Disclosing Dissension: Shareholders Push for More Control of Corporate Political Spending

Although the Federal Election Commission (FEC) is again trying to implement the Citizens United decision, shareholders across the country are refusing to wait for more control over corporate political spending.

On June 8, shareholders of Target Corporation sharply questioned the retailer's political contribution policy during the company's annual meeting. This close scrutiny is a result of the corporation's controversial decision to contribute $150,000 to a conservative political action committee in August 2010.

After weathering harsh public criticism last fall, Target voluntarily changed its policy on political spending. According to the "Civic Activity" section of the Target website, future decisions on contributions will be made based by "balancing [the retailer's] business interests with any other considerations that may be important to [its] team members, guests or other stakeholders." The company publishes a statement on its political contributions, including a list of all contributions of $5,000 or more, twice each year.

For many, policies like Target's are not enough. "Shareholders – not self-interested corporate managers – should, and can, decide policies on corporate political contributions," John C. Bogle, the founder and former CEO of Vanguard Investment Strategy Group, wrote in a recent New York Times op-ed. In the U.S. Supreme Court's opinion in Citizens United v. Federal Election Commission, Justice Anthony Kennedy wrote that a corporation's right to political speech depended on shareholders' ability to guide that speech. Any difference, he wrote, could be corrected "through the procedures of corporate democracy."

According to Bruce Freed, president of the Center for Political Accountability, shareholders of 28 corporations have voted on political spending resolutions in 2011. The diversity of the resolutions reflects the complexity of corporate political spending choices. Companies may, for example, choose to establish a political action committee (PAC) of their own, make independent expenditures, or contribute to trade organizations or other nonprofits.

Shareholder resolutions were made possible by a "no-action" letter issued to shareholders of Home Depot, Inc., by the Securities and Exchange Commission (SEC) in March. The Home Depot resolution, proposed by NorthStar Asset Management, requested the company disclose both actual and planned political contributions, alongside an analysis of how the spending matched the company's values or policies. It also requested that shareholders be given a non-binding advisory vote on the company's political spending policies and plans.

An attorney for NorthStar said that, "Although disclosure proposals are routinely filed and found nonexcludable, to our knowledge this was the first time the SEC ruled directly on a proposal providing an annual shareholder advisory vote on electioneering spending. … This first time decision has cleared the way for further efforts, building upon the model established by the Home Depot proposal." In fact, at least 17 companies will face shareholder resolutions on political spending in 2011, in addition to the 28 votes that have already occurred.

While the SEC has been moving to authorize historic votes on corporate political spending, the FEC – the agency charged with regulating contributions and spending in federal elections – has been much slower to act. In January, the agency failed to issue a Notice of Proposed Rulemaking (NPRM) to begin implementing Citizens United. On June 15, the agency will again take up two versions of an NPRM: one from the Democratic commissioners and another from the Republicans.

While the revised NPRMs have changed since January, the ideological entrenchment plaguing the FEC has not. Unless the commissioners reach a surprising breakthrough, shareholders will have to depend on the SEC and themselves to enforce basic political spending transparency.

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