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Corporate Power Ratchet

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Posted by Leo E. Strine, Jr., Delaware Supreme Court and Harvard Law School, on Monday, November 2, 2015
Editor's Note:

Leo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on Chief Justice Strine’s recent essay, Corporate Power Ratchet: The Courts’ Role in Eroding “We the People’s” Ability to Constrain Our Corporate Creations forthcoming in the Harvard Civil Rights-Civil Liberties Law Review and issued earlier as a working paper of the Harvard Law School Program on Corporate Governance. Related research on corporate political spending from the Program on Corporate Governance includes Originalist or Original: The Difficulties of Reconciling Citizens United with Corporate Law History, and Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United, both by Leo Strine and Nicholas Walter (discussed on the Forum here and here), and Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here).

Leo Strine, Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, recently issued an essay that is forthcoming in the Harvard Civil Rights-Civil Liberties Law Review. The essay, titled Corporate Power Ratchet: The Courts’ Role in Eroding “We the People’s” Ability to Constrain Our Corporate Creations, is available here. The abstract of Chief Justice Strine’s essay summarizes it as follows:

At the beginning of our nation and throughout much of our history, corporations, as the creation of society, were seen as distinctive from human citizens. Human beings were born with certain inalienable rights that government could not take away. By contrast, corporations were the opposite of Lockean-Jeffersonian citizens, in the sense that they had only such rights as society gave them. Under this understanding, society could charter corporations and benefit from their wealth-creating potential while reserving for itself the right to limit corporate activities through externality-reducing legislation and other means so as to protect the public interest.

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2015 CPA-Zicklin Index of Corporate Political Disclosure

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Posted by Bruce F. Freed, Center for Political Accountability, on Friday, February 26, 2016
Editor's Note:

Bruce F. Freed is president and a founder of the Center for Political Accountability. This post is based on the 2015 CPA-Zicklin Index of Corporate Political Disclosure and Accountability by Mr. Freed and Marian Currinder, CPA’s associate director. The full report is available here. Related research on corporate political spending from the Program on Corporate Governance includes Originalist or Original: The Difficulties of Reconciling Citizens United with Corporate Law History, by Leo Strine and Nicholas Walter (discussed on the Forum here), and Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here).

On the eve of a blockbuster election year for political spending, more of America’s largest publicly traded companies are disclosing their corporate expenditures on politics and are starting to place restrictions on their political spending. These are key findings of the fifth annual CPA-Zicklin Index of Political Disclosure and Accountability that, for the first time, measures the transparency and accountability policies and practices of the entire S&P 500.

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Holding Activists and Proxy Advisory Firms Accountable?

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Posted by David A. Katz and Laura A. McIntosh, Wachtell, Lipton, Rosen & Katz, on Tuesday, May 31, 2016
Editor's Note:

David A. Katz is a partner and Laura A. McIntosh is a consulting attorney at Wachtell, Lipton, Rosen & Katz. The following post is based on an article by Mr. Katz and Ms. McIntosh that first appeared in the New York Law Journal. Related research from the Program on Corporate Governance includes The Long-Term Effects of Hedge Fund Activism by Lucian Bebchuk, Alon Brav, and Wei Jiang (discussed on the Forum here); The Myth that Insulating Boards Serves Long-Term Value by Lucian Bebchuk (discussed on the Forum here); The Law and Economics of Blockholder Disclosure by Lucian Bebchuk and Robert J. Jackson Jr. (discussed on the Forum here); and Pre-Disclosure Accumulations by Activist Investors: Evidence and Policy by Lucian Bebchuk, Alon Brav, Robert J. Jackson Jr., and Wei Jiang.

The nation’s capital is center stage for the latest round of debates as to the impact of shareholder activism on American business. With the introduction of the Brokaw Act by four Democratic senators in March, followed by the announcement in May of a new D.C.-based lobbying organization formed by a bipartisan group of prominent activists, the long-running controversy over the unprecedented influence of shareholder activism has officially reached Washington. The activist agenda now includes public policy, and it appears that the influence of these powerful investors is to be wielded on K Street as it has been on Wall Street. By raising their own profile via a Washington-based lobbying entity, activists will place themselves and their business practices squarely in the spotlight. Perhaps a more significant public presence will engender a more favorable reputation for activists, or perhaps it will increase activist accountability to lawmakers and public shareholders; or, perhaps, it will do both.
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Accounting for Rising Corporate Profits: Intangibles or Regulatory Rents?

