The Securities and Exchange Commission and Corporate Social Transparency
Cynthia A. Williams
York University - Osgoode Hall Law School
Harvard Law Review, Vol. 112, P. 1197, 1999
The financial transparency for which U.S. capital markets are renowned derives primarily from mandatory disclosure of operating results under the federal securities laws. In this Article, Professor Williams defends the view that the Securities and Exchange Commission (SEC) can and should require expanded social disclosure by public reporting companies to promote corporate social transparency comparable to the financial transparency that now exists. As used in this Article, "social disclosure" refers to disclosure of specific information about a reporting company?s products, the countries in which a company does business, and the labor and environmental effects of a company?s operations in the United States and around the world.
Professor Williams shows that the SEC has the statutory authority in fashioning proxy disclosure under Section 14(a) of the Securities Exchange Act of 1934 to require disclosure either to promote the public interest or to protect investors. To construe the SEC?s public interest disclosure power, she examines the intellectual derivation of the securities laws and their legislative history, demonstrating that increasing corporate accountability to shareholders and to the public was a central goal of Congress in 1933 and 1934, as was constraining the exercise of corporate power and inculcating a greater sense of public responsibility in corporate managers. The legislative history of Section 14(a) indicates that Congress?s purpose in enacting that section was to strengthen the power of shareholders in the corporate governance relationship, and in particular to require companies to provide shareholders with information about management policies and practices. Thus, she argues that it is fully consistent with the language, purpose, and legislative history of the securities laws for the SEC to use its authority under Section 14(a) to require expanded disclosure about management?s policies and practices with respect to social and environmental issues. A close examination of the SEC?s rejection of expanded social disclosure in the 1970s buttresses this conclusion. Professor Williams concludes by making the affirmative case for expanded corporate social transparency and for the SEC?s legitimate role in promoting such transparency, both from the perspective of the "economic" investor, who is assumed to be interested primarily in the financial returns from an investment, and from the perspective of the "social" investor, who is concerned more broadly with the social and environmental effects of corporate conduct.
Accepted Paper Series
Date posted: November 26, 1999
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