Civil Rights and Shareholder Activism: SEC v. Medical Committee for Human Rights
63 Pages Posted: 28 Oct 2019 Last revised: 22 Nov 2019
Date Written: October 18, 2019
Between 1968 and 1972, Medical Committee for Human Rights, a civil rights organization, fought the Dow Chemical Company and the U.S. Securities and Exchange Commission over its shareholder rights. The battle focused on a shareholder proposal demanding that Dow stop selling napalm for use in the Vietnam War. Dow rejected Medical Committee’s proposal and the SEC approved the company’s decision to exclude it from its proxy statement. However, in 1970, on the heels of the most tumultuous proxy season in American history, a unanimous, 3-judge panel of the U.S. Court of Appeals for the D.C. Circuit sided with Medical Committee and suggested that the napalm proposal should have gone to a shareholder vote. The D.C. Circuit’s decision, authored by a conservative federal judge, faulted the SEC for failing to justify Dow’s inhibition of corporate democracy, in which Dow’s shareholders would have considered whether to “have their assets used in a manner which they believe to be more socially responsible but possibly less profitable than that which is dictated by present company policy.”
Ultimately, Medical Committee’s fight reached the U.S. Supreme Court, where it was billed as one of the term’s major cases. But after a last-minute reversal by the SEC, Justice Thurgood Marshall declared the case moot, and Medical Committee’s gains for corporate democracy were lost. Justice William O. Douglas, who had once served as the Chair of the SEC, dissented, noting presciently that the issues raised by the case were unlikely to go away.
As civil rights history, SEC v. Medical Committee for Human Rights has never received much attention. As corporate law history, it has largely receded from memory. Yet the case marked the beginning of a period, spanning decades and leading up to the current day, in which the contours of corporate democracy have remained vague and contested. Offering new insights from archival documents, this Article tells the history of this important litigation.
Keywords: shareholder activism, Rule 14a-8, corporate democracy, securities regulation, shareholder proposal, ordinary business exclusion, civil rights, Thurgood Marshall, William O. Douglas, Edward Allen Tamm, napalm, Vietnam
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