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Posted by Jim Bessen, Boston University School of Law, on Friday, June 10, 2016
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Jim Bessen is Lecturer at the Boston University School of Law. This post is based on a discussion paper authored by Professor Bessen.

Profits are up. Operating margins for firms publicly listed in the US show a substantial and sustained rise (see Figure below). Corporate valuations are up as well. That is good news for managers and investors. But is it good news for society?

Economists, such as Joseph Stiglitz and Luigi Zingales, find the rise potentially troubling for two reasons. First, higher profits create greater economic inequality. Rising aggregate profits correspond to a decline in labor’s share of output, contributing to stagnant wages. Also, greater profits for some corporations but not others may create greater wage inequality (see “Corporate Inequality Is the Defining Fact of Business Today”).

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Political Contributions and Lobbying Proposals

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Posted by Yafit Cohn, Simpson Thacher & Bartlett LLP, on Thursday, August 18, 2016
Editor's Note:

Yafit Cohn is an associate at Simpson Thacher & Bartlett LLP. The following post is based on a Simpson Thacher publication authored by Ms. Cohn, Karen Hsu Kelley, and Avrohom J. Kess. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here.)

Following the U.S. Supreme Court’s 2010 decision in Citizens United v. Federal Election Commission, the Securities and Exchange Commission (“SEC”) has been facing mounting pressure from certain members of Congress, interest groups and investors to require companies to disclose their political spending. Last year, for example, 44 Democratic Senators wrote a letter to SEC Chair Mary Jo White, urging the SEC to promulgate a rule requiring issuers to disclose how they use corporate resources for political activities. As part of its Disclosure Effectiveness Initiative, the SEC is currently soliciting public comment on whether to require disclosure of public policy issues, including political spending, though it has previously declined to require such disclosure, concluding that, absent a congressional mandate, “it generally is not authorized to consider the promotion of goals unrelated to the objectives of the federal securities laws when promulgating disclosure requirements.” Given comments made by Chair White during her tenure, suggesting that disclosure of political contributions does not appear to be in furtherance of the SEC’s mission, and in light of the fact that Congress recently prohibited the SEC from promulgating a rule requiring political spending disclosure for the rest of the fiscal year, it is unlikely the SEC will issue such a rule in the near future. In the absence of an SEC rule, investors seeking disclosure of issuers’ political contributions and/or lobbying payments and policies have continued to try to affect change through private ordering, submitting shareholder proposals on the issue.

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Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers

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Posted by Jiekun Huang, University of Illinois Urbana-Champaign, on Friday, August 26, 2016
Editor's Note:

Jiekun Huang is an Assistant Professor of Finance at the College of Business at the University of Illinois Urbana-Champaign. This post is based on a forthcoming article by Professor Huang and Meng Gao, doctoral candidate in finance at the College of Business at the University of Illinois Urbana-Champaign.

Governments play an increasingly prominent role in influencing firms and stock prices. According to a Duke University/CFO Magazine Business Outlook Survey in 2013, federal government policies rank second only to consumer demand among the top three external concerns corporations face. The profound effects of political decisions on corporate performance and stock prices are evidenced by recent government policies and actions such as the bailouts of AIG and Bear Stearns, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the Affordable Care Act. As a result, information regarding political decisions is of considerable interest to financial market participants. Yet, little is known about the dissemination and incorporation of political information or its value to financial market participants. In our paper, Capitalizing on Capitol Hill: Informed Trading by Hedge Fund Managers, we test the hypothesis that hedge fund managers obtain and trade on political information through their connections with lobbyists.

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Can Business Help Fix Our Broken Politics?

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Posted by Ben W. Heineman, Jr., Harvard Law School and Harvard Kennedy School of Government, on Sunday, October 23, 2016
Editor's Note: Ben W. Heineman, Jr. is former GE General Counsel and is a senior fellow at Harvard Law School and Harvard Kennedy School of Government. He is author of the new book, The Inside Counsel Revolution: Resolving the Partner-Guardian Tension (Ankerwycke 2016), as well as High Performance with High Integrity (Harvard Business Press 2008).

Many business people are appalled at the current state of our politics. Few, however, would admit that the “business community” is responsible, in part, for our dysfunctional political culture. And fewer yet may be prepared to think about how business can take steps—in concert with other political actors—to help soothe the distemper.

But, this dreary campaign season is a good time for corporate leaders to consider specific changes in political processes—less money, more disclosure, fair facts, balanced proposals, broad coalitions, cooler rhetoric, bi-partisanship—which could help fix our broken politics and rehabilitate business’s own political standing. Such process changes proceed from an understanding that there will always be significant substantive policy differences about societal problems but that those differences require a national politics that promotes common sense, civility and compromise to move the country forward, as has happened before in our history.

