In our September 2011 article, we asked whether disclosure and further regulation of public company political contributions is coming. Since that time, corporate political contributions have continued to be a hot topic. According to the Corporate Reform Coalition, the August 2011 Committee on Disclosure of Corporate Spending’s Petition for Rulemaking submitted to the SEC requested the SEC to develop rules requiring public companies to disclose to shareholders political donations has garnered in excess of 500,000 comments supporting such a rule.
In addition, in April 2013, the Shareholder Protection Act (Act) was reintroduced. The 2013 version of the Act is identical to the 2011 version. Broadly speaking, the Act would require shareholder approval of political expenditures by public companies and disclosure in the company’s SEC filings. More specifically, through amendments to the proxy and other SEC rules, the Act would require publicly traded companies to:
- Provide “a description of the specific nature of any expenditure for political activities proposed to be made by the issuer for the forthcoming fiscal year” and “the total amount of expenditures for political activities” proposed to be made;
- Make only expenditures for political activities the nature and amount of which have been authorized by a majority shareholder vote;
- Amend their bylaws to require that the board of directors vote on any expenditure for political activities in excess of $50,000 and any expenditure for political activities that would result in the total amount spent by the issuer for a particular election exceeding $50,0008;
- Disclose the vote of each director with respect to expenditures for political activities requiring a board vote within 48 hours;9 and
- Disclose in its periodic reports filed with the SEC detailed information on expenditures for political activities, and the votes of each board member with respect to expenditures for political activities requiring a board vote.
Perhaps most importantly, the Act provides that any violation of the requirement that political expenditures be shareholder approved would constitute a breach of the fiduciary duty of the officers and directors authorizing the expenditure and that each such officer could be jointly and severally liable to any shareholder at the time the offending expenditure was made for an amount equal to three times the expenditure made. This would include violations resulting from political expenditures that are outside of the scope of what was approved by shareholders.
The Act would also require institutional investment managers subject to the reporting requirements of Section 13(f) of the Exchange Act to disclose how they voted with respect to any required shareholder vote on expenditures for political activities.
Political expenditures by corporations was also a topic during SEC Chairman Mary Jo White’s testimony before the House Financial Services Committee on May 16, 2013. According to media reports, in response to questions from Republicans as to whether the SEC is working on a rule for disclosure of corporate political spending, Chairman White responded that the
SEC staff was reviewing the Committee on Disclosure of Corporate Spending’s Petition for Rulemaking and related comments referred to above, but that no one was currently working on a proposal. Chairman White also emphasized the importance of completing rulemaking relating to the Dodd- Frank and JOBS Acts.
With the sustained attention being given to corporate political expenditures by lawmakers and others, it seems likely that, eventually, there will be regulation related to political expenditures by publicly traded companies. However, such regulations are not likely to come from the SEC any time soon as the SEC simply has too much unfinished work on its plate already. Nonetheless, public companies should considering putting in place appropriate controls and procedures so that senior management and boards of directors can oversee political spending.