With Congress unable to check the overreach and illegal actions of the current administration due to Republican Congressional acquiescence, the judicial system is now the primary venue for seeking limits on excessive executive branch authority.
At our annual company retreat this September in Santa Fe, N.M., those gathered had several conversations about “meeting the moment” given the extraordinary actions of the current administration to date and the angst many of us and our clients are experiencing. We discussed both personal and company strategies for cultivating resilience and standing for what the firm and its clients value and believe.
While Natural Investments has long participated in corporate engagements, advocacy to and in collaboration with fund managers, and political dialogue with and comments to regulators and elected officials, those present indicated a willingness for the firm to move into a different realm: judicial action.
Due to its industry leadership, Natural Investments was specifically asked by some of our colleagues to sign onto an amicus brief in support of plaintiff Chicago Women in Trades (CWT) in its lawsuit against the administration’s early 2025 executive orders (EOs) that prohibit diversity, equity, and inclusion activities and end so-called “illegal preferences” among federal contractors. While we are not a federal contractor, these EOs are part of the administration’s broader strategy to restrict the freedom of the private and nonprofit sectors to operate in ways that have long proven economically viable (proven by academic and industry research); hence the interest in our firm publicly objecting to the orders’ premise.
Davis Wright Tremaine is the law firm representing CWT, while the main organizers of the brief are the American Sustainable Business Council, Working IDEAL, and PolicyLink. We had a robust discussion of the risks to the firm by taking this type of action given the public nature of such a lawsuit that could potentially trigger blowback against Natural Investments as an ally. While we did not have unanimity, we did achieve consensus to participate. (If you’re wondering what the difference is, unanimity means everyone fully agrees with a decision, whereas consensus implies a general agreement where no one actively or strongly objects even if they don’t fully support it).
This type of action is not without precedent. In 2009, the firm signed the amicus brief for the “Pro Football v. Harjo” case regarding the Washington football team name (though the Supreme Court refused to hear the case). The main legal arguments used by the plaintiffs in this case include:
- Business DEI policies and practices support the financial interests of business.
- Longstanding barriers to equal employment opportunity in this country warrant actions by employers to diminish unabated discrimination.
- The implementation of DEI activity is non-discriminatory and does not conflict with merit-based hiring and promotion.
- DEI practices are lawful, and efforts to couch them otherwise fly against legal precedent.
- The EO’s Certification Provision violates the First Amendment rights of private business.
We joined 49 businesses and organizations in signing the brief, including some of our respected colleagues: Adasina Social Capital, As You Sow, Interfaith Center for Corporate Responsibility, Main Street Journal, Nia Impact Capital, Racial Justice Investing, and Trillium Asset Management. In addition, 17 Democratic state attorneys general also filed a similar amicus brief indicating that the EOs unlawfully threaten federal funding and undermine First Amendment rights.
This is one way that Natural Investments demonstrates resistance to forces attempting to micromanage business and finance, prohibit investor choice, ignore justice, and unravel democracy. Plus, it complements our advocacy work with corporations, lawmakers, and regulators. It is consistent with our support of corporate anti-discrimination programs and policies proven by research to have economic value. While a federal judge blocked enforcement of the EOs while the lawsuit is in progress and similarly rejected the government’s motion to dismiss it or stay the injunction against it, as of this writing the case has yet to move to trial.
OTHER LAWSUITS
Natural Investments also signed a letter organized by the U.S. Impact Investor Alliance to Treasury Secretary Scott Bessent and congressional leaders requesting that staff of the Community Development Financial Institutions (CDFI) Fund be immediately reinstated. During the government shutdown, the administration laid off such staff, who administer over $250 million annually via congressional allocations to CDFIs nationwide, including many supported by Natural Investments’ clients. These funds meet critical economic development needs in low-income rural, urban, and tribal communities. A judge issued a temporary restraining order to block the firings while the case is being litigated, and federal employee unions subsequently sued the administration for illegally laying off federal employees during the government shutdown. That case is pending.
The American Federation of Government Employees also sued the administration’s Office of Personnel Management, challenging its inclusion of a “loyalty question” seeking fealty to the Trump-Vance administration on federal civil service job applications, noting that more than 1,700 job posts have included the essay question. According to the suit, politicizing historically nonpartisan civil service jobs is arbitrary, capricious, and violates the Administrative Procedure Act and Privacy Act by seeking unnecessary and irrelevant information about the exercise of applicants’ First Amendment rights.
Meanwhile, Interfaith Center for Corporate Responsibility (ICCR), Ceres, and United Church Funds sued the state of Texas to block its new law limiting investor access to expert advice and penalizing consideration of environmental, social, and governance (ESG) factors, as a clear violation of First Amendment rights. The law targets entities—including nonprofit organizations like our colleagues at As You Sow—that provide information to investors regarding proxy voting and otherwise advocate with corporate management on material issues. The Texas law falsely classifies ESG risks as “nonfinancial” and places burdensome restrictions on sharing such considerations with shareholders while exposing providers of such information to legal liability.
A REGULATORY 180
Judicial action is likely now needed against companies that refuse to place shareholder proposals on proxy ballots. In November, the SEC suspended substantive responses to most shareholder proposal no action requests for the 2025-2026 proxy season. When shareholders submit a proposal for the ballot, companies have long appealed to the SEC to request a ruling about whether the issue is material and should be included. The SEC has historically excluded proposals it deems to micromanage companies or address issues with no bearing on share value, but the onus was always on companies to prove why the item should be excluded.
With this announcement, the agency indicates it will not weigh in on such matters anymore, allowing companies to self-determine whether the proposal goes on the ballot. The Commission had always stated that advisory proposals submitted by shareholders are presumed to be proper unless a company demonstrates otherwise, but SEC Chairman Paul Atkins has perhaps illegally changed the protocol by potentially violating the Administrative Procedure Act, which requires advance notice and a public comment period for proposed regulatory changes. Nevertheless, companies can now exclude shareholder proposals and not worry about whether the SEC agrees with the rationale.
The ranking Democratic member of the House Financial Services Committee Representative Maxine Waters stated, “I am calling on Chairman Atkins to withdraw this decision immediately and do the job he was assigned. The agency that calls itself the ‘Investor’s Advocate’ should not be in the business of rubberstamping corporate executives’ attempts to silence investors, or arbitrarily rewriting decades of precedent.”
The SEC’s regulatory punt leaves legal action as an important recourse for shareholders, who will need to sue companies to force proposals to appear on ballots. Few shareholders will bother due to resource limitations, which is likely the point of the action. Of course, shareholder advocates will be watching corporate behavior closely and may vote against a wide variety of ballot measures supported by boards and management in response. This extreme and pointless war on shareholders, whose proposals are advisory in nature and aim to protect share value, could backfire, as campaigns highlighting the poor governance practices of such companies are likely to commence, and that publicity may have a negative impact on share value.
As SEC Commissioner Caroline Crenshaw wrote: “Today’s announcement is a Trojan horse. It cloaks itself in neutrality by expressing that the Division will not weigh in on any company’s exclusion of shareholder proposals, but then it hands companies a hall pass to do whatever they want. It effectively creates unqualified permission for companies to silence investor voices (with “no objection” from the Commission). This is the latest in a parade of actions by this Commission that will ring the death knell for corporate governance and shareholder democracy, deny voice to the equity owners of corporations, and elevate management to untouchable status.”