The WSJ today reports that the Securities and Exchange Commission "is exploring a new policy that could permit companies to resolve complaints by aggrieved shareholders through arbitration, limiting shareholders’ ability to sue in court." The change would allow companies that use public markets to sell their stocks and bonds to amend corporate bylaws to ban class actions and force individual arbitration of securities fraud claims.
The WSJ article refers to an interim report on November 30, 2006, by the Committee on Capital Markets Regulation. (Press release here.) Harvard Law Professor Hal Scott serves as Director of the CCMR, which says it aims to improve global competitiveness of U.S. capital markets.
Blawgletter notes that the arbitration recommendation appears under the heading "Shareholder Rights" and describes it as giving shareholders "the choice to decide how disputes with their companies should be resolved – through arbitration (with or without class actions) or non-jury trials."
Both the heading and the description strike Blawgletter as a tad misleading. A bylaw amendment would presumably apply equally to widows, orphans, and retirees, on the one hand, and to institutional investors, on the other. The latter can protect themselves just fine, thank you very much, but the former can’t. So the proposal would have the effect of throwing the little guy to the wolves and making corporate insiders even more insensitive to the welfare of those least able to stand up for themselves.