Shareholders can continue to speak for themselves

There have been a number of stories hitting the news cycle concerning an activist group called Change to Win — who most recently, according to this Wall Street Journal piece, actively sang about successfully bullying of businesses into dropping their support of the American Legislative Exchange Council (ALEC). Now, according to the WSJ, they are targeting WellPoint as their annual meeting kicks off today asking them to vote against board members because the company has refused to disclose or stop their campaign giving.

The WSJ spoke plainly when they said, “In the favored new tactic of the left, unions and activists are using politicized shareholder resolutions to send a message to corporations: Drop support for free-market and conservative causes, or you’ll take a political beating.”

Not to be outdone, The Huffington Post chimed in yesterday with their opinion (leaving out, oddly, any mention of  the recent ALEC boycotts) that, “If anyone is trying to squelch speech here, it is corporate executives who do not want to hear from shareholders who want more information about how their money is being spent.”

The Center for Competitive Politics, recognizing that the proxy season is among us where businesses hire firms to advise them on proxy proposals, is re-releasing our reports on the danger of using proxies to try to push businesses to silence opposition in the name of providing shareholders information.

In this post from late 2011, CCP Legal Director Allen Dickerson discusses the “two parallel attempts to water-down the impact of Citizens United. The first has been through legislation and political action. Last year, the DISCLOSE Act, which would have placed burdensome requirements on corporate political speech, failed to secure passage in Congress. Similar actions have included a draft executive order that would require government contractors to publicly report their political spending, including support for trade associations and 501(c)(4) non-profit organizations, and regulatory efforts such as recent SEC rules effectively prohibiting most state and local political contributions by investment advisors, and an SEC petition by certain law professors requesting regulations requiring additional disclosure of political activity.

The second track, however, is ongoing: the attempt by politically-active, mostly left-leaning groups to engage in “activist investing” with the aim of limiting corporate political speech. These shareholding activists are, essentially, lobbyists for political causes.

Both Dickerson’s paper on activist investing and the supplemental paper from Law Professor J.W. Verret of George Mason University (linked at the bottom of the page) support the Journal’s view and eviscerate the view of Huffington Post. Because, while the Huffpo writer believes that, “If a political expenditure is in the interests of shareholders, the company benefits from disclosure. If the company does not want to disclose it, it should not be made,” Verret offers a very simple answer, one that shareholders will do well to remember as it speaks to the real power have:

Shareholders have two available remedies if they become dissatisfied with the performance of their companies. Shareholders can sell their shares, or they can vote for an alternative nominee in the next annual election of the Board. They do both with some frequency. If their concern is founded in a violation of the federal securities laws or involves a breach of duty by the board, shareholders can also file suit.



The Center for Competitive Politics is now the Institute for Free Speech.