First a brief background sketch on the sorry state of our current political discourse.

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Anatomy of Political Risk in the United States

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Posted by Stephan Hollander (Tilburg University), on Thursday, December 7, 2017
Editor's Note: Stephan Hollander is Professor of Financial Accounting at Tilburg University. This post is based on a recent paper by Professor Hollander; Tarek A. Hassan, Associate Professor of Economics at Boston University; Laurence van Lent, Professor of Accounting and Economics at Frankfurt School of Finance and Management; Ahmed Tahoun, Assistant Professor of Accounting at London Business School.

From the UK’s vote to leave the European Union to the threats of the US Congress to shut down the federal government, recent events have renewed concerns about the effects of risks emanating from the political system on investment, employment, and other aspects of firm behavior. The size of such effects, and the question of which aspects of political decision-making might be most disruptive to business are the subject of intense debates among economists, business leaders, and politicians. However, quantifying the effects of political risk has often proven difficult due to a lack of firm-level data on the extent of exposure to political risk, as well as a lack of data on the kind of political issues firms may be most concerned about.

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SLB No. 14I Strikes Again

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Posted by Paul Hodgson, Responsible Investor, on Thursday, February 8, 2018
Editor's Note: Paul Hodgson is US Contributing Writer at Responsible Investor. This post is based on a publication which originally appeared in Responsible Investor.

When the SEC released its latest SLB in November last year, companies—well, Apple—pounced on the possibility of excluding shareholders proposals on the basis of, well, the board had a good think about it and decided that they were already doing it and/or that it was irrelevant.

Now, all sorts of companies are targeting lobbying spending disclosure proposals and others with other changes to shareholder proposal rules. This latest crop rely on a change to interpreting Rule 14a-8(i)(5), the one about whether a proposal “deals with a matter that is not significantly related to the issuer’s business” and “relates to operations that account for less than 5% of total assets, net earnings and gross sales”. The change to the interpretation says a proponent “can continue to raise social or ethical issues in its arguments” even though the proposal relates to less than 5% of assets, “but it would need to tie those to a significant effect on the company’s business”. Said Bruce Freed of the Center for Political Accountability: “It looks like now we have a Trump administration and a Trump SEC, companies are mounting a full-fledged assault on these lobbying resolutions. They see that there’s an opening. But it’s very shortsighted.”

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Disclosing Corporate Lobbying

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Posted by Timothy Smith, Walden Asset Management, and John Keenan, AFSCME, on Monday, April 2, 2018
Editor's Note: Timothy Smith is Director of ESG Shareowner Engagement at Walden Asset Management and John Keenan is a Corporate Governance Analyst at the American Federation of State, County & Municipal Employees (AFCSME). This post is based on a recent publication authored by Mr. Smith and Mr. Keenan. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here), and Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth? by John C. Coates (discussed on the Forum here).

Corporate lobbying disclosure remains a top shareholder proposal topic for 2016. A coalition of at least 74 investors have filed proposals at 50 companies asking for lobbying reports that include federal and state lobbying payments, payments to trade associations used for lobbying, and payments to any tax-exempt organization that writes and endorses model legislation.

Corporate lobbying to influence laws and regulations affect all aspects of the economy, on issues from climate change and drug prices to financial regulation, immigration and workers’ rights. Over $3.3 billion in total was spent on federal lobbying in 2017, with companies spending about $2.6 billion. And companies also spend more than $1 billion yearly on lobbying at the state level. State lobbying is far less visible and transparent than federal lobbying. And trade associations spend over $100 million annually lobbying indirectly on behalf of companies. For example the U.S. Chamber of Commerce has spent over $1.4 billion on lobbying since 1998.

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2018 Proxy Season Preview

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Posted by Shirley Westcott, Alliance Advisors, on Tuesday, April 3, 2018
Editor's Note: Shirley Westcott is a Senior Vice President at Alliance Advisors LLC. This post is based on an Alliance Advisors publication by Ms. Westcott.

This year’s proxy season will once again bring attention to shifting investor priorities, with environmental and social (E&S) issues at the forefront of engagement discussions and shareholder resolutions. Changes over the past year to the policies and voting practices of several major index investors, along with a bold pronouncement by BlackRock that corporations should “serve a social purpose,” underscore this progression.

