SEC Takes A Shot At Citizens United

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


Grace Adams
Grace Adams6 years ago

I agree with the SEC that political donations and spending on political ads are NOT ordinary business. Stockholders should have a voice in this.

Doug D.
Doug D6 years ago

Seems a number of right wing nutty ideas have been backfiring....

Gary A.
Gary Addis6 years ago

Toni, I disagree with you re: election of the Supremes. However, I believe that the Court needs to be reined in...laws of ethical behavior for the Justices and for member of their inner circle codified, and those who break those rules should be impeached, disbarred, and tried for treason! Roberts, Alito, Brown committed perjury in their Senate confirmation hearings.
Good God! a "being" that exists only on paper has the rights of American citizens???? A citizens' vigilante committee should have strung them up ten minutes after CU decision handed down.

Craig G.
Craig Gosling6 years ago

Great idea SEC. Thanks

Fred Urbasek
Past Member 6 years ago

Just turned in my proxy statement. It reads vote for 3 or not vote for 3. If you only vote for 2 you must print the name of person I do not want to vote for. By the way, there are only 3 people on the ballot. One of those persons has been on the Board since 1969. I voted for no one which means nothing. All they need is 1 vote.

Pamela C.
Pamela C6 years ago

Corporate officers don't even want to listen to their shareholders, but these angry peasants have keys to the Bastille.

Ernie Miller
william Miller6 years ago

lets see how this goes I will have to look at my proxy'sa little closer.

Robert Tedders
Robert T6 years ago

@The Other Robert O.: AGREED!! :-|

Toni nofwds C.
Toni C6 years ago

My personal opinion only... the Supreme Court believes it's above all and what it says goes... therefore I think it's time to change that "corporate" court back to being a court of the people... they should be elected to their office, have terms limits and be recalled if necessary

The Other Robert O
Robert O6 years ago

Clearly, political speech goes way beyond "normal business operations" because it impacts many citizens that have nothing to do with the "normal business operations" of said corporation. Dismantle corporate power. They were given a chance, and they have abused it.