From Public Policy to Materiality: Non-Financial Reporting, Shareholder Engagement, & the Rule 14a-8 Ordinary Business Exception

76 Washington & Lee Law Review 3 (2019)

28 Pages Posted: 22 Aug 2019

Date Written: August 20, 2019

Abstract

In recent years, majority votes on shareholder proposals urging corporate boards to disclose climate-related risk have made headlines, with the help of mainstream investors like Blackrock and Vanguard. This Article argues that although shareholder activism is a powerful tool to raise the profile of emerging environmental, social and governance (ESG) risks or even to change corporate practice, it is not an adequate substitute for disclosure reform under the federal securities laws — in fact, it impedes it.

A key reason is that the U.S. Securities and Exchange Commission's interpretation of the Rule 14a-8 “ordinary business exception” forces shareholders to frame their proposals in a way that causes companies to discount the materiality of ESG information. The rule’s long use in shareholder activism around “public policy and social issues” also discourages support for new rulemaking that could improve market access to material ESG information. This Article urges the SEC to issue new interpretive guidance reaffirming its own early articulations of the ordinary business exception, which recognized the potential economic importance of ESG information to investors.

Keywords: shareholder activism, disclosure, Rule 14a-8, shareholder proposal, ordinary business, risk, sustainability, ESG

JEL Classification: K22

Suggested Citation

Harper Ho, Virginia E., From Public Policy to Materiality: Non-Financial Reporting, Shareholder Engagement, & the Rule 14a-8 Ordinary Business Exception (August 20, 2019). 76 Washington & Lee Law Review 3 (2019) . Available at SSRN: https://ssrn.com/abstract=3440221

Virginia E. Harper Ho (Contact Author)

University of Kansas - School of Law ( email )

Green Hall
1535 W. 15th Street
Lawrence, KS 66045-7577
United States
785-864-9217 (Phone)
785-864-5054 (Fax)

HOME PAGE: http://www.law.ku.edu

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