BILL ANALYSIS �
SENATE BANKING & FINANCIAL INSTITUTIONS COMMITTEE
Senator Juan Vargas, Chair
SB 982 (Evans) Hearing Date: April 18,
2012
As Amended: April 9, 2012
Fiscal: Yes
Urgency: No
SUMMARY Would require corporations to notify their
shareholders at least 24 hours before making political
contributions or expenditures, as defined, and to annually
summarize and report to their shareholders on the political
contributions and expenditures they made during the prior year,
as specified.
DESCRIPTION
1. Would make findings and declarations relative to the
importance of informing shareholders and the public about
the manner in which corporations spend funds to benefit
candidates, political parties, and political causes.
2. Would define "ballot measure," "political activity,"
"contribution," "expenditure," "corporation," "public
corporation," and "shareholder" for purposes of the bill's
provisions.
3. Would require a corporation that has shareholders with
legal residency in California, and which engages in
political activity, as defined, to do all of the following:
a. Issue a report regarding political expenditures made
by that corporation during the previous fiscal year,
including a description of the political activities; 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; the aggregate
amount of the contribution(s) or expenditure(s) for each
candidate, ballot measure campaign, signature-gathering
effort on behalf of a ballot measure, political party, or
political action committee; the office sought by and the
political party of any candidate for or against whom a
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contribution or expenditure was made; a description of
the ballot measure for or against which a contribution or
expenditure was made; and a statement regarding whether
the contribution or expenditure was made in support or in
opposition.
b. Notify its shareholders not less than 24 hours prior
to each political contribution during the fiscal year.
Notification may be by mail, e-mail, posting on its
Internet Web site, or by any other means regularly used
in its course of business.
4. Would provide that the requirement to prepare the annual
report summarized in Number 3 above can be satisfied if a
corporation includes the information in its annual report,
under a separate caption entitled, "Political Activity
Report," as long as the corporation's annual report is
provided to shareholders within 90 days of the corporation's
fiscal year end.
5. Would require corporations subject to the provisions of the
bill to maintain records of their political activities,
including their annual political activity reports, for at
least five years, and to provide copies of their annual
reports to the Secretary of State, upon request.
6. Would provide that a willful or reckless 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 who held a share in the
corporation at the time of the political contribution or
expenditure. Would further provide that a prevailing
shareholder is entitled to the information that was not
reported or disclosed in compliance with the reporting
requirements of the bill, plus reasonable attorney's fees
and costs.
EXISTING LAW
1. 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.
COMMENTS
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1. Purpose: This bill is sponsored by the California Public
Interest Research Group (CALPIRG), to capture comprehensive
information about corporate political spending and make that
information readily available to shareholders and the
public. This bill seeks to provide shareholders and the
public with a single source of information, which can be
used to learn about a specific corporation's political
spending. At present, although most (not all) of this
information is available, it is located in too many
different places to be readily compiled by someone seeking a
comprehensive picture of a corporation's political spending.
This bill is intended further public transparency and
accountability, by requiring this information to be compiled
in a single location (corporations' annual reports, which
are typically posted on corporations' Web sites and are thus
readily available to the public).
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
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speaker's corporate identity. No sufficient governmental
interest justifies limits on the political speech of
nonprofit or for-profit corporations."
The Citizens United case granted corporations the same rights as
individuals in making independent expenditures in elections
in support or opposition to candidates for public office,
thereby allowing the use of corporate treasuries for such
expenditures.
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. Discussion: This bill would have the effect of compiling
information that is currently available in bits and pieces
in multiple locations (e.g., the California Secretary of
State, California Fair Political Practices Commission
�FPPC], and Federal Election Commission �FEC]), and
summarizing it in a single location (a corporation's annual
report, which is typically posted on the Web). It would
also shed light on contributions made by corporations to
Section 501(c)(4) entities, information that is not
currently available for review using records maintained by
the Secretary of State, FPPC, or FEC.
Would this bill make information available about corporate
spending that is not currently available about union
spending? Yes and no, as discussed below.
