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Shareholders United?

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Securities regulation has a way of crossing into other lanes. What public companies do is substantive regulation. How they govern themselves while doing it—or more importantly, how they disclose it—is securities regulation. So it is no surprise that the perennial concern over regulating money in politics should also become a question of federal securities regulation. The Shareholders United Act (the “Act”)—passed by the House of Representatives as part of House Bill 1, an early, major piece of legislation in the 116th Congress—does just that. The Act would require that before engaging in political spending, public companies poll shareholders on how they want corporate political dollars to be spent, or not spent. It further bars public companies from political spending if they are majority owned by certain nonpartisan investors.

The Act offers an answer to the question as a matter of corporate democracy, what do shareholders need to know about how managers are spending resources on political advocacy? If enacted, however, it is unlikely to vindicate this or other shareholder interests. This Essay highlights legal and pragmatic issues with the Act. The core assumption it makes—that corporate political spending “speaks for” shareholders who need protecting—as well as the shareholder-polling mechanism it would require, risk running headlong into constitutional injunction. More, the polling mechanism it would require is impractical and inconsistent with the disclosure-based U.S. securities regulatory framework. As a better approach, if we are to address corporate political spending through securities regulation, the way forward is through the existing disclosure framework. Using this framework will not only help ensure that a securities-law response to corporate political spending survives constitutional challenge, but it will also be more effective at empowering shareholders to police political spending.



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