BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 919 (Nava) Hearing Date: June 16, 2010
As Amended: May 19, 2010
Fiscal: Yes
Urgency: No
VOTES: Not applicable
SUMMARY Would require specified corporations that engage in
political activity, as defined, to mail their California
shareholders a Political Activity Report summarizing their
political contributions, and allow shareholders who to object to
those contributions to receive a pro rata refund of those
contributions.
DIGEST
Prior federal law prohibited national banks and corporations
from making contributions or expenditures in connection with any
election to any federal political office, or in connection with
any primary election or political convention or caucus held to
select candidates for any federal political office; and
prohibited any corporation or any labor organization from making
a contribution or expenditure in connection with any election at
which presidential and vice presidential electors or members of
Congress were to be voted on, or in connection with any primary
election or political convention or caucus held to select
candidates for any of the foregoing offices (2 USC Section
441b). As described in more detail below, that federal law was
recently overturned by the U.S. Supreme Court, in its Citizens
United v. Federal Election Commission ruling.
Existing law, pursuant to the Political Reform Act, permits
corporations to make political contributions (within specified
limits) to state and local candidates and ballot measure
committees, and to make various expenditures for political
purposes.
This bill
1. Would require corporations that have shareholders with
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legal residency in California, and which engage in political
activity, as defined, to do all of the following:
a. Prepare a Political Activity Report within 30 days
after the close of its fiscal year, describing all
political activity by the corporation during that fiscal
year, and provide a written copy of that report to all of
the corporation's California shareholders.
i. This report would have to include
specified information about the name(s) of the
person, candidate, committee, ballot measure, and/or
political party to which the corporation
contributed, a description of any political cause(s)
to which the corporation contributed, and would have
to list the aggregate amount of the contribution(s)
made to each candidate, ballot measure,
signature-gathering effort on behalf of a ballot
measure, political party, or political action
committee to which the corporation contributed;
ii. A corporation would not have to include
information in the report about its use of
segregated accounts, political action committees, or
political committees, if the funds in those accounts
or committees come from shareholders, board members,
or employees of the corporation who, as individuals,
chose to contribute to those accounts or committees;
b. Publish the Political Activity Report on its
Internet Web site;
c. Notify each of its California shareholders, in the
same mailing it uses to send its Political Activity
Report, that the shareholder has a right to object to the
use of corporate funds for political activities in the
fiscal year that directly follows the year to which the
Political Activity Report pertains, and inform the
shareholder of the procedure he/she must use for
objecting.
i. The corporation would have to give each
shareholder at least 60 days following the
shareholder's receipt of the notification to object;
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ii. At the end of the fiscal year in which a
shareholder objects, the corporation would have to
calculate the objecting shareholder's pro rata share
of the total dollar value of political activities,
and return that amount to the shareholder in the
form of a dividend;
iii. The objecting shareholder's pro rata
share would be determined by dividing the total
dollar value of the corporation's political
activities in the prior fiscal year by the number of
outstanding shares, and multiplying the result by
the number of shares held by the objecting
shareholder;
2. Would apply its provisions to all of the following
corporations:
a. A publicly held corporation with shareholders;
b. An entity in which a corporation with shareholders
has an equity interest;
c. The parent corporation of a subsidiary or affiliate
of a corporation with shareholders;
3. Would provide that a violation of the bill by a corporation
creates a civil cause of action for damages against the
corporation, which may be brought by any shareholder of the
corporation. Would allow a prevailing shareholder
plaintiff to recover reasonable attorney's fees and costs
for any action brought pursuant to the authority in the
bill.
AB 919 (Nava), Page 4
COMMENTS
1. Purpose of the bill To respond to the Citizens United
decision and protect shareholders, by requiring all
corporations to give California-based shareholders the
opportunity to opt out of having their investments spent on
politics.
2. Background In January 2010, in a 5-4 decision, the U.S.
Supreme Court issued its ruling in Citizens United v.
Federal Election Commission, and found that the First
Amendment protects political speech by corporations and
unions. In its ruling, the court overturned a federal law
that had prohibited corporations and unions from using their
general treasury funds to make independent expenditures for
speech that represented an "electioneering communication" or
for speech that expressly advocated the election or defeat
of a candidate. The overturned law related to spending on
candidates for federal office; it did not impact spending on
California ballot initiatives or candidates for state
office.
