The SEC has just issued guidance requiring public companies to place on the agenda for shareholder meetings matters of general social importance even if they do not create material business impact on the registrant’s business.  This action is in furtherance of the concept that corporations have social responsibility that extends beyond shareholder investment returns.

While argument can be made, cogently, that in the long run investors get no return when the world collapses through global warming or through social protest, that range of thinking is not the typical purview of the SEC.  The new policy in effect reverses Trump regulation; now, the SEC will force onto the agenda “issues with a broad societal impact, such that they transcend the ordinary business of the company.”

It is not surprising that the two minority (Republican) members of the Commission objected to revision of contrary Trump era regulations, claiming that the SEC is erasing the prior SEC work with a “regulatory flavor-of-the-day” approach. That colorful characterization surely misses the point, since the Trump rules were themselves reflective of the Commission’s then-composition, and as SEC Chair Gensler noted in his related statement in support of the change, many members of the current staff “contributed” to the recent promulgation.

The disclosure trend can also be seen as consistent with the 2019 Business Roundtable Statement to the effect that corporations owe responsibilities to societal cohorts beyond the shareholders; this Statement was endorsed by very many companies including a large percentage of major US corporations.  Could the SEC action be seen as proof that one must be careful what one asks for?

In any event, the risk to management of ignoring for too long the strong wishes of shareholders is going to cause management to at last appear to embrace social values by placing such matters on the shareholder agenda and, thus, they will be forced in some manner to address those matters substantively.  Will major institutional shareholders also be forced by their constituents to push these agenda items on the companies in which they own shares?