impractical for a majority of shareholders, leaving them without an effective voice in corporate affairs. Accordingly, under section 14 (a) the SEC has given stockholders the right to include shareholder proposals of certain kinds in management proxy materials. However, the SEC regulations permit management to exclude stockholder proposals which promote "general economic, political, racial, religious, social or similar causes."
It is clear from the early interpretations of this regulatory language that it was intended, quite properly, to prevent shareholders from raising issues of general public concern over which the corporation had no control. Recently, however, the SEC has interpreted this language to prevent inclusion in proxy materials of shareholder proposals for actions which are within the corporation's control – for example, whether or not the corporation should discontinue manufacture of one of its products – on the ground that the purpose of the proposal involved promotion of a social or political cause.
This interpretation by the SEC is contrary to the purpose of section 14(a) which was to promote shareholder suffrage by giving shareholders the right to vote on any issue of major corporate policy regardless of whether or not it might have some relevance to broader questions of social policy. It may well be that a majority of shareholders will vote against proposals for major company actions which have some relevance to improving our environment or bettering race relations. But at least they should have the chance to vote.
Accordingly, the bill which I am introducing would amend section 14 (a) of the 1934 act to provide that, as long as the proposed action is one within the control of the corporation, the SEC may not permit corporate management to refuse to include that proposal in its proxy materials simply because the proposal may in some way also relate to an economic, political, racial, religious or social cause. Passage of this bill will assure that the original purpose of section 14(a) – to promote shareholder suffrage – is not eroded.
Mr. President, I ask unanimous consent that the text of the bill be printed at this point in the RECORD.
The PRESIDING OFFICER (Mr. BURDICK). The bill will be received and appropriately referred; and, without objection, the bill will be printed in the RECORD.
The bill (S. 4003) to amend the Securities and Exchange Act of 1934 to expand the right of American shareholders to participate in corporate decision making introduced by Mr. MUSKIE (for himself and Mr. EAGLETON), was received, read twice by its title, referred to the Commitee on banking and Currency, and ordered to be printed in the RECORD, as follows: