SEC Doesn’t Take Away Ripped Off Shareholders’ Rights …..Yet
There’s some good news to report in the fight to preserve ripped off shareholders’ rights to seek justice in court, rather than being forced into biased, unfair and secret arbitration proceedings. On Monday, February 11, 2019, SEC Chairman Jay Clayton announced that SEC staff would allow Johnson & Johnson to reject a proposal that would take away the company’s shareholders rights and forced them into arbitration, no matter how grievously they might be harmed by the company’s fraud, negligence, or other misconduct.
The issue arose after a Johnson & Johnson activist shareholder who favors forced arbitration pushed for such a resolution to be included in the proxy materials for the company’s upcoming shareholder meeting this Spring. Better Markets and its allies engaged in a strong advocacy campaign urging the SEC to follow its long-standing practice and side with tens of millions of shareholders who deserve their day in court if they are victimized. Whenever investors, consumers, shareholders, or any other Americans harmed by corporate misconduct have their rights taken away and are forced into a biased and secretive process where they receive little or no relief, they lose out. As important, our capital markets and our capital formation processes losses as well because investors will have less faith, trust and confidence in our markets.
However, it’s too soon to declare outright victory. Chairman Clayton cautioned that this was a staff decision, not a definitive resolution of the legality of forcing arbitration onto shareholders. He also heavily relied on the opinion of the New Jersey Attorney General interpreting New Jersey law. These are troubling and clearly indicate that the issue remains alive and investors remain at risk. We will continue to oppose any attempts to take away vital shareholder rights.