4. How do corporations and unions differ in their compilations
of political spending? According to this bill's sponsor,
individual unions are required to compile all of their
political spending in one place, and send that compilation
to the Department of Labor on an annual basis. The
Department of Labor, in turn, makes these reports available
on its Internet Web site (www.unionreports.gov).
Corporations currently have no such similar requirement.
The practical effect of this difference is that union members
can go to the Department of Labor to find out how much their
union spends on local, state, and federal elections, as well
as on lobbying and ballot measure campaigns. If the
shareholder of a corporation wanted the same information, he
or she would have to go to the Secretary of State's, FPPC's
and FEC's web sites, and would still lack access to that
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corporation's spending on local elections.
The exception to this general rule involving the transparency of
union contributions involves contributions to 501(c)(4)
social welfare organizations. Just as corporate
contributions to 501(c)(4)s are not currently available via
the Secretary of State, FPPC, or the FEC, the specific
amounts that unions contribute to 501(c)(4)s are not always
available through the Department of Labor. Thus, because
this bill would shine light on corporate 501(c)(4)
contributions, but would not shine a similar light on union
501(c)(4) contributions, this bill would make some
information available about corporate spending that is not
currently available regarding union spending.
5. What are Super PACs? Some of the sponsor's arguments in
favor of this bill relate to the growth of super PACs and
the importance of understanding the sources of contributions
to these entities. Made possible by Citizens United and a
subsequent federal appellate court ruling in Speechnow.org
v. FEC, super PACs are officially known as independent
expenditure-only committees. This name derives from the
fact that, unlike traditional PACs, they may not contribute
directly to candidate campaigns or political parties;
instead, they must spend independently of the campaigns.
They are "super," because, unlike traditional PACs, they can
raise funds from corporations, unions and other groups, and
from individuals, without legal limits.
According to Federal Election Commission advisories, super PACs
are not allowed to coordinate directly with candidates or
political parties. This is intended to prevent them from
operating campaigns that complement or parallel those of the
candidates they support or engaging in negotiation that
could result in quid pro quo bargaining between donors to
the PAC and the candidate or officeholder. However, super
PACs may support particular candidacies.
6. What's the relationship between 501(c)(4)s and Super PACs?
Under existing law, super PACs must disclose their
contributors to the FEC. However, 501(c)(4)s are not
subject to the same requirements. Although 501(c)(4)s may
not make political activity their primary purpose, they may
spend up to 49% of their budgets on political activities,
including donations to super PACs. The lack of transparency
regarding contributions to 501(c)(4)s has the potential to
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be problematic in its own right. But, this lack
transparency can extend to super PACs, as well, if an entity
(individual or corporate) contributes money to a 501(c)(4) -
an activity that is unreportable to the FEC - and that
501(c)(4) subsequently contributes money to a super PAC. If
these instances, the source of the contributions to the PAC
will be difficult, if not impossible, to trace.
7. Pending Federal Legislation: Pending federal legislation
would go much farther than this bill, by requiring
shareholder approval of political expenditures by
corporations in which they own stock. H.R. 2517, introduced
in July, 2011 by Representative Capuano, and which includes
among its co-authors California Representatives Anna Eshoo,
Bob Filner, Maxine Waters, Pete Stark, and Lynn Woolsey,
would require prior shareholder approval of any expenditure
for political activities by a corporation. A violation of
this requirement would be considered a breach of the
fiduciary duty of the officers and directors who authorized
that expenditure. Officers and directors found guilty of
failing to properly obtain shareholder approval prior to
making political expenditures would be jointly and severally
liable to any person or class of persons who held shares in
that corporation at the time the expenditure was made, in an
amount equal to three times the amount of the expenditure.
HR 2517 would also require quarterly and annual reporting by
corporations to their shareholders regarding political
activity expenditures, as specified. To date, HR 2517 has
been referred to the House Financial Services Committee, but
has not been acted upon.
8. Summary of Arguments in Support:
a. According to CALPIRG, this bill's sponsor, the
Citizens United decision, combined with a subsequent
federal Court of Appeals decision titled Speechnow v.
