Protecting Shareholders after Citizens United

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.