A committee of leading law professors, including Lucian Bebchuk and Robert Jackson, the authors of the seminal article Corporate Political Speech: Who Decides?, filed a petition with the Securities and Exchange Commission calling for the agency to require publicly held companies to disclose their political spending.
Information about corporate spending on politics is important to shareholders. The petition demonstrates the increasing interest of investors in monitoring corporate spending on political activity by providing data about the recent explosion in proxy proposals to address the issue.
It also points to evolving best practices among companies that voluntarily adopt strong disclosure policies, and suggests that the SEC use these policies to devise a rule for all publicly traded companies. These policies demonstrate that disclosure of corporate political spending is entirely feasible and that a well-designed disclosure rule will not be overly burdensome.
The petition concludes:
Shareholders in public companies have increasingly expressed strong interest in receiving information about corporate political spending on politics, and such spending is likely to become even more important to public investors in the future. Furthermore, shareholders need to receive such information for markets and the procedures of corporate democracy to ensure that such spending is in shareholders’ interest. Still, while many large public companies have begun to provide such information, no existing rule requires disclosure of this information to investors, and corporate political spending remains opaque to investors in most publicly traded companies. The Commission should address this lack of transparency and, drawing on its expertise and experience in designing rules for disclosure of other information that is of interest to investors, should adopt rules concerning disclosure of corporate political spending.
While the petition stops short of recommending that the SEC adopt any specific new disclosure rule, it is a heartening first step. It opens a critical front in the fight to ensure corporate political spending is transparent and accountable to shareholders.
In striking down a provision of Arizona’s public financing system in June, the Supreme Court said the law was flawed because it indirectly caused privately funded candidates to support the political speech of their publicly funded opponents. According to the Court, one of the first principles of the First Amendment is that no one has to support political speech he or she disagrees with.
Unfortunately, last year’s Citizens United decision opened a loophole in which one group of Americans — shareholders in publicly traded companies — must routinely support political goals that they may reject. Under Citizens United, corporations can spend directly from their treasuries to influence elections. When shareholders’ invested money is spent on politics, millions of Americans are stuck unknowingly contributing to political causes they may not themselves support.
Thankfully, a solution to this dilemma was introduced today in the House and Senate: the Shareholder Protection Act. The legislation would guarantee that all corporate political spending is made with the knowledge and consent of a company’s shareholders. Specifically, the Act:
Gives shareholders a voice in determining a company’s political spending by requiring shareholder approval of an annual political expenditure budget;
Improves accountability by requiring that the Board of Directors approve political expenditures; and
Mandates transparency in political spending by requiring prompt disclosure of political expenditures.
Before Citizens United if a corporation wanted to become involved in the electoral arena it would set up a PAC, or political action committee, which could raise money from employees and other people affiliated with the corporation. In this way, corporations could participate in politics, but the money that shareholders invested with a company for their own economic gain wasn’t mixed up with management’s particular political views. Anyone affiliated with the company who wanted to support the company’s political spending could do so by contributing to the PAC — and they’d only do so if they agreed with the political stands the company PAC took.
Now, though, there are no rules to prevent a manager from breaking out the corporate checkbook and doling out thousands of company dollars to support the candidate of his choice. And there are no requirements that a company tell its shareholders when this happens.
In Citizens United, the Supreme Court said that information about corporate political spending was vital to a shareholders’ ability to hold managers accountable for their decisions to spend corporate money to influence elections. Individuals hold investments, often through mutual funds, pension funds, or other intermediaries, in order to participate in the economic life of our country, which drives our nation’s great wealth. But people should not have to check their political rights at the door to the economic marketplace. Shareholders deserve to know when corporations are spending their money to influence elections, and should have a say in whether and how corporations engage in political spending.
Unfortunately, current corporate governance laws do not ensure that shareholders — the actual owners of publicly traded corporations — are informed of, or have the right to approve, a company’s political spending. This leads to the untenable result where there is no transparency or accountability for shareholders when a company chooses to spend their money in politics. This is bad for investors, and bad for democracy. The Shareholder Protection Act is an appropriate and necessary remedy that should be enacted without delay.
In a rare show of unanimity, FEC commissioners voted 6-0 for an advisory opinion reaffirming that federal law prevents elected officials and political candidates from soliciting unlimited funds for independent expenditure PACs (aka “Super PACs”).
As the Brennan Center explained in a comment letter to the FEC, the Super PAC proposal (which was first put forth by the Republican Super PAC and its general counsel James Bopp, Jr.) would have violated a federal ban on solicitation of unlimited money by candidates and certain officials. This solicitation ban was put into place by Congress as part of its crackdown on so-called “soft money” abuses. Before this reform, wealthy donors who had maxed out their contributions to a Senator or Congressman could buy more access and influence by contributing unlimited sums to outside groups at an official’s behest. The Supreme Court has upheld the solicitation rule, and the contribution limits it is designed to protect, as a vital bulwark against government corruption.
