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E-MailHarwell Wells is the I. Herman Stern Professor of Law at Temple University James E. Beasley School of Law. This post is based on his recent paper.
My new paper, Shareholder Meetings and Freedom Rides, is a story about the history of corporate and securities laws that begins in an unlikely place.
In 1947, James Peck and Bayard Rustin, members of the radical pacifist group the Fellowship of Reconciliation and its offshoot the Congress of Racial Equality (CORE), were preparing for a civil rights protest they called the Journey of Reconciliation, now remembered as the first Freedom Ride. Inspired by Quaker pacifism, Ghandian nonviolence, and their own experiences as conscientious objectors during World War II, Peck, who was white, and Rustin, who was African-American, would ride with other members of the Fellowship as an interracial group in buses across the upper South. On the ride the group intended to defy rules requiring segregation in transport, in an attempt to force bus lines to follow the Supreme Court’s 1946 decision in Morgan v Virginia, which held state-mandated segregation in interstate travel unconstitutional. But before they embarked on the Journey of Reconciliation, Peck and Rustin did something else radical: they bought shares in a corporation.
A year later, after their travels in the South had led to terror, death threats, beatings, and in Rustin’s case a term on a chain gang, they brought their activism to a new site of protest, the annual meeting of the corporation of which they were now shareholders, Greyhound Bus Lines, which even after Morgan had as a matter of company policy continued to segregate passengers on its interstate routes. At the meeting Peck and Rustin offered a proposal condemning the company’s policy, and invoked a different body of Federal law, the Federal securities laws, to insist that Greyhound provide all its shareholders the opportunity to vote on their proposal. The law they cited was only a few years old; in 1942 the Securities and Exchange Commission (SEC) had adopted a new rule, Rule X14a-7 (now 14a-8), the “Shareholder Proposal Rule,” giving a shareholder under some circumstances the power to make proposals to corporate management and requiring companies to send those proposals to all their shareholders in their annual proxy solicitations—at the company’s expense.
Greyhound refused to circulate Peck and Rustin’s proposal, arguing that the rule allowed it to reject proposals that spoke only to general social or political issues, and in 1951 the SEC agreed. Peck fought back. With financial backing from CORE he sued Greyhound in Federal court, arguing that the proposal he and Rustin had crafted was an appropriate matter for shareholder consideration and so met the requirements of the SEC rule. Their proposal targeted not segregation in general, but a specific policy adopted by Greyhound, and pointed to the harm the segregation policy did the bus company in particular, as it threatened to produce lawsuits against Greyhound by African-American passengers harmed by the ongoing segregation.
To end Peck’s suit, and cut off future ones, in 1952 the SEC amended the shareholder proposal rule. Before then the SEC had allowed companies to exclude proposals of a “general political, social, or economic nature.” The 1952 amendment, however, specifically targeted the Greyhound proposal, and added new language to forbid proposals “primarily for the purpose of promoting . . . general economic, political, racial, religious, or social or similar causes” (emphasis added). In an attempt to insist that racial causes were illegitimate subjects for shareholders concern, the SEC had written race into the securities laws. The language would not be removed until 1976.
This article is the first full-scale examination of Peck v Greyhound and the resulting amendments to the shareholder proposal rule. While earlier scholars have touched briefly on the case, they have spent little time on it, perhaps because it falls between two scholarly fields that have rarely overlapped, corporate and securities laws and the legal history of race and civil rights. Corporate and securities law scholars have occasionally discussed Peck v Greyhound as an episode in the evolution of the shareholder proposal rule—still an important topic—but few have spotted the connection between the case and CORE, nor discussed the effects of the rule change. Historians of the civil rights movement have sometimes mentioned it in passing, but understandably have focused on the social and legal campaigns that ultimately toppled legal segregation, rather than an obscure securities law case.
That is regrettable, because the story of Peck v Greyhound illustrates the sometime surprising interplay of race and corporate and securities laws, and contributes to a nascent movement to integrate race into the study of those laws. Drawing on the records of two organizations rarely discussed together, CORE and the SEC, this article documents how race and the securities laws collided in Peck v Greyhound. It shows that the Greyhound proposal was not, as some earlier writers have assumed, Peck’s alone, but was equally the work of Rustin, a legendary civil rights leader. Their campaign against Greyhound was in turn a product of, and shaped by, the ethos of the Fellowship of Reconciliation, one of the nation’s most notable and long-lived radical pacifist organizations. The ensuing litigation was guided and funded by CORE, the pathbreaking civil rights organization. And eventually the case and subsequent rule change would have an impact not only on corporate America, as it helped minimize the 1950s movement for “shareholder democracy,” but also on the civil rights movement, as it largely closed off the shareholder proposal as a vehicle for protest during the civil rights era.
The complete paper is available for download here.
