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Abstract

In Part I, this Article explores the law of shareholder proposals and the reasons why the SEC and the courts permit proposals relating to social or ethical issues (social proposals) so long as those issues relate to the corporation’s business. The focus here is on the regulation of such social proposals. Other regulations permitting the exclusion of shareholder proposals will be discussed only to the extent that they interact with the Rule relating to social proposals. Part II presents the complete narrative of the Lovenheim case, providing details that are not captured in the decision or in the limited secondary literature relating to the case. Part III explores the legal landscape in the aftermath of Lovenheim. The decision may well have been a surprising one, and this final section explores the reasons why the decision remains the leading case on social proposals.

As discussed in Part III of the Article, opinions on the value of social proposals hinge on opinions on the purposes of corporations and the roles of shareholders in the corporations in which they own shares. Corporations seem to recognize the value of permitting social proposals, as they can provide a relatively inexpensive safety valve for dissent and thus permit the kind of beneficial exchange between management and shareholders that promotes the legitimacy of the corporate decisionmaking processes. While corporations might regard these benefits as slight, the expense of social proposals is also very small. Corporations thus have little reason to appear to be attempting to obstruct one avenue of meaningful dialogue between management and shareholders when the traffic along that avenue relieves stress from the system and thus helps guarantee that the main arteries of commerce will not be blocked.

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