Economics: Asking Companies to Reflect Shareholders' Politics

Ever since the Supreme Court endorsed the political free-speech rights of corporations in January in the contentious Citizens United case, the decision’s critics have been searching for ways to blunt the ruling’s impact — preferably before the test case of this fall’s midterm elections.

If shareholders are the true owners of a company, shouldn’t they be the ones to decide if that company dabbles in politics, and on which candidates it bets?

Enter the “shareholder protection act.”

Under the act, a majority of shareholders would have to approve a company’s political budget every year. The U.K. passed a similar law in 2000, although it’s seen but one case in 10 years of shareholders voting down political spending.

The U.S. version, however, would be much stricter: Instead of winning a majority of shareholders who show up or vote by proxy at the annual meeting, companies would have to win a majority of all shareholders, likely polling them by mail. Non-responses would count as “no” votes. Institutional investors such as 401(k) managers would also have to inform their members of how they voted on their behalf.

If a company gets over those hurdles, there are two more. Each specific expenditure from the political budget would then have to be approved by the board of directors, and each of those expenditures would ultimately have to be disclosed to the SEC for public scrutiny.

For more, see Asking Companies to Reflect Shareholders' Politics by Emily Badger, April 21, 2010, at miller-mccune.com.