In its decision, the court cited an earlier case in which it
found that "political speech is indispensable to
decisionmaking in a democracy, and this is no less true
because the speech comes from a corporation" (First National
Bank of Boston v. Bellotti, 435 US 765). "This court now
concludes that independent expenditures, including those
made by corporations, do not give rise to corruption or the
appearance of corruption. That speakers may have influence
over or access to elected officials does not mean that those
officials are corrupt. And the appearance of influence or
access will not cause the electorate to lose faith in this
democracy."
It concluded, "the Court returns to the principle?that the
Government may not suppress political speech based on the
speaker's corporate identity. No sufficient governmental
interest justifies limits on the political speech of
nonprofit or for-profit corporations."
Although this bill focuses on the impact of the Citizens United
decision on spending by corporations, the decision was not
limited to corporations; it also covered unions.
3. How do unions handle the opt-out issue? Under a series of
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federal court decisions balancing the first amendment right
of free association with the right of labor unions to
collect union dues, all unions must allow their members to
opt out of having their dues spent for political purposes,
and must notify their members of this right. Members who
wish to opt out must do so in writing. An annual opt-out is
not required; once an individual opts out with their union,
they are opted out, until and unless they opt back in.
Union members who opt out are still required to pay dues to
support the activities of their union. However, the union
must either refund them an amount reflecting the portion of
their dues that would otherwise have gone toward political
activity or must donate that amount to a charitable
organization selected by the union. Unions are required to
annually report their spending on political activity, and to
publish the calculations supporting the amount of dues per
member that they attribute to political activity spending
(i.e., to document the amount they are required to refund or
donate to charity for members who opt out).
Employees who are represented by unions, but who do not join the
union are covered by similar rules. These fee-payers, so
called because they are required to pay their "fair share"
fee to cover the costs of collective bargaining, may also
opt out of having their fees spent on political activities.
Like objecting union members, objecting feepayers either
receive a refund of the amount of their fee that is
attributable to political activities, or see that money
donated by the union to charity.
4. Support CALPIRG, the sponsor of this bill, states that,
prior to the Citizens United decision, corporations gave
through segregated accounts, also known as political action
committees, for federal elections, where the corporations
solicited voluntary contributions from individuals
affiliated with the corporations. Some corporations may
continue to give in this manner, but because of the court
ruling, many shareholders and investors will see their
investments and potential dividends spent directly on
candidates and political campaigns with which they
profoundly disagree, and will lack any input regarding those
expenditures. AB 919 will give shareholders a greater say
in political decisions, and, as a result, will force
corporations to attune their political strategies to the
will of their shareholder owners.
AB 919 (Nava), Page 6
A coalition of environmental advocacy groups, including
Environment California, the Sierra Club, the Planning and
Conservation League, the Coalition for Clean Air, and the
Climate Protection Campaign, point to expenditures by Valero
as the basis for their support of AB 919. They cite
Valero's attempt to "wipe California's landmark global
warming bill, AB 32, off the books" via a proposed ballot
initiative, and assert that "Valero has chosen to fight
global warming policies without the consent of its
shareholders, many of whom presumably would disagree with
the company brass's decision." The coalition goes on to
state that, "while a shareholder here or there might not
influence corporate thinking, once something the size of
CalPERS opts out, it may force the corporation to realize
that its political spending is out of touch with its
owners."
Consumers for Auto Reliability and Safety (CARS) characterizes
the Citizens United case as one that "opened the floodgates
for corporations to barrage the public with ads aimed at
affecting the outcome of elections, while they hide behind
sham front groups to conceal their special-interest agenda."
CARS states that this bill is similar to existing policies
that allow union members to opt out of having their dues
used for election activity. "It simply gives those who have
strong views an opportunity to exercise some control over
how their money is spent."
The Consumer Federation of California states that environmental
groups, labor unions, consumer groups, seniors groups, and
others, who have at times stood up to corporations and their
influence, have cause for concern following the Citizens
United decision. "AB 919 is a critical step in the effort
to protect shareholders and limit the influence of big money
in politics."
5. Opposition A broad coalition of trade associations and
business advocacy groups believe that AB 919 is unnecessary
and will stifle business participation in the political
process. Corporate contributions are already public. These
contributions are easily accessible on the California
Secretary of State's Internet website, and are also
contained in Fair Political Practices Commission Major Donor
reports. Both of these sources provide sufficient
transparency for use by shareholders. If a shareholder does
not agree with a corporation's political contributions,
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charitable donations, or business plan, the shareholder can
simply sell his/her stock.
The coalition also speculates that "since the court has ruled
that corporations have the same free speech rights as
others, one must believe that the purpose of this bill is to
discourage them from exercising their constitutional rights.