How far this trend advances remains to be seen, but it will be a key development to watch throughout proxy season. Money managers are continuing to face pressure from social activists to align their voting practices with their stated positions on climate change—which was a driving force in catapulting three climate risk proposals over the majority threshold in 2017. More recently, elected officials have made demands that investment funds use their financial clout to pressure firearms companies to take steps to reduce gun violence. Activist hedge funds are also taking an increasing interest in corporate sustainability, which could lead to collaborations with other institutional investors on social responsibility campaigns.

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The Cost of Political Connections

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Posted by Antoinette Schoar (MIT Sloan School of Management), on Tuesday, April 10, 2018
Editor's Note: Antoinette Schoar is the Michael M. Koerner Professor of Entrepreneurship at the MIT Sloan School of Management. This post is based on a recent article, forthcoming in the Review of Finance, by Professor Schoar; Marianne Bertrand, Chris P. Dialynas Distinguished Service Professor of Economics at the University of Chicago Booth School of Business; Francis Kramarz, Associate Professor at Ecole Polytechnique; and David Thesmar, Franco Modigliani Professor of Financial Economics at the MIT Sloan School of Management.

A large literature in corporate governance has analyzed the nexus between politics and business to show that politically connected firms can benefit from connections, for example, by receiving preferential access to government resources or favorable regulations, see Fisman (2001) or Morck and Yeung (2003). In this article, we explore a potential downside for a firm of having a politically connected CEO: Connections might lead CEOs to use firm resources to help incumbent politicians stay in power even if it is not beneficial for the firm, since it might advance their own careers or personal interests. We use France as our research setting since a large fraction of publicly-traded assets are managed by CEOs whose past professional experience involved serving in government.

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Tax-Exempt Lobbying: Corporate Philanthropy as a Tool for Political Influence

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Posted by Raymond J. Fisman (Boston University), on Monday, April 16, 2018
Editor's Note: Raymond J. Fisman is Slater Family Professor in Behavioral Economics at Boston University. This post is based on a recent paper by Professor Fisman; Marianne Bertrand, Chris P. Dialynas Distinguished Service Professor of Economics at the University of Chicago Booth School of Business; Matilde Bombardini, Associate Professor at the Vancouver School of Economics at the University of British Columbia; and Francesco Trebbi, Canada Research Chair and Professor of Economics at the Vancouver School of Economics at the University of British Columbia. Related research from the Program on Corporate Governance includes Shining Light on Corporate Political Spending, by Lucian Bebchuk and Robert Jackson (discussed on the Forum here), Investor Protection and Interest Group Politics by Lucian Bebchuk and Zvika Neeman (discussed on the Forum here) and Corporate Governance and Corporate Political Activity: What Effect Will Citizens United Have on Shareholder Wealth? by John C. Coates (discussed on the Forum here).

Donald Trump came to office in part on his promises to “drain the swamp”—as an independently wealthy outsider candidate, he would be insulated from the influence of special interests that had corrupted Washington politics At least in this regard, Trump follows in a long tradition. For as long as there has been a U.S. government (and going much, much further back), there have been reformers labeling it as corrupt and putting themselves forward as the one to clean it up.

But anticorruption reformers quickly come up against the reality that special interests have a great many instruments of influence. Politicians may be swayed by campaign contributions from political action committees, promises of lucrative employment or consulting opportunities after they leave office (recall the allegations that Hillary Clinton was corrupted by the six figure speeches she gave on Wall Street), or favors given to friends or family.

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2014 CPA-Zicklin Index of Corporate Political Disclosure

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Posted by Bruce F. Freed, Center for Political Accountability, on Tuesday, October 7, 2014
Editor's Note: Bruce F. Freed is president and a founder of the Center for Political Accountability. This post is based on the 2014 CPA-Zicklin Index of Corporate Political Disclosure and Accountability by Mr. Freed and Sol Kwon; the full report is available here. Work from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here. A committee of law professors co-chaired by Bebchuk and Jackson submitted a rulemaking petition to the SEC concerning corporate political spending; that petition is discussed here.

Dozens of leading American corporations have embraced political transparency without the prodding of shareholder proposals. This is a new and important finding in the fourth annual CPA-Zicklin Index of Corporate Political Disclosure and Accountability released by the Center for Political Accountability on September 24.

At the same time, the Index found that companies that have already adopted disclosure and accountability continue to strengthen their policies, making them more robust and comprehensive. All this is happening in the face of intense opposition by several of the leading business trade associations.

