The Supreme Court decision in Citizens United v. Federal Election Commission, 558 U.S. —, 130 S.Ct. 876 (2010), lifted long-standing limits on corporate and labor union political spending. Prior to Citizens United, federal law generally prohibited corporations and unions from using their treasury funds to make expenditures to influence federal elections, including expenditures for express advocacy ads, which are ads that call for the election or defeat of a federal candidate. Corporations are still precluded from making direct contributions to candidates in federal elections, but since the decision, campaign spending by groups that do not have to disclose their donors—so-called "Super PACs"—seems to have increased. According to the Center for Responsive Politics (CRP), a watchdog group that operates the website Opensecrets.org, the percentage of campaign spending by Super PACs has risen from 1% in 2006 to 47% in 2010.

Americans United for Change, a newly formed coalition of public interest, consumer, labor, and government reform organizations, recently announced a campaign "to target corporations that use corporate treasury funds to affect the outcome of the fall elections." While the group is primarily focused on the Super PACs, they also have targeted contributions to any entities organized under Section 501(c)(4) of the Internal Revenue Code. Such contributions may include those made to industry trade associations. Americans United for Change announced that "it would offer a $25,000 reward to the first employee who documented that his employer was using corporate funds to secretly fund a nonprofit organization that buys ads to affect the [2012] election."

As November nears and Super PACs face increased scrutiny, calls from shareholders, campaign finance reform groups, members of Congress, and labor unions to overturn Citizens United or require greater disclosure about corporate political spending and oversight of such spending will intensify.

SHAREHOLDER ACTION AND THE CPA-ZICKLIN INDEX

At least 116 shareholder proposals requesting greater disclosure and oversight of corporate political spending have been included in proxy statements for annual meetings in 2012. We expect to see many more before the 2012 proxy season ends. During the past couple of years, some companies have agreed to enhance their disclosures and accountability of corporate political spending, thereby avoiding the inclusion of such proposals in their proxy statements. To date, agreements by at least 11 companies have led to the withdrawal by the proponents of their corporate political spending shareholder proposals submitted for shareholder annual meetings in 2012.

Many of the shareholder proposals that have been submitted to public companies during the last few years were submitted by the Center for Political Accountability (CPA). According to a March 21, 2012, CPA press release, 100 companies have determined to make disclosures about their political contributions and to implement board oversight of political spending. More than half of the S&P 100 make such disclosures and have implemented board oversight of corporate political spending.

CPA and the Carol and Lawrence Zicklin Center for Business Ethics Research at The Wharton School have developed an index that rates companies for the quality of their political disclosure and accountability practices. So far, the CPA-Zicklin Index has only rated companies in the S&P 100, but the index is supposed to be expanded this year to include the companies in the S&P 500. The index rates companies based on the following seven factors:

• Disclosure of contributions or expenditures to candidates and committees
• Disclosure of independent expenditures
• Disclosure of payments to trade associations and other tax-exempt groups used for political purposes
• Disclosure of payments to ballot measure committees
• Archived reports of direct spending on companies' websites
• Policy of regular board oversight
• Semiannual posting of political spending report

Information about the CPA-Zicklin Index can be obtained online HERE. CPA notes that the preparation of the CPA-Zicklin Index led to the following observations:

• Three-fifths of the S&P 100 disclose their direct corporate political spending and have adopted board oversight of corporate political spending or prohibit spending corporate cash on politics.
• Almost one-third of the S&P 100 place some prohibitions on using corporate funds for political activity.
• Forty-three of the S&P 100 companies disclose some information about their indirect spending through trade associations or other tax-exempt groups.
• One-fourth of the S&P 100 disclose that they will not make independent expenditures.
• One-sixth of the S&P 100 state that they will not spend treasury funds directly on candidates or political committees.

CALLS FOR GOVERNMENT ACTION

Disclosure Petition to the SEC

On August 3, 2011, a group of distinguished law school professors submitted a petition to the Securities and Exchange Commission (SEC) asking that it adopt a rule requiring public companies to disclose to shareholders the use of corporate resources for political activities. This petition generated more than 70,000 mostly supportive comment letters, including a letter from 43 members of Congress, dated October 11, 2011, urging the SEC to require full disclosure of corporate spending. A contrary view was expressed by a group of distinguished scholars who stated in a March 23, 2012 letter that such a rule-making action would be "misguided" because, among other things, "genuine political expenditures are currently disclosed" and such a "rulemaking will jeopardize the SEC's non-partisan reputation and decrease confidence in its regulatory integrity." The SEC staff has had three meetings in March 2012 with representatives of groups that are supportive of the petition.

