This article builds upon the author's remarks at the 2018-2019 Lara D. Gass Annual Symposium: Civil Rights and Shareholder Activism at Washington and Lee University School of Law, February 15, 2019.
What does “corporate democracy” mean? How far does federal law go to guarantee public company investors a say in a firm’s policies on important social, environmental, or political issues? In 1972, the U.S. Supreme Court appeared ready to start sketching the contours of corporate democracy—and then, at the last minute, it pulled back. This Article tells the story of Securities and Exchange Commission v. Medical Committee for Human Rights, in which a national civil rights organization, best known for its work at civil rights marches and protests, fought to expand the limits of corporate democracy and nearly succeeded.
This Article proceeds in three parts. Following the introduction, Part II tells the story of how a civil rights organization advanced the cause of shareholder activism in the late 1960s. It begins with the group’s first, clumsy efforts to use shareholder tools and traces developments through the tumultuous 1970 proxy season, in which major companies’ annual meetings featured confrontations involving police, private security forces, guard dogs, and rock-throwing stockholders. Archival documents reveal that a Yale law student was the original donor of five shares of Dow Chemical Company stock to Medical Committee, and that he helped connect the civil rights organization to the prominent securities lawyers who litigated its case. An important victory came early: Dow stopped manufacturing napalm in May 1969, around the time of its annual shareholders meeting. However, Dow’s management never admitted any concession to the investor insurgency.
Part III describes the legal wrangling that took place in the D.C. Circuit Court of Appeals and ultimately the U.S. Supreme Court. This Part excavates primary documents from the case files of Supreme Court Justices involved in the case, including those of Justice Thurgood Marshall, who wrote the opinion that declared the controversy moot, and Justice William O. Douglas, the former New Deal SEC Chair, who departed from his longstanding practice of recusing himself from securities law cases to dissent. What these documents suggest is that, if it had been decided on the merits, SEC v. Medical Committee for Human Rights would have been a close case. This is especially noteworthy considering that two of the nine Justices who were members of the Court when it granted certiorari—Justices Hugo Black and John Marshall Harlan—had resigned for health reasons by the time the case was argued. In the end, Medical Committee saw its gains for corporate democracy dissolved as fierce maneuvering by Dow’s corporate management and the SEC won the upper hand.
Part IV considers the significance of SEC v. Medical Committee for Human Rights to history. It presents the case as civil rights history, as securities law history, and as corporate governance history, and offers some reflections on the case in light of the current debate about the right of shareholders to have a voice in a company’s manufacture or sale of controversial products.