The Supreme Court's decision in Citizens United v. FEC, 130 S.Ct. 876 (2010), set the stage for increased participation in the political process by business through a significant relaxation of the restrictions on corporate involvement in U.S. elections. This has, in turn, resulted in a growing emphasis on ensuring that corporate political activities are subject to rigorous oversight through corporate governance mechanisms and are conducted transparently. This movement broadly seeks to make corporations more accountable to their shareholders and other constituencies for their political activities through various measures, including, among other things, by requiring corporations to establish written political activities policies and make regular public disclosures of all election-related spending. Over the past two years, proponents of this approach have made numerous attempts to achieve these corporate governance objectives with little success.1 The following recent developments in 2011, however, suggest that support for regulating corporate political activity through corporate governance measures is increasing:

  • In November, the California State Teachers' Retirement System (CalSTRS) adopted a policy supporting shareholder efforts to require corporations to disclose their political contributions and expenditures – the California Public Employees' Retirement System (CalPERS) has announced its support for similar measures;
  • In March, the Securities and Exchange Commission (SEC) issued a no-action letter permitting a shareholder proposal requiring that corporate political activities be publicly disclosed and submitted to a shareholder vote;
  • Senior officials of several Fortune 500 companies – including Coca-Cola, Merck, Microsoft, and Pfizer – have advocated enhanced governance controls with respect to political expenditures;
  • In August, a group of prominent corporate governance scholars filed a petition with the SEC asking the agency to require all public companies to disclose their political expenditures; and
  • In May, the state of Maryland adopted a new disclosure law requiring corporations who make election-related expenditures in Maryland to disclose such spending to their shareholders.

These trends suggest that companies – particularly those that are publicly traded in the United States – are likely to face increasing shareholder and public scrutiny of their political activities, including increased pressure to disclose comprehensive information about their political expenditures.

Public Pension System Activity

Last week, CalSTRS adopted amendments to its shareholder voting guidelines on the topics of disclosure of corporate political spending and board oversight of political contributions.2 Under the amendments, CalSTRS has committed to supporting the disclosure of corporate political activity, including direct corporate contributions as well as other corporate political expenditures. The amendments state that, if CalSTRS concludes that a company in which it holds an interest lacks adequate existing policies on the subject of disclosing corporate political activity, it is likely to vote with proponent shareholders to establish such policies. The policies also call for corporate boards to exercise oversight over political contributions, principally through the adoption of written policies and procedures. CalPERS proposed similar amendments in August, which the CalPERS Investment Committee is set to consider on November 14, 2011.3 These developments follow the adoption of similar guidelines by the New York City Pension Funds, which in January 2011 submitted six shareholder proposals to public companies requiring such companies to publicly disclose their political contributions and expenditures.4 New York State Comptroller Thomas DiNapoli, who manages the New York State Common Retirement Fund and is represented on the board of the New York State Teachers' Retirement System, has been pursuing an agenda of pressuring corporations to disclose their political spending and recently obtained a commitment from three Fortune 500 companies (Marriott International, Yum Brands, and Limited Brands clothing) to publicly disclose the money they spend on political activities.

SEC No-Action Letter

In March 2011, the SEC denied a request for no-action relief from The Home Depot, Inc.5 Home Depot sought to exclude a shareholder proposal to require the company to provide shareholders with information about its campaign contribution and expenditure policies and plans for future political spending.6 The proposal would have allowed shareholders to vote to approve or reject these policies and future plans. Home Depot argued that the proposal, and particularly the provision for an annual shareholder vote on the company's political spending, amounted to an attempt to "micro-manage" the company's operations.

The SEC declined to permit exclusion of the proposal, concluding that "the proposal focuses primarily on Home Depot's general political activities and does not seek to micromanage the company to such a degree that exclusion of the proposal would be appropriate."7 As a result, Home Depot was required to submit the proposal to a shareholder vote. While the SEC had declined to exclude some prior proposals in this area, the proposal at issue in the Home Depot letter is more sweeping than those previously permitted, particularly in its provision for an annual shareholder vote.8 While Home Depot's shareholders ultimately rejected the proposal, the SEC's no-action position represents an open door for activists interested in corporate political activity.

