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Holman: Congress Must Pass Shareholder Protection Act

A stunning blow of a court ruling deserves a strong response.

On Jan. 21, the Supreme Court flouted 100 years of political tradition and ruled in Citizens United v. Federal Election Commission that the First Amendment gives corporations the right to spend unlimited funds from their corporate treasuries to support or attack political candidates. Never mind that corporations are not people, do not vote and were never envisioned by the Founding Fathers as “persons” under the Constitution. Five justices have taken it upon themselves to give corporations the constitutional rights of human beings.

The courts have held that one of those rights is to spend unlimited amounts of one’s own money on politics. One of the problems with granting this right to corporations is that CEOs now can spend unlimited amounts of other people’s money in politics — money from shareholders, who may or may not like the candidates and causes favored by the CEOs.

Unlike the United Kingdom, shareholders in the United States have no built-in protections requiring shareholder approval of political spending by an activist corporate manager. Since the Citizens United ruling, many CEOs already are planning their corporate political budgets without the approval — or even knowledge — of the shareholders they are supposed to serve. Immediately following the court’s decision, K Street lobbyist Tony Podesta reported to the National Journal that he had spent much of the day talking with a corporate client about a political advertising budget. Republican strategist Scott Reed added that unleashing corporate money will lead to the wild, wild west of political spending (an apt century-old analogy).

Most Americans — Democrats, Republicans and independents — are appalled by the decision. An ABC News/Washington Post survey found eight in 10 respondents opposed to the decision, with 65 percent strongly opposed. A poll conducted for People for the American Way found overwhelming support for requiring corporations to get shareholder approval for political expenditures, restricting spending on elections by government contractors and banning foreign corporate influence in campaigns.

Widespread opposition to the ruling comes as no surprise. Citizens United poses serious threats to the campaign finance system, the legislative process and even corporate governance. For elections, it is a wild west of massive new sources of political money with little legal restraint, ratcheting up the cost of campaigns and increasing the time and resources candidates will need for fundraising. For the legislative process, the danger is twofold: Corporate lobbyists have a large new club to wield while communicating their preferences to lawmakers and staff, and as the court record in another campaign finance case, McConnell v. FEC, amply shows, party bosses and committee chairmen frequently do not hesitate to shake down corporations for political money, with some CEOs claiming they feared repercussions if they did not chip in their share of soft money contributions into party coffers. For corporate governance, shareholders risk losing ever more control over how their money is being spent.

The British system of corporate governance provides excellent disclosure to shareholders of corporate political expenditures, and it requires shareholder approval of an overall political budget once a year. Lacking in the United Kingdom is the requirement that only shareholders can vote their shares. Instead, most defer to their brokers and other investors and let these managers vote on their behalf. As a result, only one request for a political expenditure has ever been rejected since the law took effect in 2000.

It is time to adopt our own Shareholder Protection Act. Key to an effective system is to mandate that shareholder approval shall not be deemed a “routine matter” — that is, shareholders may not defer to others to vote on their behalf when approving the corporate political budget. Approval must require an affirmative vote of the majority of shares, counting shares not voted as “no” votes. Then, approval by the board of directors should be required for specific political expenditures targeting candidates and issues. Just as important, both shareholders and the public must be fully informed as to how much the corporation is spending on politics and which candidates or causes are being promoted or attacked. The Securities and Exchange Commission should post all such disclosures on the Internet.

Rep. Mike Capuano (D-Mass.) has introduced legislation (H.R. 4790) that would achieve many of these strong shareholder protections. The legislation is facing a hearing today before a subcommittee of the House Financial Services Committee

The Shareholder Protection Act will not solve all the problems of unlimited corporate political spending, but it will help bring openness and accountability into corporate finances — and reduce corporate managers’ ability to use shareholders’ money for their own political purposes. We also need a strong public financing system to provide candidates with the resources necessary to respond to the expected corporate onslaught and, ultimately, a constitutional amendment ensuring that the First Amendment cannot be abused to permit corporations to overwhelm elections and corrupt our government.

But right now, let’s bring integrity back into corporate governance. A corporation should not just be a CEO’s playground. Responsible corporate governance needs the involvement of informed shareholders, holding management accountable and ensuring that spending decisions are made in pursuit of sound business.

Craig Holman is Public Citizen’s government affairs lobbyist.

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