Voting Matters: Materiality Considerations and the Shareholder Vote

For the shareholder franchise to have meaning, shareholders must have access to relevant information to inform their voting decisions. The securities laws’ disclosure requirements play an essential role in informing the shareholder vote. This Essay focuses on the question of the materiality of information in the context of shareholder voting. It addresses the question of whether ESG-related information is material, positioning the materiality inquiry within the context of shareholders’ voting decisions. It explores the definition of materiality with a focus on the “reasonable investor” concept embedded within the definition. The Essay argues that the implicit expectations of many commentators that proponents of expanded ESG disclosure demonstrate a correlation between the ESG-related metrics they seek and stock price or financial performance as a condition precedent for new mandatory disclosure rules create an unreasonable framing for ongoing disclosure debates. The Essay asserts instead that, consistent with the Supreme Court’s guidance in TSC v. Northway, information is material if shareholders consider it important when making voting decisions and that materiality determinations should not depend on evidence that shareholder voting preferences correlate with improved corporate performance. The Essay then explains how ESG-related data can help inform shareholders’ decisions when electing directors or when voting on the wide range of shareholder proposals presented at annual meetings. The Essay concludes by asserting that shareholders’ voting decisions are skewed when they lack access to reliable information on issues they consider important when deciding how to vote. For these reasons, expanding disclosure requirements on ESG-related matters would bolster the integrity of the shareholder vote.