The San Francisco Chronicle reported on a town hall meeeting where Governor Arnold Schwarzenegger made comments in support of corporations obtaining shareholder permission before making political expenditures.
The dispute swirls around Proposition 75, which would force public employee unions to get written permission from members before using their dues for political purposes.
But when the moderator of a televised town hall meeting in Walnut Creek on Monday night suggested that it might not be fair to treat the unions who typically back Democrats differently from Schwarzenegger's own corporate supporters, the governor surprised the crowd by quickly agreeing.
Public corporations should be required to get permission from their shareholders before giving money for political purposes, he said.
"If there's an initiative on the ballot next year, I'll support it," said Schwarzenegger, who had hinted at that support in an interview earlier this year. "Because no one, if it's a corporation or stockholder or union member, no one should have money taken out of their paycheck without permission and have it used for political purposes."
Of course, the concept of shareholder information regarding political contributions is not new. The Center for Political Accountibility advocates for more transparency in corporate political giving. The CPA's goals include sponsoring corporate shareholder resolutions
A report, updated annually, disclosing its policies for political contributions (both direct and indirect) made with corporate funds. The reports shall include, but not be limited to, contributions and donations to political candidates, political parties, political committees and other political entities organized and operating under 26 USC Sec. 527. This Report shall be disclosed to shareholders through the Company’s web site or to shareholders in published form.
A semi-annual report of political contributions, disclosing monetary and non-monetary contributions to candidates, parties, political committees and other organizations and individuals described in paragraph 1. This report shall contain the following information:
- An accounting of the Company’s funds contributed or donated to any of the persons described above;
- A business rationale for each of the Company’s political contributions or donations; and
- Identification of the person or persons in the Company who participated in making the decisions to contribute or donate.
Gov. Schwarzenegger seems to advocate more than just shareholder reporting, but actual shareholder approval for using shareholder funds for political purposes. As most lawyers will tell you, several obstacles exist to obtain shareholder approval. First, most large, publicly-traded corporations may have tens of thousands of shareholders, most of who could care less about the political operations of a company so long as the value of hte stock continues to rise. Second, many large shareholders are institutional investors, i.e. retirement funds, mutual fund companies, etc. Since these groups tend to hold a larger percentage of stock, would their preferences have influence, and what if the political preferences of the fund manager run counter to the average stockholder, or even the members of the mutual fund? What then?
Third, shareholders tend to try to buy low and sell high. Thus, stockholders may have spent far less money to purchase the stock than the stock is actually worth. For exammple, if I bought 100 shares of Starbucks for the fictional prices of $20 per share, I would have invested $2,000. But if the value of the shares increases to $50 per share, the value of my investment is $5,000, but I still only put $2,000 into the company, how much of "my money" can the spend? Which is my money, the $2,000 or the $5,000.
On a legal front, the business judgement rule generally applies to contributions of a political, charitable or educational nature. Thus, the corporation may make such contributions as a part of doing business, assuming that such corporate contributions are legal in the context. The entire purpose of the corporate form is to allow investors to owe a part of an enterprise, but without the attendent issues of having to manage the business. The CPA has asked the SEC to require disclosure of political contributions.
What is important to remember is that, in California at least, corporation may make political contributions directly from corporate funds, although corporations may sponsor PACs as well. The distinction is an important one to make. The current context of union spending, at least in California, is that a portion of membership dues is diverted to fund political operations and make political contributions. Given that a large part of any union of any size will have personal political convictions contrary to those of the union is what has driven Prop. 75.
But in most cases, corporations make political contributions to candidates through a political action committee, which is voluntarily funded by members. There is no mandatory diversion of an employee's pay to fund political contributions. In California, unions take dues, which are often required to be paid because in many cases, like teachers unions, particiaption and payment to the teacher's union is required.
I think that the very fundamental differences between a corporation and a union make the requirement of shareholder approval for corporate political giving difficult.
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