FEC, have resulted in a situation where corporate boards
and executives have the enormous wealth of the
corporations and their shareholders at their disposal to
further their own political preferences on both the state
and federal levels.
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
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individuals affiliated with the corporations. Some
corporations may continue to give in this manner, but
because of the Citizens United and Speechnow.org court
rulings, many shareholders and investors will see their
investments and potential dividends spent directly on
candidates and political campaigns with which they
profoundly disagree.
Existing law places no requirements on these boards of
directors to disclose their corporate treasury-funded
political activity to their shareholders or the public.
While corporations may hesitate to directly run
independent expenditure ads out of fear of alienating
customers or investors, existing law makes it far too
easy for this class of political speakers to use the
immense wealth of the corporate treasury to give money to
independent expenditure political action.
Disclosure laws are proving inadequate on the federal level
as to super PACs, because even where the names of
contributing corporations are disclosed, a shareholder or
member of the public who wishes to know the political
activities of a specific corporation must go through all
the various super PAC filings, as well as those of other
committees or candidates, in order to gain a
comprehensive view of the information related to spending
by that corporation. There is no single mechanism by
which they can directly find all the information that is
pertinent to a specific corporation's political
activities and contributions to candidates, committees,
and/or parties.
The importance of increased transparency is evident in data
recently compiled from the FEC's web site. According to
January 2012 FEC filings, for-profit businesses
contributed more than $30 million to super PACs between
the January, 2010 date of the Citizens United decision
and the end of 2011. During that same period, $11
million of the money collected by the super PACs came
from sources that are untraceable.
b. Common Cause, together with a significant number of
labor organizations, environmental groups, and asset
managers, submitted letters of support, in which they
expressed views nearly identical to those of CALPIRG.
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c. Anna Eshoo and Bob Filner, both of whom are
co-sponsors of HR 2517, submitted letters of support for
SB 982, to support efforts to address this issue at the
state level.
9. Summary of Arguments in Opposition:
a. The California Chamber of Commerce (CalChamber) led
a coalition of twenty-five other organizations in
submitting a letter of opposition, in which the
organizations asserted that forcing certain publicly-held
corporations to disclose past political expenditures and
notify shareholders at least 24 hours prior to making
current political contributions fails to protect
shareholders' interest of maximizing their return on
investment, and will likely hurt shareholders' interests.
By exposing publicly held corporations to attacks from
competitors and opponents, weakening their ability to
defend themselves against such attacks, and exposing them
to frivolous litigation, SB 982 will damage the
corporations, their income, and the value of their stock,
to the detriment of shareholders.
Specific concerns raised by the CalChamber coalition
include the following:
i. Requiring publicly-traded corporations
to disclose their planned political contributions
prior to making them forces them to reveal strategic
information, which is then available to competitors
and opponents. SB 982 will chill the ability of
publicly-traded corporations to defend themselves
against political attacks by competitors,
overzealous regulators, labor unions, and no-growth
advocates who are not subject to the same
requirements.
ii. Shareholders' primary concern is
maximizing their return on investment. A company's
business conduct and financial success are directly
affected by state and federal regulations. In order
to protect their interests from harmful regulations,
corporations must try to influence the political
process in their favor. Publicly-held corporations
participating in the political process to ensure
that they are able to increase their value are
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protecting the corporation's interests, as well as
the interests of shareholders.
iii. Providing a civil cause of action for
shareholders will open corporations up to frivolous
lawsuits. This bill also raises the possibility
that out-of-state shareholders could file suits
against corporations under California law.
iv. SB 982 is likely a violation of the
internal affairs doctrine, a long-standing principle
giving the state of incorporation of a corporation
exclusive regulatory authority over the internal
affairs of that corporation, including matters such
as political contributions and expenditures.
California Corporations Code Section 2115
establishes California's regulatory authority over
certain foreign corporations operating in
California, based on significant connections with
the state, but expressly limits California from
regulating the internal affairs of companies listed
on a public stock exchange. SB 982 appears to
regulate both domestic and foreign publicly-held
corporations, regardless of their state of
incorporation or connections to the state, thus
violating the internal affairs doctrine.
