A “Corporate Democracy”? Freedom of Speech and the SEC

Note — Volume 104, Issue 8

104 Va. L. Rev. 1593
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In Citizens United, the Supreme Court stated that increased recognition for corporate speech rights is not problematic because corporations are themselves mini-democracies; shareholders have mechanisms to check management control over corporate speech. But due to statutory changes and judicial actions, these checks and balances are no longer effective. Managers have nearly unbridled power over corporations’ expanded speech rights, allowing them to use companies as outsized megaphones for their own personal political and social positions.

An axiom of First Amendment doctrine is that the remedy for speech that some find problematic is “more speech, not enforced silence.” Thus, if the increase in speech rights for corporate managers is an issue, the solution is not to rein in those rights but rather to see how investors’ speech is limited and to remove those barriers, enabling investors to fully participate in the corporate democracy.

Securities and Exchange Commission (“SEC”) regulations prohibit investors from communicating about corporate elections without filing disclosures and providing proxies to every shareholder. These regulations limit investor speech and are slanted in favor of management because they exacerbate the collective-action problem among shareholders who oppose poorly performing managers. Investors should challenge these regulations on First Amendment grounds, and courts should apply some form of exacting scrutiny because speech in corporate elections is as important as political speech in many circumstances. Striking down these regulations would restore balance to the investor–management relationship and allow corporate speech to fully reflect the will of companies’ true owners: their shareholders.

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  Volume 104 / Issue 8  

Administrative Rationality Review

By Maria Ponomarenko
104 Va. L. Rev. 1399

Unconstitutionally Illegitimate Discrimination

By Brandon L. Garrett
104 Va. L. Rev. 1471

Predicting Enemies

By Ashley S. Deeks
104 Va. L. Rev. 1529

A “Corporate Democracy”? Freedom of Speech and the SEC

By Karl M. F. Lockhart
104 Va. L. Rev. 1593