Interfaith Center on Corporate Responsibility v. U.S. Securities and Exchange Commission

The federal district court for the District of Columbia rejected challenges to November 2020 amendments to U.S. Securities and Exchange Commission (SEC) Rule 14a-8, which governs the corporate proxy statement process. The plaintiffs claimed, among other things, that the SEC’s cost-benefit analysis did not reasonably consider the benefits of shareholder proposals and that the SEC’s rationale for the amendments—which was “to modernize and enhance the efficiency and integrity of the shareholder-proposal process for the benefit of all shareholders”— was a pretextual justification and that the “true reason” was to support corporate management opposition to the substance of many shareholder proposals, particularly proposals addressing environmental and social issues. Regarding these two arguments, the court found that the SEC reasonably disregarded certain studies about the potential benefits of shareholder proposals and that the plaintiffs did not make a sufficient showing based on the existing administrative record that would justify judicial inquiry beyond the SEC’s stated reasons for adopting the rule.

A lawsuit filed in federal district court in the District of Columbia challenged the U.S. Securities and Exchange Commission’s (SEC’s) adoption of amendments to Rule 14a-8, which governs the submission of shareholder proposals for inclusion in a company’s proxy statement. The plaintiffs—a coalition of institutional investors, an individual shareholder advocate, and a nonprofit corporation described as “one of the nation’s leading practitioners of corporate engagement and shareholder advocacy”—asserted that the SEC violated the Administrative Procedure Act because the amendments were arbitrary, capricious, and not in accordance with law; because the SEC acted in excess of its statutory authority and failed to observe required procedures; and because the SEC used a pretextual justification for the amendments (reducing costs) when its “true reason … was corporate management opposition to the substance of many types of shareholder proposals, particularly those addressing environmental and social issues.” The complaint alleged that climate change had become “an increasing focus” of shareholder proposals.