George Fowler


While speaking before the Heritage Foundation in the summer of 2017, Michael Piwowar, Commissioner of the SEC, sparked controversy when he mentioned that companies undertaking IPOs may have an option to include mandatory shareholder arbitration provisions. Following this statement, he went as far as suggesting that companies that have considered undertaking IPOs should “come to us to ask for relief to put in mandatory arbitration into their charters.” This “relief” refers to “the SEC … revers[ing] its position that arbitration violates the Securities and Exchange Act of 1934, bringing the commission back in line with current Supreme Court precedent.” While there is speculation about whether Piwowar’s statement is backed by any serious consideration of allowing such provisions, the topic has recently been an area of concern to investors. Some commentators have also been interested in the effects of the interpreting existing law favorably towards arbitration provisions and have supported the use of arbitration in line with the Supreme Court’s holding that “arbitration process does not inherently undermine any of the substantive rights afforded to petitioners under the Securities Act.” While the topic has heated up recently among investors and commentators, others suggest that this idea has been in the works since the late 1980s, when the U.S. Supreme Court held that security brokerages could enforce mandatory arbitration agreements with customers. Although many have shrugged off recent suggestions of these provisions, several interviewed securities law professors shared the belief that a pro-arbitration Supreme Court would uphold the legality of these provisions requiring arbitration for shareholder claims against publicly traded companies. The Supreme Court’s past and future opinions on this matter are relevant because it has held that arbitration clauses are not a violation of statutory rights. This fact, when paired with decisions that stated the FAA preempts state law, which discriminates against arbitration, leaves only the SEC’s interpretation of the Exchange Act preventing the enforceability of mandatory arbitration clauses. In this comment, I argue that the introduction of mandatory arbitration clauses in corporate charters and bylaws will allow for both corporations and shareholders to realize various financial benefits while still protecting parties against corporate misconduct.



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