SEC ruling sets up potential legal clash between Amazon and shareholders over biometric sales

The U.S. Securities and Exchange Commission (SEC) has ruled that an Amazon shareholder’s proposal to release more information about the company’s use and sale of biometric facial recognition technology is appropriate, Compliance Week reports.

Activist shareholders including the Tri-Sate Coalition for Responsible Investment, the Sisters of St. Joseph of Brentwood, the Sisters of St. Francis of Philadelphia, the Sisters of St. Francis Charitable Trust, Assad Asset Management, the Maryknoll Sisters of St. Dominic, and John Harrington filed a motion in January for a shareholder resolution to include among proxy materials for Amazon’s upcoming annual meeting. The shareholders said that they are concerned that Rekognition poses a risk to civil and human rights, and to shareholder value. In support of this claim, the shareholders say that civil liberties organizations, academics, and shareholders have called on Amazon to halt its sale of Rekognition services to government customers, a call which was echoed by 450 employees, making the issue a talent and retention risk.

The first of the two shareholder proposals is for Amazon’s Board of Directors to place a prohibition on government agency use of Rekognition unless or until an evaluation using independent evidence shows the biometric technology does not cause or contribute to real or potential rights violations. The second proposal requests that the Board commission an independent study on Rekognition to examine its potential risks both within the United States and from sales to authoritarian foreign governments, along with associated financial or operational risks.

Amazon argued that the proposals should be blocked under subsections of rule 14a-8 as they relate to ordinary business or operations that are not economically significant, and also because the second proposal largely repeats the first. The SEC Division of Corporation Finance ruled that the proposals are related to the company’s business, and even transcend ordinary business matters, and therefore can proceed.

“The Board of Directors did not provide an opinion or evidence needed to support the claim that the issues raised by the Proposals are ‘an insignificant public policy issue for the Company,’” the decision authors wrote, per Compliance Week. “While the submission of such an opinion is not obligatory, in this instance the subject of the proposals has been in the center of a highly visible debate and controversy, implicating privacy, discrimination, and civil liberties concerns, making a compelling case for its significance as a public policy issue. In fact, after submission of the Company letter, another spokesman for [Amazon] has called for government regulation of its facial recognition technology, an acknowledgment that existing laws and regulations are inadequate to effectively control the controversial impacts of the technology.”

The Division also notes in the decision that the facial recognition service is a “high visibility offering” within AWS, which takes in an estimated $23 billion of Amazon’s revenue. The decision also notes a likely spillover effect on Amazon products such as Alexa, Ring, and Eero if privacy and surveillance concerns cause the public to lose trust in the company. It further judges that Amazon “has a product pipeline and pending patent applications which demonstrate the trajectory of the company is on a collision course with just such concerns.”

The ruling does not compel Amazon to act on the proposals, as no-action responses to a Rule 14a-8 exclusion request are informal views, but the decision gives the activist shareholders a case should they decide to take the company to a U.S. District Court, which can order the proposals’ inclusion.

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