The SEC has not stated whether it intends to propose such a rule. Commissioner Luis Aguilar, however, expressed interest in ensuring that investors obtain adequate information about corporate political spending in a speech in February 2012.

Congressional Support

In response to the Citizens United ruling, Congress has attempted to pass legislation that would tighten rules regarding disclosure, identification of contributors, and corporate shareholder review and approval. Recent congressional initiatives have generally fallen into two categories:

Requiring shareholder approval of all political contributions. Sen. Bob Menendez (D-NJ) has introduced S. 1360, the Shareholder Protection Act, which would amend the Securities Exchange Act of 1934 to require shareholder authorization before a publicly traded company may make certain political expenditures. The bill also would require an affirmative vote of the board of directors of "any expenditure for political activities in excess of $50,000" and require in the annual report to shareholders "a summary of each expenditure for political activities in excess of $10,000." In addition to his legislative initiative, Sen. Menendez has called upon the SEC to consider a rule-making petition to require disclosure to shareholders.

Disclosure and identification of contributors. In February 2012, Rep. Chris Van Hollen (D-MD), one of the signatories of the October 11, 2011 letter supporting the disclosure petition, introduced H.R. 4010, the Disclosure of Information on Spending on Campaigns Leads to Open and Secure Elections Act of 2012 or the "DISCLOSE 2012 Act." On March 21, 2012, Sen. Sheldon Whitehouse introduced the Senate version of the bill. While not identical, both bills would amend the Federal Election Campaign Act to require disclosure of all "campaign-related disbursements aggregating more than $10,000 in a calendar year."

During the House floor debate on the JOBS Act (H.R. 3606), California Rep. Anna Eshoo offered an amendment requiring the companies covered by the JOBS Act—"emerging growth companies"—to publicly disclose and report to the SEC any political expenditures made during the year. The amendment was defeated 170-244, with virtually all House Democrats voting in favor and Republicans against.

LABOR UNION INVOLVEMENT

Given the involvement of the Service Employees International Union (SEIU) in Americans United for Change, and a recent Wall Street Journaleditorial by AFL-CIO President Richard Trumka, companies can expect to see increased union activity directed toward them on this issue. While the union movement will call for shareholder disclosure resolutions concerning corporate "political expenditures," the underlying agenda will no doubt include efforts to influence corporations to remain neutral in union-organizing efforts and to submit to authorization card checks, rather than secret-ballot elections supervised by the Nation Labor Relations Board.

SEIU has been one of the most successful unions in waging such campaigns. As Mr. Trumka himself has said, "Corporate campaigns swarm the target employer from every angle, great and small, with an eye toward inflicting upon the employer the death of a thousand cuts rather than a single blow."

Here are some common and successfully used tactics in union-sponsored corporate campaigns:

• Introducing shareholder resolutions sponsored by union pension funds, which have wide stock holdings
• Threatening to pull union pension fund investments
• Developing websites that disparage a company
• Leafleting at company events
• If the company in focus is a consumer company, organizing a consumer boycott of the company's products or services
• Speaking at shareholder meetings
• Lobbying of federal, state, and local officials
• Pressuring a company's banks and other sources of capital and credit
• Pressuring a corporation's shareholders and holders of corporate bonds and debt securities
• Opposing corporate management in proxy battles
• Mounting challenges to regulatory applications and other administrative permits
• Embarrassing directors and officers and top management by picketing at their homes
• Initiating legal actions under state and federal wage and hour laws
• Utilizing surrogate groups to "front" for the union
• Involving community groups, religious groups, and politicians
• Pressuring third-party providers to cease doing business with a company

In order to be prepared for such a possible campaign, companies need to have a public relations and strategic communication plan in place to counter any and all of the above tactics. In addition, key constituents need to be provided with the tools and information to be prepared to respond to union efforts that may strike them at their homes. Finally, companies should determine whether there are any significant shareholdings by unions or any union pension funds. Proactive and preventative measures should be considered to stave off any claims by union-related shareholders that a company's governance is not adequate or effective.