Moreover, this decision struck an important blow for the rule of law. The Republican and Democratic commissioners together rejected the latest ploy by reform opponent Jim Bopp to stretch campaign finance law past the breaking point. By proposing that candidates solicit unlimited funds for his Republican Super PAC, Bopp thumbed his nose at statutory requirements that have been upheld by the Supreme Court. Even some of Bopp’s allies agreed that purposefully violating federal law goes a step too far.
The Super PAC decision remains a mixed bag. The Commissioners also agreed that candidates, legislators and other covered officials may solicit limited donations for independent expenditure groups. In other words, federal officials can ask donors to give a Super PAC up to $5,000, the federal limit that applies to all other PACs. But does anyone really think a disclaimer in a letter from Harry Reid or Nancy Pelosi means anything to a potential Super PAC donor? A candidate’s solicitation gives donors a green light to support a favored Super PAC. Those donors are likely to take advantage of the Super PAC’s ability to accept unlimited contributions—and may believe the candidate expects them to do so—regardless of any formal disclaimers.
In other words, this whole arrangement undermines the pretense that a Super PAC is wholly independent from the candidates it supports—even though that independence is the legal reason such groups can accept unlimited contributions, including corporate and union money, in the first place.
We applaud the FEC for interpreting the law correctly. But this result just shows how inadequate the law is after Citizens United. In that controversial and game-changing decision, the Court found that so-called “independent expenditures,” unlike direct contributions or coordinated expenditures, create absolutely no risk of corruption. That bright-line distinction may make sense to five Justices, but it doesn’t hold up in the real world. Harry Reid is likely to be just as grateful for a direct campaign contribution as when a donor responds to his Super PAC solicitation—whether or not he has final approval over the Super PAC’s television ads.
Today’s FEC ruling remains an important victory. It shows that the Commission can reject formalistic arguments in favor of a bipartisan approach that acknowledges what coordination really means to candidates and donors. But it leaves us with a regulatory approach that remains unsatisfying to anyone who cares about sensible campaign finance laws. The only way out of the current morass is to recognize how money and politics work in the real world—and to push back against the mistaken assumptions of current Supreme Court doctrine.
Oh, and in other news, Stephen Colbert got his Super PAC — and invented the first funny knock knock joke about campaign finance law.
Last month, two of the nation’s most influential elected officials who oversee investment of public employee pension funds took the lead in demanding transparency and accountability for political spending by corporations. California Treasurer Bill Lockyer and New York City Public Advocate Bill de Blasio, who control hundreds of billions of dollars in public investments, each wrote to their respective funds encouraging the use of their power as shareholders to demand political spending reforms by portfolio companies in order to protect their investments from undue risk.
On June 1, Treasurer Lockyer sent letters to the investment committees of the California Public Employees Retirement System’s (“CalPERS”) and the California State Teachers’ Retirement System (“CalSTRS”) requesting they take action to address political campaign spending by taking the following steps:
CalPERS and CalSTRS should support shareholder initiatives to require disclosure of corporate political spending, including contributions to trade associations and non-profit organizations;
CalPERS and CalSTRS should support more accountability over the process through which a corporation decides to engage in political spending. Treasurer Lockyer calls for CalPERS and CalSTRS to support shareholder initiatives to require direct supervision by a portfolio company’s board of directors for all political contributions; and
CalPERS and CalSTRS should lead efforts to build support for shareholder initiatives on corporate political spending among other institutional investors.
Treasurer Lockyer emphasized that “[s]tudies have shown a negative link between a company’s political spending and the resulting value of the firm. . . . As fiduciaries, it’s our duty to ensure investors have the information they need to accurately evaluate a firm’s profitability and long-term sustainability. And shareholders should be able to count on a company’s board of directors to diligently oversee campaign spending policies and practices to make sure they serve the best interests of the company and investors.”
While Citizens United emphasized the importance of transparency to investors, Treasurer Lockyer noted that it “shift[ed] to shareholders most of the burden of actually enforcing transparency and accountability.” Third-party groups served as conduits for much of the secret spending that dominated the 2010 election, and those groups have fought to prevent the disclosure of their underlying donors. Having companies that support such groups disclose the contributions they make themselves attacks the problem of secret political spending from another direction.
As Treasurer Lockyer explains, “Increasingly, corporations are using such groups in an attempt to cloak massive political spending in secrecy… many of which are notorious for making unfair and unfounded personal attacks with which no company or its investors would want to be publicly associated.” Shareholders need access to information about any and all corporate political spending because "in order to accurately assess a company’s sustainability, shareholders must be able to analyze whether political spending is consistent with the company’s values, and whether it poses risks to the firm’s brand, reputation or profitability.”
