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June 18, 2010
Fate of Legislation to Curb Political Spending Is in Question
    by Robert Kropp

Intended to redress the consequences of the Supreme Court ruling on Citizens United, the DISCLOSE Act faces opposition by corporate lobbyists, even as shareowner resolutions for disclosure of political spending gain record levels of support.

As far back as 1907, when the Tillman Act prohibited corporate spending on national political campaigns, judicial decisions have supported legislative efforts to curb the influence of corporations on the political process. A 1990 decision, Austin v. Michigan Chamber of Commerce, and McConnell v. Federal Election Commission, a 2003 decision, upheld such restrictions on corporate spending as were included in the Bipartisan Campaign Reform Act of 2002.

In the aftermath of January’s US Supreme Court ruling on Citizens United vs. Federal Election Commission, which prevents the government from regulating corporate expenditures on election campaigns, the landscape of corporate political spending has changed. At the time, Bruce Freed, President of the Center for Political Accountability (CPA), stated, “The Citizens United decision will place companies under immense pressure to use shareholder funds to support candidates, groups and causes whose positions and activities could threaten a company’s reputation and bottom line and shareholder value.”

Since 2003, the CPA has worked to bring transparency and accountability to corporate political spending. Working with a group of shareowner advocates, the CPA has thus far convinced 50 companies in the S&P 100, and 76 companies overall, to adopt polices that improve disclosure and oversight of their political spending.

Though its fate remains uncertain, there may soon be legislation that would support the CPA’s efforts to raise awareness of corporate political spending. The Democracy is Strengthened by Casting Light on Spending in Elections (DISCLOSE) Act, currently being debated in the House of Representatives, would improve corporate disclosures on political spending activities to shareowners, as well as in corporate reporting.

However, expectations of a vote this week in the House have dimmed, as an amendment that was added to mollify the National Rifle Association (NRA) by exempting nonprofit organizations with more than a million members has met with understandable opposition from many Democrats. Furthermore, even if legislation is passed, “There could be constitutional challenges to the legislation, and there are concerns that lawyers will find ways for companies to avert disclosure,” as Freed of the CPA pointed out to

Not surprisingly, the US Chamber of Commerce has lobbied furiously against passage of the DISCLOSE Act, stating in a letter to the members of the House that “the clear purpose of this legislation is irretrievably to upend First Amendment protections of political speech in the months leading up to an election.”

“The protection of free speech rights are too important to the foundation of American democracy to be infringed upon,” the letter continued. “Unfortunately, H.R. 5175 (the DISCLOSE Act) does just that.”

On the other hand, testifying last month before the Committee on House Administration, Harvard Law School Professor John C. Coates IV argued in favor of the “real-time, ongoing disclosure of election expenditures” mandated by the DISCLOSE Act, stating, “The risk is that corporate managers will steal shareholder money, and pervert the very First Amendment rights—the rights of corporate owners—that the slim majority in Citizens United purported to protect.”

“The bill would allow shareholders to monitor the use of their capital in the election context, and take whatever actions they want to discipline managers for misusing their funds,” Coates continued.

Freed of the CPA told, “The CPA hasn’t taken a position on the DISCLOSE Act. We don’t engage in lobbying. But anything that enhances disclosure, and enhances accountability, is extremely important. If a good piece of legislation can be enacted, that would be very important.”

However, Freed continued, “The Citizens United decision has made our work even more important. Now, companies are faced with much greater pressure to engage in direct and indirect political spending. Most companies don’t want to get into direct spending, because they don’t want to be out front on that. But we’re watching very closely which companies are spending indirectly, through their trade associations. There’s the potential for a great deal of money going into indirect spending.”

Freed pointed out that in the aftermath of the Citizens United decision, a number of shareowner resolutions were introduced for the 2010 proxy season that addressed corporate political spending. A resolution filed by
Domini Social Investments calling for Goldman Sachs to report on its trade association payments used for political purposes won 37% of shareowner votes, an increase of 10% over the vote in 2009.

In response to Domini's engagement in 2009, Goldman adopted a policy to avoid making direct political contributions with corporate funds. The DISCLOSE Act would specifically prohibit Goldman and other recipients of Troubled Asset Relief Program (TARP) funds from making political contributions.

Freed said, “For this proxy season, the average vote for political disclosure has continued to increase, and has passed the 30% mark. The vote at Coventry Health Care was about 46%.” The resolution at Coventry was filed by the New York City Employees Retirement System.

“While we’re not directly involved in the political process, our work stands as a model,” Freed said. “We created the model for disclosure and accountability, using corporate governance as the vehicle for dealing with the risks of political spending.”


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