Marina Drapey | Bloomberg Law
The U.S. Supreme Court's controversial decision in Citizens United v. Federal Election Commission drastically changed the landscape of corporate political speech. The Court struck down as unconstitutional 2 U.S.C. § 441b, which prohibited corporations from using general treasury funds to pay for campaign advertisements preceding an election. Part of the Court's rationale for its decision was that the shareholders' objections to political speech spending through the procedures of "corporate democracy" were more effective today, because modern technology made corporate disclosures fast, informative and easily accessible.
Unpersuaded by the Court's reasoning, several members of the U.S. House of Representatives introduced the Shareholder Protection Act of 2011 (Bill), proposing to amend the Securities Exchange Act and empower shareholders to influence the corporate political expenditure process. The Bill was referred to the House Committee on Financial Services, and, if passed, will considerably preempt state law in this area and expand the U.S. Securities and Exchange Commission's role in regulating corporate governance.
Amendments Are Necessary to Protect Shareholders' Rights
Shareholders Must Approve Certain Political Expenditures
The Bill proposes that issuers include in all solicitations of proxies, consents or authorizations a description of the specific nature of any Political Expenditures to be made in the forthcoming fiscal year, to the extent their nature is known, and a total amount of Political Expenditures proposed to be made. The issuers would also have to provide for a separate vote of their shareholders to authorize the total amount of the proposed expenditures.
The issuers would be prohibited from making Political Expenditures that were not disclosed to the shareholders and authorized by a vote of the majority of the outstanding shares. The Bill provides that a violation of this provision would be considered a breach of fiduciary duty by the issuer's officers and directors, who would be jointly and severally liable for the violations and subject to treble damages.
Large Political Expenditures Require Board Authorization
Disclosing Political Expenditures in SEC Filings
The Bill charges the SEC with rulemaking relating to the proposed amendments, assessment of compliance, and reporting to Congress annually the results of those assessments.
For the analysis of other recent legal and regulatory developments in the aftermath of Citizens United, see here.
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