Shareholder Protection Act Stands on Shaky Legs

The House Financial Services Committee approves the Shareholder Protection Act, granting a corporation’s shareholders new oversight in the company’s political expenditure.

The act requires shareholders to approve a corporation’s political spending for federal races, a move by House Democrats calculated to mitigate the effects of Citizens United v. Federal Election Commission. This Supreme Court decision treated corporations as individuals, giving them the right to spent unlimited funds from their treasuries to support or attack political candidates.

By forcing the Securities and Exchange Commission to issue rules requiring corporations to disclose any political activities they carry out with company money, the act would allow shareholders to vote on proposed political expenditure in excess of $50,000 for that fiscal year. A majority vote would be needed for approval.

Lee Mason, the director of nonprofit speech rights for OMB Watch, a nonprofit focusing on oversight of the Office of Management and Budget, called the Shareholder Protection Act “a start in the right direction” to give shareholders oversight of corporate political spending, but noted that the act still contained a loophole.

“A part of the act says, though, that if you have separate, segregated funds you basically can get around the shareholder requirement,” he said, referring to separate accounts that corporations may traditionally hold apart from the general account for investment purposes. “More corporations will probably take that route.”

The legislation, first introduced by Rep. Michael Capuano (D-Massachusetts) in March, was strongly opposed by the US Chamber of Commerce, which sent a letter to the Financial Services Committee calling the bill “an assault on First Amendment Rights.”

Mason said the proposed legislation does just the opposite, by expanding the shareholders right to free speech through giving them a voice in a corporation’s decision making on political expenditure.

Financial Services Chairman Barney Frank (D- Massachusetts) further defended the shareholder’s right to this information and denied that it is an attempt to circumvent the Citizens United decision. Instead, the bill and the Citizens United decision “work hand-in-hand,” Frank said, and “would simply require companies to add an additional item to their annual proxy materials and, as such, would not impose new costs.”

Opposition to the bill also came in the form of a failed amendment by Rep. Michael Castle (R-Delaware), which would have allowed states to opt out of complying with the bill. A majority of major US corporations are headquartered in Delaware.

The Shareholder Protection Act will now move to the full House, and is likely to be considered in September.

However, Mason says, opponents of the bill do not have much to worry about. The fight to pass the Shareholder Protection Act will be an uphill battle, Mason said, and because the bill is so contentious, “between the Blue Dog Democrats and the Republicans they probably don’t have the votes to make it out of the Senate.”