Legal Commentary

A number of corporate governance proposals have surfaced to prevent undue corporate influence of elections following Citizens United v. Federal Election Commission.  My former colleague, Ciara Torres-Spelliscy, offers a proposal from the Brennan Center for Justice that would require inter alia shareholder approval for corporate political expenditures (in this same vein, see also The Shareholder Protection Act, H.R. 4537): 

The U.S. should modify its securities laws to address corporate political expenditures post-Citizens United by (1) mandating that corporations obtain the consent of shareholders before making political expenditures, (2) requiring disclosure of political spending directly to shareholders and (3) holding corporate directors personally liable for violations of these policies.

My very limited experience with the use of shareholder resolutions to influence corporate behavior involves ?green? shareholder resolutions, such as resolutions requiring companies to adopt the Valdez (CERES) Principles.  This leads me to wonder, could shareholders propose/adopt a resolution that recommends that a corporation refrain from making political expenditures?  And, if so, are such resolutions a useful (in terms of limiting corporate influence on elections) response to Citizens United?

With respect to the first question, I invite the thoughts of my corporate law colleagues.   Corporations can exclude shareholder proposals if they fall within any of the statutory exceptions described at 17 C.F.R. § 240.14a-8(i).  An initial perusal of the exceptions reveals at least one that might apply to a shareholder proposal banning corporate expenditures.   Corporations may exclude shareholder proposals under a ?Relevance? exception ?If the proposal relates to operations which account for less than 5 percent of the company's total assets at the end of its most recent fiscal year, and for less than 5 percent of its net earnings and gross sales for its most recent fiscal year, and is not otherwise significantly related to the company's business.?  I don?t know how the SEC interprets the Relevance exception and thus can?t anticipate the arguments that could be made about whether a political expenditure ban falls within the exception.  (Hence, the invitation for input from those with more experience with corporate governance issues.)

With respect to the second question, if such shareholder proposals could be brought forward, would campaigning for anti-expenditure shareholder resolutions be a useful strategy for limiting corporate influence on elections after Citizens United?  I can easily imagine a few difficulties.

One limitation of relying on bans imposed (or at least recommended) through shareholder resolution is that it might not be possible or feasible to capture smaller and/or privately held corporations.  Perhaps more fundamentally, even if socially conscious shareholders succeed in obtaining a shareholder vote on resolutions recommending a ban on political spending, they may not succeed as a result of apathy or direct opposition.  Notably, the Brennan Center?s proposal avoids at least the inertia/apathy problem by placing the burden on the board to secure shareholder approval.  (Of course, by doing so, it risks raising the same speech objections that animated Public Citizen.)  With respect to direct opposition, presumably some shareholders are (personally) politically aligned with the corporation and therefore encourage its expenditures and/or view the expenditures as designed to increase corporate profits consistent with shareholder interest. 

But even if it is ultimately not an idea worth pursuing . . . maybe it is worth at least discussing . . . for a little bit?