CalPERS, the largest public pension fund in the country, has more than $233 billion in assets. CalSTRS, the nation’s largest teacher’ public pension fund, has more than $155 billion in assets. Their leadership in pursuing reforms through the exercise of shareholder democracy will have major repercussions in the fight to demand transparency and accountability of corporate political spending.
New York City’s Public Advocate Bill de Blasio, a trustee of the $40 billion New York City Employee Retirement System (“NYCERS”), also took a strong stand to protect New York City’s investments and to advocate for transparency and accountability of corporate political spending. He wrote to New York City Comptroller John Liu on June 7 expressing concern that the City’s investments in Target Corporation might be at risk.
In 2010, Target Corporation faced a public boycott after revelations of political spending. Public Advocate de Blasio wrote that, since this incident, and despite a decline in stock price, Target has not committed to full transparency for its political spending. The company refuses to disclose contributions made to trade associations, such as the Chamber of Commerce, which alone spent more than $32 million to influence the 2010 elections, more than any other outside organization. “Target has clearly not taken the steps necessary to mitigate the risk involved from its political spending and until it does NYCERS is [] at risk of suffering additional losses from Target’s political activities,” wrote de Blasio.
Moreover, Public Advocate de Blasio emphasized in a statement that "if Target continues to prioritize lax rules on political spending over the interests of its investors and the public, then I will urge New York City's largest pension fund to oppose company board members.”
Ultimately, voting for or against a corporation’s board of directors represents the definitive exercise of shareholder assertion of control over the companies they own. It is an indication of how important the issue of corporate political spending is to investors that they would threaten to withhold support for directors over the company’s failure to comply with their wishes on the issue.
It is heartening to see these elected officials, who are responsible for managing the public’s investments, exercising leadership in fulfilling the democratic role of shareholders that Citizens United expected and demands. These officials are taking a strong stance to defend their investments (upon which the retirement future of millions of public employees depends) from undue risk. Our democracy will be the stronger for it.
“Who cares? . . .The Supreme Court doesn’t care, and I don’t care, and the [Federal Election Commission] doesn’t care. No one that matters cares.”
So says James Bopp, dismissing critics when he announced his new “Republican Super PAC.” A virulent opponent of rules regulating money in politics, Bopp set up the PAC to allow candidates and party committees to raise unlimited amounts of money for the 2012 election. Super PACs are like regular PACs. But because they agree to only do their political spending independently — and without coordinating with candidates and political parties — they are allowed to raise and spend unlimited funds from corporations, unions, and individuals under the 2010 SpeechNow decision.
Mr. Bopp admitted that his group plans not to do any fundraising itself, but to raise money by “harnessing the fundraising operations of . . . the RNC . . . and federal candidates.” Bopp’s plan is to have these entities direct their donors to his group once they’ve given the maximum legal contribution directly to a particular candidate or party committee. Federal law caps direct contributions to candidates and parties to protect against corruption and the appearance of corruption in government. Bopp’s fundraising plan ignores the fact that national party committees are banned from raising or spending unlimited money, and federal officeholders are banned from soliciting unlimited donations in connection with a federal election.
Recognizing that the law prohibits coordination with candidates, Mr. Bopp protests that the group will not coordinate its spending with anyone — basically arguing that coordinated fundraising is entirely unrelated to coordinated spending. But donors to his organization will be able to specify exactly how they want their money spent, which group of voters they want to try to influence, and which candidates they want to help elect or defeat. Candidates soliciting these donations, over the legal limits that they themselves can accept, will surely be indebted to these donors, which will open the door to the political corruption and appearance of corruption that our campaign finance laws stand as a bulwark against.
This new move to evade campaign contribution and coordination limits should be seen in the context of Mr. Bopp’s decade-long attempt to fight against the very idea that money in politics needs to be regulated in a healthy democratic society. Last year he told the New York Times, “We had a 10-year plan to take all this down. . . . And if we do it right, I think we can pretty well dismantle the entire regulatory regime that is called campaign finance law. . . . We have been awfully successful, and we’re not done yet.”
Eight in ten Americans disagree with the Citizens United decision, which led directly to the creation of Super PACs, and 72 percent support efforts to impose limitations on corporate and union spending to influence elections. Meanwhile, Mr. Bopp wants to do away with all campaign finance rules, portraying any regulation of money in politics as an affront to free speech. He is plainly relying on the intransigence in our political system, and the calcification of traditional campaign finance regulators, to allow him blithely to ignore applicable campaign finance laws, to say nothing of the desires of the vast majority of Americans. He scoffs that “no one that matters cares.”