Increased public shareholder impetus for governance and disclosure of political activity, combined with SEC acquiescence in permitting proxy access, likely signifies increasing activity in this area. Indeed, these developments already may be increasing the number of shareholder proposals seeking public disclosure of corporate political activity. During the 2011 proxy season alone, shareholder activists introduced at least fifty similar shareholder proposals.9

Private Sector Initiatives

Leading business groups have begun to push for enhanced governance policies and disclosure from business organizations. On September 26, 2011, the Committee for Economic Development, a business-led public policy organization comprised of over 200 members, publicly released an agenda calling for all corporations, labor unions and trade associations to enhance controls over political expenditures and to refrain from making third party expenditures or alternatively to disclose such expenditures. The Committee's recommendations reflect the growing trend among large public companies both to provide for board oversight of corporate political activities and to publicly disclose their corporate political expenditures. A report released by the Center for Political Accountability and the Zicklin Center at the Wharton School of the University of Pennsylvania on October 28, 2011, found that nearly 60% of S&P 100 companies disclose their direct corporate political spending on their company websites and that more than 40% of S&P 100 companies also publicly disclose information on their indirect corporate political spending, such as donations to trade associations and other tax-exempt groups.10 The report further noted that more than 60% of S&P 100 companies provide for some level of board oversight of their political contributions and expenditures, with the overwhelming majority of such companies placing responsibility for overseeing corporate political spending in a designated board committee.

This increased sensitivity to corporate political activities likely reflects a growing awareness at the board level of the significant reputational risks that politically-related expenditures can create. Following Citizens United, major media outlets are paying increased attention to corporate involvement in the political process, and major corporate political expenditures can attract potentially negative press coverage. For example, during the 2010 election cycle, Target Corporation received a significant amount of negative publicity and shareholder and customer criticism for making a $150,000 contribution to an organization supporting a conservative candidate for Minnesota governor. The candidate's strong opposition to same-sex marriage garnered negative attention, undermining Target's record of support for gay rights.11

Requests for SEC Rulemaking

Proponents of regulating corporate political activity through corporate governance are pushing the SEC to mandate that public companies disclose their political spending to shareholders. In August, a group of influential corporate governance scholars filed a petition asking the SEC to adopt reforms that would require greater disclosure of corporate political activity.12 Although the SEC has yet to act on this petition, it has attracted support from the Center for Political Accountability and the International Corporate Governance Network (which represents institutional investors with a combined $18 trillion in assets under management). On October 11, 2011, 43 members of the U.S. House of Representatives sent a letter to the SEC, asking the agency to promulgate new regulations requiring that companies disclose all independent expenditures, electioneering communications and donations to outside groups such as Super PACs on registration statements, quarterly and annual reports, and proxy statements.13

State Action

Although Congressional action remains unlikely, there are growing indications that states may impose shareholder disclosure requirements for corporate political spending over which they have jurisdiction. Maryland recently became the first state to enact such a regime. Under the new Maryland law, which takes effect December 1, 2011, a corporation that spends $10,000 or more on independent expenditures or electioneering communications in Maryland must disclose such spending to its shareholders, either through a shareholder communication or by placing the information on the corporation's website.14 Similar legislation has been proposed in several other states, including California, Massachusetts, New Mexico, Pennsylvania and New York.


Public companies are likely to face heightened scrutiny of their political activities and increased pressure from shareholders and the public to adopt policies regarding the disclosure of political activity and board oversight of political contributions. Public companies – including companies based outside of the United States who are listed on US exchanges – should therefore carefully monitor developments in this area in coming months and should strongly consider whether changes to their political activity policies and procedures may be warranted in light of the current environment. Companies that are proactive in addressing and managing their political activity risk will have the time to develop and implement policies and procedures that are tailored to their individual business and public relations objectives.