The push back against the effects of the Citizens United decision has spread to multiple fronts. One front that has received little to no attention is the response from the Securities and Exchange Commission.
The SEC may seem like an unlikely ally for citizens concerned about unfettered corporate cash flooding elections, and for years they were. But the agency recently issued important guidelines for strengthening the shareholders’ role in deciding whether and how corporations spend on elections. And some corporate shareholders have already taken note.
Under existing corporate law rules, corporate political speech decisions are governed by the same rules as ordinary business decisions. That means that political speech and spending decisions can be made without any input from shareholders or a detailed disclosure. Traditionally, disclosures and shareholder input have been treated as reserved only for “special” corporate decisions.
But in the wake of the Citizens United decision, a group of corporate law and governance academics have called for a change to these rules, arguing that political speech should not be governed by the “ordinary business decisions” rule and proposed instead rules to strengthen the role of shareholders, independent directors, and mandate special disclosures whenever directors and executives seek to spend corporate dollars on elections.
One of the existing corporate rules subject to SEC review is Rule 14a-8 which governs who makes decisions concerning corporate political speech. The rule includes an exception that allows companies to exclude shareholder proposals related to ordinary business operations — the category that currently governs corporate political speech.
The SEC has previously concluded that this exception applies to issues of corporate political speech, meaning a company is free to disregard shareholder proposals recommending that a corporate political action committee be disbanded or that a company provide a detailed disclosure related to lobbying activities.
But some shareholders are starting to push back. For example, corporate shareholder NorthStar Asset Management asked Home Depot to include on its shareholder ballot a proposal recommending that the board disclose its policies on electioneering contributions and give shareholders an advisory vote on those policies. NorthStar has made similar moves with other companies.
Home Depot balked and sought permission from the SEC to exclude the proposal from its ballot, arguing that the proposal related to Home Depot’s ordinary business operations.
The SEC disagreed, concluding that the proposal could not be excluded on the ground that it related to Home Depot’s ordinary business operations. Their proxy statement now contains the proposal, as well as management’s statement opposing the disclosure.
So what does all this arcane corporate law posturing mean? A lot. To the extent that the interests of corporate directors and executives in corporate spending diverge from shareholders, the law should give shareholders some meaningful authority to police those decisions — indeed, the power of the shareholder voice is routinely held up by the anti-regulatory crowd as the most effective means of internal policing.
Yet so far shareholder power has been hamstrung by essentially categorizing every action as an “ordinary business decision.” This move by the SEC changes that, meaning that shareholders may finally have some say in just how their investment dollars are spent when it comes to political speech.
For more on the impact of the Citizens United decision click here.
photo courtesy of Tracy O via Flickr