Yet, if SB 982 were enforced only against domestic
corporations, it would place those corporations at
an extreme disadvantage relative to foreign
corporations. This could negatively impact the
value of these domestic corporations, to the
detriment of shareholders.
10. Amendments: SB 982 would benefit from technical and
clarifying amendments, as follows:
a. This bill requires corporations that have
shareholders "with legal residency" in California to
perform certain activities. References to legal
residency suggest that a corporation might somehow be
responsible for determining the immigration status of its
shareholders, which is not the author's or sponsor's
intent. Staff suggests the following amendment:
Page 5, delete line 8 and insert: A corporation that
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reasonably believes it has one or more shareholders who
reside
b. This bill states that, if a contribution or
expenditure was made for or against a ballot measure, the
corporation must provide "a description of the ballot
measure," language which the sponsor acknowledges is
vague.
The sponsor has offered the following alternate language:
page 5, line 27, strike "a description" and insert: the
title and summary
c. As proposed to be added to the Corporations Code,
Section 753 of this bill would state that "no provision
of Section 751 shall be construed to relieve a
corporation of its obligations under existing law," but
goes on to state, "including, but not limited to the
following," and then lists three different types of laws.
It would be simpler and clearer if the bill were amended
as follows:
Page 6, line 17, after "existing" insert: state or
federal, and strike page 6, lines 19 through 25.
d. This bill requires a corporation to retain the
records it uses to compile its political reports for at
least five years. Is a records retention requirement of
that length necessary? Would two years, reflecting the
length of a typical election cycle, make more sense?
e. This bill is silent regarding the statute of
limitations governing the private right of action it
authorizes. Staff suggests that the length of the
statute of limitations be expressly stated in law, so
that shareholders are aware of it, and suggests that the
recordkeeping requirement be conformed to the statute of
limitations, to ensure that corporations cannot be sued
to produce information they are no longer legally
required to retain.
11. Prior and Related Legislation:
a. AB 919 (Nava), 2009-10 Legislative Session: Would
have required corporations that engage in political
activity, as defined, to mail their California
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shareholders a Political Activity Report summarizing
their political contributions, and would have allowed
shareholders who to objected to those contributions to
receive a pro rata refund of those contributions,
calculated on a number of shares owned basis. Never
heard by the Assembly in that form. Failed passage in
the Senate Banking, Finance & Insurance Committee.
b. SB 1354 (Dunn), 2005-2006 Legislative Session:
Substantially similar to AB 919, but calculated the pro
rata refund due to shareholders 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.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
CALPIRG (sponsor)
California League of Conservation Voters
California Teachers Association
Common Cause
Congressman Bob Filner
Congresswoman Anna Eshoo
Consumer Federation of California
Consumers for Auto Reliability and Safety
Environment California
Green Century Capitol Management
Harrington Investments, Inc.
New Progressive Alliance
Planning and Conservation League
Public Citizen's Congress Watch
Public Employees Union, Local One
Walden Asset Management
West Virginia Citizens Action Group
Zevin Asset management, LLC
Opposition
California Chamber of Commerce
Alliance of Automobile Manufacturers
American Council of Engineering Companies California
SB 982 (Evans), Page 12
Associated General Contractors
Bakersfield Chamber of Commerce
California Association of health Plans
California Bankers Association
California Business Properties Association
California Grocers Association
California Healthcare Institute
California Land Title Association
California Manufacturers and Technology Association
California Retailers Association
California Taxpayers Association
Chambers of Commerce Alliance of Ventura and Santa Barbara
Counties
Clovis Chamber of Commerce
Dinuba Chamber of Commerce
Irvine Chamber of Commerce
Long Beach Chamber of Commerce
Los Angeles Chamber of Commerce
Orange County Business Council
Personal Insurance Federation of California
Pharmaceutical Manufacturers Association
Redondo Beach Chamber of Commerce
Securities Industry and Financial Markets Association
TechAmerica
Consultant: Eileen Newhall (916) 651-4102