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Asking Companies to Reflect Shareholders' Politics

Stung by the U.S. Supreme Court’s affirmation of corporate free speech, some are seeking to give shareholders more control over the firms’ political spending.

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.

Their ideas generally sidestep the most comprehensive and least likely counter-attack: a full-blown constitutional amendment allowing Congress to regulate political spending by corporations. (Read another way, such an amendment would specify that free speech is for people, not companies.)

Democrats Chuck Schumer and Chris Van Hollen plan to introduce legislation that would ban political spending by foreign-owned companies and corporations with federal contracts. They also want to force corporations to publicly disclose political spending and own up to their involvement in political ads.

THE IDEA LOBBYMiller-McCune's Washington correspondent Emily Badger follows the ideas informing, explaining and influencing government, from the local think tank circuit to academic research that shapes D.C. policy from afar.

Miller-McCune's Washington correspondent Emily Badger follows the ideas informing, explaining and influencing government, from the local think tank circuit to academic research that shapes D.C. policy from afar.

Going one step farther, several public interest groups are rallying behind another idea that gets at a more fundamental question about the origins of corporate money: 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.” The bill, as proposed by Democratic Rep. Mike Capuano of Massachusetts, wouldn’t prevent corporations from spending on political campaigns, but it would make it much harder for them to do so through a combination of expanded bureaucracy and public shaming.

“We’ve set up a number of hurdles here that I think are going to hopefully dampen what we expect to be an onslaught of corporate money flowing into elections,” said Craig Holman, the government affairs lobbyist for the nonpartisan public interest group Public Citizen.

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.

A Pew poll conducted in February just weeks after Citizens United (and after President Obama’s widely publicized judicial scolding during the State of the Union) found that 68 percent of people disapproved of the decision. A Washington Post-ABC News poll put the number as high as 80 percent, suggesting overwhelming public consensus in finding a way to defang the decision.

Shareholder protection, though, isn’t likely to see such happy agreement in Congress, in part because corporate spending is seen as disproportionately benefitting Republican candidates. (Opposed lobbying groups such as the Chamber of Commerce, on the other hand, have supported a similar premise – that members of a group shouldn’t be forced to fund political campaigns they don’t agree with – when applied to labor unions that traditionally skew toward Democratic candidates.)

Holman insists the idea, though, shouldn’t be partisan.

“Many people who may even like Citizens United would agree that shareholders should have control over corporate spending,” he said. “To me, it’s not a controversial bill, so I’m curious to see how it plays out as we go through the summer.”

The Center for Corporate Policy is another group that has signed on to the idea, although director Charlie Cray suggests shareholder protection only whittles at Citizens United from the margins.

“It’s not going to be enough by itself for sure,” he said, pointing to other legislation that would create “fair elections” public financing as an alternative to corporate money.

“But it’s our belief,” he added, “that we will need ultimately a constitutional amendment.”