Shareholders may seek to introduce proxy proposals, which, if successful, would allow shareholders to request disclosure or ask the corporation to refrain from political activity. Shareholder resolutions relating to corporate political spending are by far the largest and fastest growing categories of proxy proposals.6 At present, proposals on political spending are not binding on management or directors.7 Nonetheless, shareholder proposals have proven an effective way to communicate the importance of the issue and encourage corporations to adopt more transparent and accountable practices.
Managers and directors at several corporations have sought to block these proposals by arguing under Rule 14a-8 that shareholder requests relating to political spending are either vague or are ordinary business decisions that shareholders do not need to be involved in.8 The SEC has rejected both arguments. In a series of “no-action” letters, the SEC has indicated that shareholders could not be denied the opportunity to indicate their views on a corporation’s political spending and made clear that corporate political activity is not an ordinary business decision.9
WHO ELSE CAN CHALLENGE MANAGERS AND DIRECTORS WHO SPEND MONEY IN POLITICS?
Corporate law gives other stakeholders in a business, such as bondholders and employees (not to mention the larger community) even less of an opportunity to challenge political spending decisions. These constituencies, under current law, are not owed even the basic fiduciary duties that shareholders are owed, nor do they have any opportunity to vote on corporate policies. This means, to borrow a phrase from Justice Louis Brandeis, that corporate leadership is virtually unchecked in its use of “other people’s money” to engage in corporate political spending.10
WHAT ABOUT THE FREE SPEECH INTERESTS OF SHAREHOLDERS, EMPLOYEES, AND OTHER STAKEHOLDERS WHO DISAGREE WITH THE CORPORATION’S POLITICAL SPENDING?
One of the ironies of the Citizens United decision is that in attempting to address one First Amendment issue, it gave rise to another. Taking at face value for a moment the idea that money is speech, giving managers and directors unchecked authority over undisclosed corporate political spending should give us pause. Money in a corporation’s treasury is owned by a web of individuals with different legal claims on that money. Corporate managers who choose to spend that money on political expenditures are, under the logic of Citizens United, exercising other individuals’ rights and speaking on behalf of others.
The Supreme Court has recognized that there are important First Amendment interests at stake when one person or group speaks on behalf of another. In the public-sector union context, for instance, the Supreme Court held that union members must be given opt-out rights when the union conducts political activities.11 The Court’s failure to recognize First Amendment opt-out rights for corporate shareholders highlights an important asymmetry in current law.12
This problem is highlighted where corporate political spending is directed to candidates or causes that contradict official corporate policies or which run counter to a company’s long-term interests.13 Investors who want to put their money in businesses whose values they share should have some assurance that a company is not engaging in political spending that runs contrary to those policies. The same can be said of employees who want to invest their time in a corporation whose values they share. Viewed in this light, the real effect of Citizens United was to amplify the speech rights of corporate managers and directors and to weaken the rights of everyone else.