Academic journal article Washington and Lee Law Review

Chancery's Greatest Decision: Historical Insights on Civil Rights and the Future of Shareholder Activism

Academic journal article Washington and Lee Law Review

Chancery's Greatest Decision: Historical Insights on Civil Rights and the Future of Shareholder Activism

Article excerpt

I. Introduction

Shareholder activism-using an equity stake in a corporation to influence management1-has become a popular tool to effectuate social change in the twenty-first century. Increasingly, activists are looking beyond financial performance to demand better corporate performance in such areas as economic inequality, civil rights, human rights, discrimination, and diversity.2 These efforts take many forms: publicity campaigns, litigation, proxy battles, shareholder resolutions, and negotiations with corporate management.3 However, a consensus on scope is lacking. Should corporations change their own operations to reflect a specific agenda or use their power to influence society on a much broader scale? Distinctions between private and public become blurred in light of the ubiquitous and inevitable influence corporations wield over third parties. Theoretical absolutes on the individualist-communitarian spectrum may underestimate the complex co-dependent and co-responsible interrelationship between corporations and modern society. Critics may fairly question why corporations, arguably society's most potent institutions, should sit idle on problems like civil rights.

In 1948, as part of the "Proxies Campaign," James Peck and Bayard Rustin each purchased a single share of Greyhound Corporation and proposed, albeit unsuccessfully, that Greyhound desegregate its bus lines.4 Rustin organized both the 1947 "Journey of Reconciliation" and the subsequent "Freedom Rides" to integrate interstate bus travel in the South; Peck participated in both.5 From 1948 to 1955, Peck and others attended the Greyhound Company's annual stockholder meetings to protest and to argue for desegregated busing.6 The shareholder activism of the "Proxies Campaign" was just one lever in a massive challenge to Jim Crow segregation.7 Peck, however, is best known for more direct forms of nonviolent resistance and the price he paid in over sixty arrests and brutal beatings at the hands of segregationist thugs.8 In a sense, Peck's long legacy of activism reflects the virtues of mixed-methods in addressing meta-problems of racial segregation. He debated NAACP Director Roy Wilkins, arguing that direct action was just as critical as legal procedures in winning civil rights.9

Direct resistance, as exemplified in the Greensboro sit-in, and strategies like the "Proxies Campaign" coincided with civil rights litigation that would change the course of U.S. history and democracy.10 The 1954 decision in Brown v. Board of Education11 declared the segregation of public schools unconstitutional, inspiring, in part, the civil rights movement demonstrations and marches of the 1950s and 1960s.12 Brown was not an isolated event. It was the product of a "long range, carefully orchestrated legal strategy developed in the 1930s by lawyers associated with the NAACP."13 Generally, the NAACP's attack on segregation was two pronged: legal action and persuasion.14 Charles Hamilton Houston and Nathan Margold were the architects of the legal strategy to dismantle Jim Crow segregation in all aspects of American life.15 Litigation by the NAACP Legal Defense Fund (LDF) brought court victories but also served as a method of protest independent of court decisions.16

From a historical perspective, shareholder activism is best deployed as one tool among many to advance a modern civil rights agenda. The shareholder landscape and level of engagement have evolved considerably since the 1950s. The biggest transformation is the decline of individual or retail investors and the rise of institutional shareholders.17 Individual investors held approximately ninety percent of the United States equity market in 1950.18 In 2009, they held thirty-six percent and the percentage continues to fall.19 The individual investor ownership level that coincided with Peck's efforts to influence Greyhound no longer exists.20 Instead, institutional shareholders (e.g., mutual funds, pension funds, and hedge funds) dominate equity markets. …

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