Issue 8

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

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.

Administrative Rationality Review

Under the familiar rational basis test, a court must uphold a challenged statute if there is any conceivable basis to support it. Courts routinely accept speculative—even far-fetched—justifications that few would describe as “rational” in a colloquial sense. Modern rational basis review typically is justified as a necessary concession to the nature of the legislative process. The puzzle is why courts apply this same deferential standard when reviewing constitutional challenges to administrative agency actions. Neither courts nor scholars have explained why administrative agencies—which share few of the features of democratically accountable legislative bodies—should enjoy the same degree of judicial deference to their decisions. In many states and localities, this permissive rationality standard is all that constrains the decisions that agencies make. This Article argues that there is in fact no justification for the prevailing approach and that as a constitutional matter courts have an obligation to scrutinize agency regulations more closely than they do legislative enactments. Courts must ensure that agencies at all levels of government act on the basis of actual reasons, and there is at least a plausible connection between regulatory means and ends.

Waiving the Ministerial Exception

The ministerial exception provides that discrimination law does not apply to claims arising out of the employment relationship between religious institutions and their ministerial employees. While the Supreme Court in Hosanna-Tabor Evangelical Lutheran Church & School v. EEOC suggested that this exception could be waived, others have argued otherwise. The pushback flows from a structural understanding of the Establishment Clause, which holds that the First Amendment creates a structural barrier between the separate sovereigns of church and state. On this understanding, the ministerial exception is simply a recognition of the fact that there are some areas in which the state has no power. But this is an incomplete analysis of waiver.

A complete analysis of waiver has both doctrinal and theoretical consequences. Doctrinally, a viable concept of waiver can change the litigation behavior of parties. Theoretically, waiver exposes a flaw in conceptions of church sovereignty. The commentary fails to fully define what it means to be a sovereign, ignoring the fact that some sovereigns, such as states, can waive their immunity.

This Note seeks to present a comprehensive theory for the waivability of the ministerial exception. This theory confronts the exception on all three of its theoretical footings: as part of the structural restraint imposed by the Establishment Clause, as part of the right to church autonomy extended by the Establishment Clause, and as part of a church’s right to shape its own faith protected by the Free Exercise Clause.

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