Senate Bill No. 121

Introduced by Senator Evans

January 18, 2013

An act to add Chapter 7.5 (commencing with Section 750) to Division 1 of Title 1 of the Corporations Code, relating to corporations.

LEGISLATIVE COUNSEL’S DIGEST

SB 121, as introduced, Evans. Corporations: political activities: shareholder disclosure.

Existing law, the General Corporation Law, provides for the regulation of corporations. Under existing law, the board of directors of a corporation is required, except as specified, to send an annual report to shareholders containing, among other things, a balance sheet as of the end of that fiscal year and an income statement and a statement of cashflows for that fiscal year.

The Political Reform Act of 1974 provides for the regulation of political campaign financing, including the reporting and disclosure of campaign contributions and expenditures. Under the act, elected officers, candidates for elective office, and campaign committees are required to file periodic campaign statements that disclose specified information for specified reporting periods, including the amount of contributions received and the identities of donors.

This bill would require a corporation, as defined, that has shareholders located in this state and that makes a contribution or expenditure, as defined, to, or in support of or in opposition to, a candidate, ballot measure campaign, or a signature-gathering effort on behalf of a ballot measure, political party, or political action committee to issue a report on the political expenditures of the corporation in the previous fiscal year, and to notify shareholders not less than 24 hours prior to each political contribution during the fiscal year, by specified means, including posting the report and notification on the corporation’s Internet Web site, if any.

This bill would provide for a civil cause of action for damages by specified shareholders against a corporation for willful or reckless violations of the bill’s provisions and would specify a prevailing shareholder’s remedies. The bill would require a corporation to maintain records that include copies of the reports on its political activities for 5 years, and to make copies of these reports available to the Secretary of State upon request. The bill would also state findings and declarations of the Legislature.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) Corporations make substantial political contributions and
expenditures to support and oppose candidates, ballot measures,
political parties, and political causes. However, decisions to use
corporate funds for political contributions and expenditures are
usually made by corporate boards and executives, rather than the
shareholders who own the corporations.

(b) Shareholders have a right to know how corporations are
spending shareholder funds to make political contributions and
expenditures to support or oppose candidates, ballot measures,
political parties, and political causes.

(c) Most shareholders have no means by which they may learn
of, influence, or object to the political activities of the corporations
in which they have invested. Moreover, most shareholders have
no means by which they may influence the use of their invested
funds to make political contributions or expenditures to support
candidates, ballot measures, political parties, or political causes
to which the shareholders are opposed.

(d) By limiting the extent to which corporate political
contributions and expenditures may be regulated, the United States
Supreme Court, through its decision in Citizens United v. Federal
Election Com’n (2010) 130 S.Ct. 876, has increased the need for
greater accountability of corporations to their shareholders with
regard to political contributions and expenditures.

(e) The Citizens United decision was handed down in January
2010, but the debate over whether the invested funds of
shareholders should be used for political activities without their
consent is not a new one. In 1905, President Theodore Roosevelt
said, “All contributions by corporations to any political committee
or for any political purpose should be forbidden by law; directors
should not be permitted to use stockholders’ money for such
purposes.”

(f) It is the intent of the Legislature in enacting this act to inform
shareholders and the public with regard to how corporations are
spending funds to make political contributions and expenditures
benefiting candidates, political parties, and political causes.

SEC. 2.  

Chapter 7.5 (commencing with Section 750) is added
to Division 1 of Title 1 of the Corporations Code, to read:

 

Chapter  7.5. Political Activity

 

750.  

As used in this chapter, the following terms have the
following meanings:

(a) “Ballot measure” means a constitutional amendment or other
proposition that is submitted to a popular vote at an election by
action of a legislative body, or that is submitted or is intended to
be submitted to a popular vote at an election by initiative,
referendum, or recall procedure, whether or not it qualifies for the
ballot.

(b) (1) “Contribution” or “expenditure” includes any monetary
and nonmonetary political contributions and expenditures not
deductible under Section 162(e)(1)(B) of the Internal Revenue
Code of 1986 (26 U.S.C. Sec. 162(e)(1)(B)), including, but not
limited to, contributions to, or expenditures on behalf of, political
candidates, political parties, political committees, and other
political entities organized and operating under Section 527 of the
Internal Revenue Code of 1986 (26 U.S.C. Sec. 527), any portion
of any dues or similar payments made to any tax exempt
organization that is used for an expenditure or contribution that,
if made directly by the corporation, would not be deductible under
Section 162(e)(1)(B) of the Internal Revenue Code of 1986, any
contribution or expenditure, as those terms are defined in Section
302 of the Federal Election Campaign Act of 1971 (2 U.S.C. Sec.
431), and any contribution or expenditure as defined under the
Political Reform Act of 1974 (Title 9 (commencing with Section
81000) of the Government Code).

