The court also found the SEC’s analysis deficient because it did not discuss the use of access authority by “[s]hareholders with Special Interests.” In effect, the SEC was supposed to discuss the use of access by unions to induce concessions outside of the shareholder context, specifically with respect to wage negotiations with public companies. Specifically, the Commission was faulted for failing to respond:
- to comments arguing that investors with a special interest, such as unions and state and local governments whose interests in jobs may well be greater than their interest in share value, can be expected to pursue self-interested objectives rather than the goal of maximizing shareholder value, and will likely cause companies to incur costs even when their nominee is unlikely to be elected.
The SEC received at least 600 letters. It is not required to discuss every letter or every point, only those necessary to make a rational decision with respect to the rule under consideration.
The contention that unions will use shareholder access to induce wage concessions has no significant empirical support. It is true that those opposing shareholder access have worried that this will occur but there is no meaningful evidence that in fact it has occurred.
This can be seen from the opinion of the DC Circuit. While the court noted that commentators had raised this issue, the only authority cited (beyond the letter making the comment) was a quote from a single law review article written by a Chancellor in the Delaware Chancery court. The quote did not relate to access but was a statement demonstrating that different shareholders had different potential interests. In other words, the opinion contains not one actual example of unions using corporate governance authority as a mechanism to advance wage negotiations.
But there is a far greater problem with the court’s requirement than the entirely speculative nature of the “cost.” The court is presupposing that unions (and to a lesser extent public pension plans) will violate their fiduciary obligations to their pension plan beneficiaries. The assumption is that unions will use the threat of access not to act in the best interests of their beneficiaries but to benefit union members to obtain wage concessions.
Presumably this means that at least sometimes unions are expected to forego access when it is in the best interests of beneficiaries in order to benefit its membership. In other words, the court faulted the SEC for not assuming that unions would violate the law and assessing the costs associated with the violation.
The court cited no authority for the proposition that an agency, in adopting a rule, must assess speculative costs that depend upon a violation of the law. To describe the SEC as irrational for not having done so is a legal principle too far.
For more thoughts on the court's opinion in Business Roundtable, see Shareholder Access and Uneconomic Economic Analysis: Business Roundtable v. SEC. Primary materials on the case, including the relevant briefs, can be found at the DU Corporate Governance web site.