Kai H. E. Liekefett and Derek Zaba are Partners at Sidley Austin LLP.
We live in polarising times. The current political and cultural environment is arguably the most heated and controversial in decades. One of the most prominent victims of our era: the truth. As Mark Twain famously said; “A lie can travel half way around the world while the truth is putting on its shoes.” Political election campaigns, in particular, are riddled with misleading statements, half-truths and outright lies. Our fragmented media ecosystem and the pervasive influence of social media make it easier than ever to distribute falsehoods to a vast audience near-instantaneously, compromising the integrity of political elections.
While not as extreme as with political discourse, similar issues have emerged in corporate elections. In recent years, it seems there have been more half-truths and outright lies in proxy contests than perhaps ever before. During proxy season, hardly a day goes by without a press release, shareholder letter or investor presentation containing questionable statements.
Public companies, as securities issuers, face heavy scrutiny of their disclosures under areas of federal securities law beyond the proxy rules. A company simply cannot make recklessly optimistic statements about its future prospects without exposing itself to liability.
Dissident shareholders like activist funds, on the other hand, generally escape similar levels of scrutiny. There are rules designed to protect the integrity of corporate elections the federal proxy rules under the Securities Exchange Act of 1934. Unfortunately, however, these proxy rules many of which were adopted decades ago and long before the advent of the digital age are increasingly under stress. In fact, many activists repeatedly violate the proxy rules, yet apparently face no repercussions.