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Responding to Corporate Political Disclosure Initiatives

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Posted by Yaron Nili, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, January 30, 2015
Editor's Note: The following post comes to us from Robert K. Kelner, partner in the Election and Political Law Practice Group at Covington & Burling LLP, and is based on a Covington Alert by Mr. Kelner, Keir D. Gumbs, and Zachary Parks. Recent work from the Program on Corporate Governance about political spending includes: Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert J. Jackson, Jr. (discussed on the Forum here). Posts related to the SEC rulemaking petition on disclosure of political spending are available here.

Despite recent setbacks, efforts by activist groups to pressure companies to disclose details of their political activities are not going away. As these groups become increasingly sophisticated, 2015 looks to be their most active year to date. In fact, for the first time ever, the Center for Political Accountability plans to issue a report this year ranking the political spending disclosure practices of all 500 companies in the S&P 500 Index. This post highlights recent developments regarding corporate political spending disclosure efforts, looks ahead to what public companies can expect in the near future, and provides strategies and tips for those grappling with disclosure issues.

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The Difficulties of Reconciling Citizens United with Corporate Law History

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Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, February 27, 2015
Editor's Note: The following post is based on a recent article earlier issued as a working paper of the Harvard Law School Program on Corporate Governance, by Leo Strine, Chief Justice of the Delaware Supreme Court and a Senior Fellow of the Program, and Nicholas Walter, associate in the litigation department at Wachtell, Lipton, Rosen & Katz. The article, Originalist or Original: The Difficulties of Reconciling Citizens United with Corporate Law History, is available here. Related research from the authors includes Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United, discussed on the Forum here. Research from the Program on Corporate Governance about corporate political spending includes Shining Light on Corporate Political Spending by Lucian Bebchuk and Robert Jackson, discussed on the Forum here, Corporate Political Speech: Who Decides? by Lucian Bebchuk and Robert Jackson, available here. and Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United by Leo Strine and Nicholas Walter, discussed on the Forum here.

Citizens United has been the subject of a great deal of commentary, but one important aspect of the decision that has not been explored in detail is the historical basis for Justice Scalia’s claims in his concurring opinion that the majority holding is consistent with originalism. In this article, we engage in a deep inquiry into the historical understanding of the rights of the business corporation as of 1791 and 1868—two periods relevant to an originalist analysis of the First Amendment. Based on the historical record, Citizens United is far more original than originalist, and if the decision is to be justified, it has to be on jurisprudential grounds originalists traditionally disclaim as illegitimate. The article is available on SSRN at http://ssrn.com/abstract=2564708.

Citizens United v. FEC struck down McCain-Feingold’s restraints on electoral expenditures by corporations. In his concurring opinion, Justice Scalia argued that the decision could be justified through the originalist approach to constitutional interpretation. In particular, Justice Scalia asserted that there was “no evidence” that, at the time of the Founding, corporations were not subject to government regulation of their ability to spend money to advocate the election or defeat of political candidates.

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Shareholders in the United Kingdom

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Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday, March 6, 2015
Editor's Note: The following post comes to us from Paul L. Davies, Senior Research Fellow at Harris Manchester College, University of Oxford. He was the Allen & Overy Professor of Corporate Law from 2009 to 2014 at University of Oxford, Faculty of Law. Work from the Program on Corporate Governance about lobbying includes Investor Protection and Interest Group Politics by Lucian Bebchuk and Zvika Neeman (discussed on the Forum here).

The United States and the United Kingdom are lumped put together as ‘dispersed shareholder’ jurisdictions and contrasted with the concentrated shareholdings found in the rest of the world. This paper, Shareholders in the United Kingdom, argues that it would be better to view the UK, at least over the past half century, as a semi-dispersed rather than as simply a dispersed shareholder jurisdiction, and that there are interesting contrasts between the UK and the US experience.

Whilst the typical company listed on the main market of the London Stock Exchange certainly lacks a single (or even a cohesive small group) of shareholders with legal control, neither does the typical company display atomised shareholdings, for example, where no single shareholder holds more than 1% of the voting rights. Typically, a coalition of six or so of the largest shareholders can put together enough votes to have a fighting chance of carrying a resolution at a shareholder meeting against the wishes of the management. The question thus becomes one of the incentives and disincentives for those shareholders to coordinate their actions.

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Proxy Monitor 2015 Mid-Season Report

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Posted by James R. Copland, Manhattan Institute, on Thursday, June 11, 2015
Editor's Note: James R. Copland is the director of the Manhattan Institute’s Center for Legal Policy. The following post is based on a memorandum from the Proxy Monitor project, available here.