He is wrong. The American people care about the influence that money in politics has on our democracy, and the American people matter. Though certain avenues of unchecked spending have been opened by the courts, other restrictions, such as the ban on soft money to political parties and coordination rules between candidates and Super PACs have been upheld. We must remain vigilant and firm in our defense of campaign finance reforms designed to protect our government from corruption, and not allow the entire regulatory structure to be washed away in a flood of rising spending. Now is the time for our enforcement agencies to show that they care — by stepping forward and enforcing the law.
By Ciara Torres-Spelliscy & Kelly Williams – 05/18/11
“The taxman goes after campaign donors.” That’s what an editorial in today’s Wall Street Journal claims. Referring to recent press reports that the IRS is enforcing the gift tax on donors to 501(c)(4)s, the editorial declares, “Unleashing the IRS is an especially nasty turn.”
501(c)(4)s, social welfare organizations, are allowed to get involved in politics provided it is not their primary purpose. In the 2010 election, some donors used these special nonprofits to spend anonymously on politics. Since 501(c)(4)s must report all of their donors to the IRS, why is anyone surprised that the IRS then cross-checks whether the donors who gave more than the annual exclusion ($13,000) included the donation on their gift tax return and paid the tax (35 percent)?
That big donations to 501(c)(4)s trigger the gift tax is not new news. This law has been on the books for decades. The Alliance for Justice published a guide in 2009 called “Contributions to Nonprofits and the Gift Tax,” long before Citizens United was handed down, noting that the tax applied. In addition, there have been numerous articles in the press, including an excellent discussion in Forbes last October by William P. Barrett called, tellingly, “Hey, Secret Big Political Donor, Don’t Forget The 35% Gift Tax.”
From press reports and IRS statements, it appears that just five people received these letters inquiring about potential back gift taxes. Yesterday in New York, Marcus Owens, the former head of the Exempt Organizations division of the IRS, discussed the letters at a presentation. Why only five letters? According to Mr. Owens, it’s because most donors subject to the gift tax pay it voluntarily. They know it applies, and so they file their returns and pay their taxes promptly in accordance with the law.
Is it fair to let some people off the hook when everyone else is doing the right thing? This hysterical editorial makes us wonder — is the esteemed Wall Street Journal, one of the world's great newspapers, saying that people should be allowed to neglect paying their taxes and government employees should not do their jobs? We certainly hope not.
On April 28th, the Brennan Center hosted a debate between NYU’s Richard Pildes and Chicago’s Geoffrey Stone. The topic: Are elections special under the First Amendment? The debate marked the release of the Center’s new bookMoney, Politics and the Constitution: Beyond Citizens United, published by The Century Foundation Press. Below you will find video and photos from the debate.
Erwin Chemerinsky, Dean of UC Irvine School of Law and author of The Conservative Assault on the Constitution, said of the book: “A brilliant collection of essays on one of the most important contemporary constitutional issues: when can and should the government be able to regulate campaign spending? … If there is to be a new jurisprudence in this area, this book is likely its foundation.”
The SEC has just issued an important post-Citizens United no-action letter that will enhance the ability of shareholders to have more of a voice when publicly-traded corporations spend money on politics. In doing so, the SEC recognized that shareholder accountability over corporate political spending is a significant policy issue that can’t be barred from a proxy statement under the ordinary business exclusion.
The no-action letter came after Home Depot tried to keep a shareholder resolution on corporate political spending off of this year’s proxy statement. The SEC said the shareholders would get a chance to vote on the matter. This action provides shareholders with greater protections when corporations spend their money, in the form of general corporate funds, on politics.
The substance of the Home Depot proposal, submitted by NorthStar Asset Management Funded Pension Plan, is the following:
Shareholders recommend that the Board of Directors adopt a policy under which the proxy statement for each annual meeting will contain a proposal describing:
the company's policies on electioneering contributions,
any specific expenditures for electioneering communications known to be anticipated during the forthcoming fiscal year,
the total amount of such anticipated expenditures,
a list of electioneering expenditures made in the prior fiscal year, and
providing an advisory shareholder vote on those policies and future plans.
NorthStar’s supporting statement requested that management provide an analysis as to whether Home Depot’s political spending was in line with its values and policies, and any risks it might pose to the company’s reputation, brand, or shareholder value.
This shareholder proposal was based in part on draft legislation written by the Brennan Center last year which became the Shareholder Protection Act in the 111th Congress.
The SEC rejected all of Home Depot’s objections to the inclusion of this shareholder proposal on the 2011 proxy statement.
This SEC no-action letter means shareholders can assert self-help on a company-by-company basis, not just on transparency of political spending, but also on an advisory shareholder vote on such spending. This is a big step in the right direction for giving shareholders more protections after Citizens United allowed corporations the ability to spend other people’s money in politics.
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