The Shareholders United Act: Past, Present, and Future
The Shareholders United Act: Past, Present, and Future
The Shareholders United Act is a bill introduced in 2014 and 2015 to the Maryland Senate by Maryland Senator Jamie Raskin to realize the currently-unfounded ideas about corporate decision-making upon which the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission was premised. Essentially, Sen. Raskin’s bill requires the management of any corporation wanting to spend corporate funds for a political purpose to (1) submit the decision of whether to spend corporate funds in this way to a vote of the shareholders, and (2) provide the shareholders the information necessary to make this decision. Though Senator Raskin’s bill was defeated both times it was introduced, “Shareholders United” has become a generic title referring to any legislative proposal in any jurisdiction centered on a requirement that shareholders authorize corporate political expenditures. This piece discusses the Shareholders United Act’s origins in the language of Citizens United, its history and future in Maryland, and its spread to other jurisdictions.
I. Citizens United v. Federal Elections Commission
In 2010, the Supreme Court decided Citizens United v. Federal Election Commission. In Citizens United, the Court held that corporations — like natural persons — have a First Amendment right to unlimited political speech. Corporations speak through expenditures of money. Therefore, Citizens United bars the government from restricting the expenditure of corporate funds for political purposes except through narrowly-tailored laws enacted to further compelling government interests.
In so holding, the Court found that several interests that had supported corporate political expenditure limits in the past were not sufficiently compelling interests for this purpose. However, one assertedly compelling interest was neither facially invalidated nor rendered inapplicable to justify regulations of political expenditures: the government’s interest in protecting shareholders from having the funds they invest in their corporation spent on political speech they do not support (“shareholder protection interest”).
Rather than forever invalidating the shareholder protection interest as a justification for restraining corporate speech, the Court found it not to be implicated in the case at bar. There was, the Court reasoned, “little evidence of abuse that [could not] be corrected by shareholders through the procedures of corporate democracy,” i.e. shareholder voting, shareholder derivative suits, and shareholder proposals at corporate meetings. Limits on corporate expenditures were not necessary to protect shareholders, the Court continued, because “shareholder objections raised through the procedures of corporate democracy . . . can be more effective today because modern technology makes disclosures rapid and informative.” As such, the Court held that the government had no reason to restrict corporate political speech where robust “procedures of corporate democracy” existed to protect dissenting shareholders from having their corporation’s funds spent on unwanted political speech.
II. Reality: Corporate Democracy is Inaccessible and Ineffective
Unfortunately for the Court, decisions regarding when a corporation will speak are made by its management officials and most shareholders never know such decisions are being made. Shareholders are provided no opportunity to influence such decisions, let alone “through the procedures of corporate democracy.” Shareholder proposals and derivative suits are relatively obscure, complex, and time-consuming. They are therefore accessible to only the most savvy, sophisticated, and wealthy of shareholders. That leaves only shareholder voting. However, decisions are almost never submitted to a vote of the shareholders unless required by law, and no law currently requires shareholders to decide whether to allow the corporation to speak. Intentionally or not, the Supreme Court has left shareholders with no way to prevent their investments from being spent on political speech they don’t support.
III. The Maryland Shareholders United Act
Enter Maryland State Senator Jamie Raskin. In 2013, inspired by the Citizens United Court’s unrealized ideal of shareholder control, Sen. Raskin introduced Maryland Senate Bill (“SB”) 0772. SB0772 required corporations headquartered in and doing business in Maryland to “establish adequate procedures for effectively determining the political preferences of the stockholders of the corporation and fairly representing the preferences of the majority of stockholders.” SB0772 also authorized shareholders to sue for failure to establish and implement such procedures, and treble damages were authorized if a corporation spoke without probing the preferences of its shareholders. While this bill died in committed, it was the precursor to something new and exciting.
In 2014, Sen. Raskin introduced SB0809, formally titled the “Citizens United Shareholder Democracy and Protection Act” but referred to informally as the “Shareholders United Act.” SB0809 again required that corporations assess the will of the majority prior to speaking, but for the first time prevented Maryland corporations from speaking unless a majority of its shareholders were able to cast their vote. This added mandate was to ensure that corporations spoke only when their speech truly reflected the preferences of its shareholders. Unfortunately, SB0809 also died in committee.
In January 2015, Sen. Jamie Raskin introduced SB0153, formally titled “Corporations – Political Expenditures – Stockholder Approval” but also referred to as the “Shareholders United Act.” Cross-filed with the same title and “Synopsis” statement in the Maryland House of Delegates was HB085, introduced by Delegate Andrew Platt (but for simplicity, the discussion will remain on SB0153).
SB0153 required corporations to secure the approval of a majority of their shareholders before expending any corporate funds on political speech. If the shareholders’ approval was obtained, SB0153 then required that the corporation post notice of the expenditure online within 48 hours and in its annual report. If a corporation expended corporate funds on political speech without following these procedures, the Shareholders United Act authorized Maryland’s Attorney General and aggrieved shareholders to sue for remedies including rescission, restitution, and injunction of the corporate expenditure at issue.
Unfortunately, SB0153 was voted down by Maryland’s Education, Health, and Environmental Affairs Committee, despite supportive testimony (see hearing video) by U.S. Representative Chris Van Hollen and representatives of the American Civil Liberties Union, Public Citizen, and the Maryland Public Interest Research Group. But the Shareholders United Act concept is far from dead. Sen. Raskin is considering introducing a version of the bill into the Maryland Senate in 2016, and perhaps Delegate Platt will again introduce a Shareholders United bill into the Maryland House of Delegates. What’s more, Sen. Raskin is running for a seat in the U.S. House of Representatives. If elected, Sen. Raskin is considering introduction of a Shareholders United bill on the authority of Congress’s commercial and election-regulation powers, inter alia.
IV. The Shareholders United Act Spreads Outside of Maryland
Beyond Maryland, the Shareholders United concept is picking up steam. So far in 2015, legislators in Hawaii, Maine, New Jersey, New York, Pennsylvania, and Wisconsin, as well as Montana have introduced Shareholders United bills into their respective legislatures. In all of these states except New Jersey, the Shareholders United bill was cross-filed with a very similar or identical version of that bill (in the other chamber of the state’s legislature). At the time of this writing, a Minnesota State Representative Paul Thissen is gathering signatures for a campaign to enact a Shareholders-United-esque bill he’s calling “the People’s Voice Legislation.” There are also calls for a Kentucky Shareholders United Act. Perhaps in 2016, six years after Citizens United, shareholders and the “procedures of corporate democracy” will play the role in corporate decision-making that the Supreme Court erroneously assumed they already did.