The terms also include any direct or indirect payment,
distribution, loan, advance, deposit, or gift of money, or any
services, or anything of value, except a loan of money by a national
or state bank made in accordance with the applicable banking laws
and regulations and in the ordinary course of business, to any
candidate, campaign committee, or political party or organization,
in connection with any election to any office.

(2) The terms “contribution” or “expenditure” do not include
any of the following:

(A) Communications by a corporation to its stockholders and
executive or administrative personnel and their families or by a
labor organization to its members and their families on any subject.

(B) Nonpartisan registration and get-out-the-vote campaigns
by a corporation aimed at its stockholders and executive or
administrative personnel and their families or by a labor
organization aimed at its members and their families.

(C) The establishment, administration, and solicitation of
contributions to a separate segregated fund to be utilized for
political purposes by a corporation, labor organization, membership
organization, cooperative, or corporation without capital stock.

(c) “Corporation” means any of the following:

(1) A publicly held corporation with shareholders.

(2) An entity in which a corporation with shareholders has an
equity interest.

(3) The parent corporation of a subsidiary or affiliate of a
corporation with shareholders.

(d) “Political activity” means a contribution or expenditure made
to, or in support of, or in opposition to, a candidate, ballot measure
campaign, signature gathering effort on behalf of a ballot measure,
political party, or political action committee.

(e) “Public corporation” means a corporation that is required to
file periodic reports pursuant to Section 13(a) or 15(d) of the federal
Securities Exchange Act of 1934, as amended (15 U.S.C. Secs.
78m(a) and 78o(d)).

(f) “Shareholder” has the same meaning as set forth in Section
185.

751.  

(a) A corporation that has shareholders with legal
residency in California and that engages in political activity shall
do all of the following:

(1) Issue a report on the political expenditures of the corporation
in the previous fiscal year. The report shall include all of the
following:

(A) A description of the political activities.

(B) The name of the person, candidate, committee, or political
party, or a description of the political cause, to which each
contribution or expenditure was made.

(C) The aggregate amount of the contribution or contributions
and expenditure or expenditures for each candidate, ballot measure
campaign, signature gathering effort on behalf of a ballot measure,
political party, or political action committee.

(D) If a contribution or expenditure was made in support of, or
in opposition to, a candidate, the office sought by the candidate
and the political party affiliation of the candidate.

(E) If a contribution or expenditure was made for or against a
ballot measure, a description of the ballot measure and a statement
as to whether the contribution or expenditure was made in support
of, or in opposition to, the ballot measure.

(2) If the corporation maintains an Internet Web site, the
corporation shall post the report required by paragraph (1) on its
Internet Web site.

(3) Notify its shareholders not less than 24 hours prior to each
political contribution during the fiscal year. Notification shall be
made by mail, email, posting on its Internet Web site, or any other
means regularly used in its course of business.

(b) A public corporation is deemed to have complied with
paragraph (1) of subdivision (a) if it includes the report required
by that paragraph in its annual report to shareholders under a
separate caption entitled “Political Activity Report,” and if the
annual report is provided to shareholders within 90 days of the
fiscal yearend.

(c) This section shall not apply to a corporation’s use of
segregated accounts, political action committees, or political
committees, as long as the funds in those accounts or committees
come from shareholders, board members, or employees of the
corporation who, as individuals, choose to contribute to those
accounts or committees.

752.  

(a) A corporation subject to Section 751 shall maintain
records of its political activities, including the report required by
subdivision (a) of Section 751, for a minimum of five years.

(b) Upon a request by the Secretary of State, a corporation shall
file with the Secretary of State a copy of each report produced
pursuant to subdivision (a) of Section 751.

753.  

No provision of Section 751 shall be construed to relieve
a corporation of its obligations under existing law, including, but
not limited to, the following:

(a) Section 604, or a successor statute or regulation.

(b) A state or federal statute or regulation that regulates the
solicitation of proxies.

(c) With respect to a corporation with an outstanding class of
securities registered pursuant to Section 12 of the federal Securities
Exchange Act of 1934, as amended (15 U.S.C. Sec. 78l), the proxy
rules promulgated under that act.

754.  

(a) A willful or reckless violation of Section 751 by a
corporation shall create a civil cause of action for damages against
the corporation that may be brought by any shareholder of the
corporation who held a share in the corporation at the time of the
political contribution or expenditure. A prevailing shareholder
shall be entitled to the information that was not reported or
disclosed in compliance with Section 751, as well as reasonable
attorney’s fees and costs.

(b) The remedies provided in this section are in addition to any
other rights or remedies available under any other provision of
law.

755.  

The provisions of this chapter are severable. If any
provision of this chapter or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.