The Supreme Court’s decision this January in Citizens United v. Federal Election Commission1 that corporations may engage in political speech that supports or opposes candidates will place our existing system of corporate governance under strain, probably provoke some legislative changes, and predictably lead to attempts by shareholder activists to demand shareholder votes about corporate involvement, direct and indirect, in political campaigns. This column will review some of these proposals, but then turn to the more judgmental question: what types of reforms make sense and could work?
Here, it will argue that recent proposals are misguided that either (1) seek to deny some corporations the ability to make electioneering expenditures, or (2) require a majority shareholder vote as a prerequisite to any political payment or contribution. Although politically popular, such proposals are either constitutionally vulnerable or frame only overbroad, all-or-nothing questions to which shareholders will predictably assent. Even though this is an area where shareholder and managerial interests are poorly aligned, if shareholders are given only an up or down vote, they will likely vote in favor of such blanket resolutions for fear that they will otherwise disable and silence their corporation. As a result, to make shareholder voting work in this area, the procedure needs to be more tailored and surgical. Rather than voting on whether to permit or prohibit political expenses on an all or nothing basis, the more sensible and flexible approach is to encourage shareholder-proposed bylaw amendments. Such bylaw amendments might mandate specific measures such as: (1) requirements that all such contributions be approved by a committee of independent directors; (2) disclosure requirements covering not only specific payments or contributions but also the decision-making process by which they were approved and the justifications therefor, and (3) restrictions on payments to intermediate conduit organizations (such as trade associations) unless specific conditions are imposed on how such contributions will be used.