By creating significant administrative requirements on a
business that could be subject to a civil cause of action,
businesses will find that the costs to implement the bill
and the associated liability will make it prohibitive to
participate in the political process."
6. Questions
a. Does the timing in this bill make sense? As
drafted, it would allow shareholders who dislike a
company's political contributions in Year 1 to obtain
a refund of that company's Year 2 political
contributions. What if the shareholder doesn't object
to the company's Year 2 political contributions?
b. Is the size of a refund that might be due to
an individual shareholder going to be large enough to
justify processing payment for that amount? Most
individual shareholders hold less than one hundred
shares of any given company. Those who object would
likely be entitled to refunds of less than one dollar.
Should this bill be limited to shareholders that own
more than a certain percentage of a company's stock,
to minimize refund calculations that cost more to
perform and process than they will return to the
individual shareholder?
c. Is this bill necessary? If a shareholder
purchases shares in a company, unaware that they
disagree with the political leanings of that company,
and subsequently discovers that they object to that
company's political expenditures, why not simply sell
those shares?
d. Should this bill extend to the charitable
contributions of a corporation? Shareholders could
object to certain charitable contributions, in the
same way they might object to certain political
contributions.
AB 919 (Nava), Page 8
7. Author's Amendments The author proposed several amendments
to this bill, after this committee's deadline for receiving
amendments for its June 16th hearing. These amendments
solve some of the bill's implementation challenges, by
beginning the process of clarifying how a shareholder's pro
rata refund will be calculated. They also expand the
private cause of action in the bill, by authorizing actions
to be brought not only for damages against the corporation
(already in the bill), but also to enjoin further violation
and order payment (proposed to be added).
8. Suggested Amendments Despite the amendments proposed by the
author, many of this bill's provisions remain technically
unworkable, as drafted, particularly the concept of the pro
rata calculation. Amendments will be necessary, to add
definitions (what, for example, constitutes a "political
cause"?) and to address all of the following questions:
a. Is there a minimum length of time that a
shareholder must hold shares, in order to file an
objection and be entitled to a pro rata refund?
b. How would the bill handle a stock split?
c. Are all voting classes of shares given equal
weights when making the pro rata calculation?
d. How does this bill treat index funds or other
mutual funds that might hold shares in a politically
active corporation? Would the holders of shares in
the mutual/index fund be eligible for refunds? Or
would the manager of the fund be the entity entitled
to the refund?
e. How, if at all, do the author and sponsor wish
to handle the issue of stock value? As drafted, the
bill bases its pro rata calculation on the number of
shares outstanding as of a certain date, but not on
the value of those shares. Thus, a given shareholder
who might have purchased 100 shares of stock at a
price of $10 each (a value of $1,000) would be
entitled to a larger refund than a shareholder who
purchased 50 shares in the same company during the
same fiscal year, at a price of $20 each (also a value
of $1,000). Should one investor who purchased $1,000
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worth of shares be entitled to a larger refund than
another shareholder who purchased $1,000 worth of
shares?
f. What types of damages does this bill envision
being awarded by a court, if a shareholder brings an
action under this bill? Actual damages? Punitive
damages?
g. Does the author intend to authorize attorney's
fees and costs to every plaintiff who brings an
action? Or only to prevailing plaintiffs?
9. Prior and Related Legislation
a. SB 1354 (Dunn), 2005-2006 Legislative Session:
Substantially similar to this bill, but calculated
the pro rata refund on a value of shares owned basis,
rather than a number of shares owned basis.
Accomplished its aims by amending the Political Reform
Act, rather than the Corporations Code. Passed the
Senate, but failed passage in the Assembly Banking &
Finance Committee.
POSITIONS
Support
CALPIRG (sponsor)
California District Attorney's Association
Climate Protection Campaign
Coalition for Clean Air
Consumer Federation of California
Consumers for Auto Reliability and Safety
Environment California
Planning and Conservation League
Sierra Club
Oppose
California Chamber of Commerce
American Council of Engineering Companies of California
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American Insurance Association
Associated General Contractors of California
Association of California Insurance Companies
California Business Properties Association
California Business Roundtable
California hospital Association
California Manufacturers & Technology Association
California New Car Dealers Association
California Retailers Association
Civil Justice Association of California
Personal Insurance Federation of California
PhRMA
The Alliance of Automobile Manufacturers
Western Growers Association
Western States Petroleum Association
Consultant: Eileen Newhall (916) 651-4102