Next year will be the first presidential election since Citizens United, the landmark case that gave corporations and unions the right to spend unlimited amounts of cash on political ads in federal elections. To put the brakes on this influx of corporate cash, reformers now look to shareholders, who must demand accountability from the companies in which they invest.
To do this, investors need a new set of protections, including transparency in political spending and consent over expenditures — known as “see and say.”
Although Citizens United allows corporations and unions to spend money to influence elections, tracking that spending is different story. Any union with receipts of more than $250,000 is subject to detailed reporting requirements of political spending. The Department of Labor requires unions to disclose “all direct and indirect ... political disbursements or contributions,” defined as any disbursement “intended to influence” the outcome of a primary or general election.
This transparency is not shared by unions’ business counterparts — corporations are under no such duty to disclose political spending to the Securities and Exchange Commission.
The 2010 Congressional elections provide evidence: Nearly half of outside spending came from secret donors. These millions of dollars likely included corporate money. But the public will never know for sure because it is legal to hide the money through the use of nonprofit organizations such as Karl Rove’s Crossroads GPS.
For shareholders in U.S. publicly traded companies, the lack of transparency surrounding political spending is only the tip of the proverbial iceberg. Even if shareholders can see corporate political spending — as they can in a handful of states with strong money-in-politics disclosure laws, such as Minnesota — they still have no say over such spending through a vote.
This American reality stands in stark contrast to the day-to-day rights of investors in the United Kingdom, who have the ability to vote on corporate political spending before the money leaves the company coffers.
According to a new study of the U.K., which I co-authored with economist Kathy Fogel, after the U.K. changed its law in 2000 to require shareholder authorization of corporate political spending, 49 public companies stopped political spending altogether.
In addition, the political budgets suggested by managers of U.K. companies to shareholders are modest, ranging from £50,000 to £100,000 (roughly $80,000 to $160,000 at current exchange rates).
Furthermore, public U.K. firms show great self-restraint with this money. Managers in the U.K. were authorized by shareholders to spend about £87 million over the past decade, but they chose to spend about £11 million.
Congress has the authority to change U.S. law post-Citizens United to ensure that shareholders have the right to both see and have a say in corporate political spending. Just as Congress gave shareholders the right to have a “say on pay” by enabling shareholder votes on executive compensation packages in the Dodd-Frank Wall Street Reform and Consumer Protection Act, it can give shareholders a commensurate “say on politics” by requiring a vote on future corporate political budgets.
The Shareholder Protection Act, introduced this summer and based on model legislation written at the Brennan Center for Justice, would do just this: provide investors in U.S. traded companies the ability to “see and say” on political expenditures.
Modeled on the U.K.’s Companies Act, the Shareholder Protection Act would ensure that publicly traded companies disclose their political spending to their beneficial owners. It would also ensure that managers, at long last, would have to put political spending in American elections to a shareholder vote before it happens.
Whether compared to American unions or British companies, U.S. investors lack the basic “see and say” protections that others enjoy.
In order to safeguard the integrity of the electoral process, as well as the integrity of our capital markets, Congress must put these protections in place before the next presidential election. Investors, and the American public, deserve no less.
Ciara Torres-Spelliscy is a former Brennan Center attorney, an assistant professor of law at Stetson University and co-author of “Shareholder-Authorized Corporate Political Spending in the U.K.”