by Robert J. Jackson, Jr for The Harvard Law School Forum, May 15th, 2011.
The Supreme Court’s recent decision in Citizens United v. FEC makes clear that corporations have considerable freedom to spend corporate funds on elections. In an article published in the Harvard Law Review last November, Lucian Bebchuk and I argued that, in the wake of Citizens United, lawmakers should reconsider the corporate-law rules governing who decides how corporations use this freedom. Specifically, we argued that these rules should give shareholders a greater role in corporate political speech decisions. Recently, the Securities Exchange Commission provided important guidance that will strengthen shareholders’ role in deciding whether and how corporations spend on elections.
Under existing corporate-law rules, corporate political speech decisions are subject to the same rules as ordinary business decisions. Thus, political speech decisions can generally be made without input from shareholders, a role for independent directors, or detailed disclosure—the safeguards that corporate-law rules establish for special corporate decisions. In our article, we argued that the rules governing ordinary business decisions are inappropriate for corporate political speech, and proposed rules to strengthen the role of shareholders and independent directors, and mandate special disclosure, when directors and executives seek to spend corporate funds on elections.
Among the existing corporate-law rules governing who decides on corporate political speech is the Securities Exchange Commission’s Rule 14a-8, which allows shareholders to include proposals on the company’s proxy ballot for a vote by shareholders. Rule 14a-8 includes an exception for proposals related to ordinary business operations, providing that companies can exclude such proposals from the corporate ballot. The SEC staff has previously concluded that this exception applies to shareholder proposals related to corporate political spending. For example, as we noted in our article, the staff has permitted companies to exclude shareholder proposals recommending that a corporate political action committee be disbanded, and proposals requesting that the company provide shareholders with a report on lobbying activities (continue reading… )