As we near the close of corporate America’s “proxy season”—the period between mid-April and mid-June when most large, publicly traded corporations in the United States hold annual meetings to vote on company business, including resolutions introduced by shareholders—a clear picture has begun to emerge. By May 27, 2015, 211 of the nation’s 250 largest companies by revenues, as listed by Fortune magazine and in the Manhattan Institute’s ProxyMonitor.org database, had filed proxy documents with the Securities and Exchange Commission. This post bases its analysis on those companies’ filings, as well as voting results for 186 of those companies that had held their annual meetings by May 22.

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Congress Should Let the SEC Do its Job

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Posted by Lucian Bebchuk, Harvard Law School, and Robert J. Jackson, Jr., Columbia Law School, on Tuesday, June 23, 2015
Editor's Note: Lucian Bebchuk is Professor of Law, Economics, and Finance at Harvard Law School. Robert J. Jackson, Jr. is Professor of Law at Columbia Law School. Bebchuk and Jackson served as co-chairs of the Committee on Disclosure of Corporate Political Spending, which filed a rulemaking petition requesting that the SEC require all public companies to disclose their political spending. Bebchuk and Jackson are also co-authors of Shining Light on Corporate Political Spending, published in the Georgetown Law Journal. A series of posts in which Bebchuk and Jackson respond to objections to an SEC rule requiring disclosure of corporate political spending is available here. All posts related to the SEC rulemaking petition on disclosure of political spending are available here.

Last week, the House Appropriations Committee included in its 2016 appropriations bill for financial services agencies a provision that would prevent the SEC from developing rules that would require public companies to disclose their political spending. Although this provision is unlikely to become law, its adoption is regrettable. In our view, Congress should let the SEC do its job and use its expert judgment—free of political pressures in any direction—to determine what information should be disclosed to public-company investors.

In July 2011, we co-chaired a committee of ten corporate and securities law academics that petitioned the SEC to develop rules requiring public companies to disclose their political spending. The SEC has now received over 1.2 million comments on the proposal—more than any rulemaking petition in the SEC’s history. As we have explained in previous posts on the Forum, the case for rules requiring disclosure of corporate spending is compelling. Unfortunately, Chairman Mary Jo White has faced significant political pressure not to develop such rules, and the Commission has so far chosen to delay consideration of rules in this area.

As we explained in earlier posts on the Forum (see, for example, posts here and here), we view this delay as regrettable in light of the compelling arguments in favor of disclosure and the breadth of support that the petition has received. Furthermore, as we explain in detail in our article Shining Light on Corporate Political Spending, an analysis of the full range of objections that opponents of transparency have raised makes clear that these opponents have failed to provide a convincing basis for keeping corporate political spending below investors’ radar screen.

We agree with the bipartisan group of three former SEC Commissioners who just last month referred to the SEC’s inaction on the petition as “inexplicable.” At a minimum, the broad support and compelling arguments in favor of disclosure of corporate spending on politics make clear that the Commission should move promptly to consider the petition on the merits. Unfortunately, last week’s move by the Appropriations Committee reflects another attempt to avoid consideration of the rulemaking petition on its merits. Members of Congress should not try to prevent the SEC from even considering the substantive merits of the petition.

While corporate political spending is an issue that politicians are naturally interested in, our petition focuses on whether investors should receive information regarding political spending at the companies they own. That is an issue that falls squarely within the SEC’s mandate and expertise. Regardless of their views on corporate political spending, Congressmen of all stripes should avoid interfering with the Commission’s rulemaking processes. We urge them to allow the SEC to do its job.

Corporate Power Ratchet

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Posted by Leo E. Strine, Jr., Delaware Supreme Court and Harvard Law School, on Monday, November 2, 2015
Editor's Note: Leo E. Strine, Jr. is Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance. This post is based on Chief Justice Strine’s recent essay, Corporate Power Ratchet: The Courts’ Role in Eroding “We the People’s” Ability to Constrain Our Corporate Creations forthcoming in the Harvard Civil Rights-Civil Liberties Law Review and issued earlier as a working paper of the Harvard Law School Program on Corporate Governance. Related research on corporate political spending from the Program on Corporate Governance includes Originalist or Original: The Difficulties of Reconciling Citizens United with Corporate Law History, and Conservative Collision Course?: The Tension between Conservative Corporate Law Theory and Citizens United, both by Leo Strine and Nicholas Walter (discussed on the Forum here and here), and Shining Light on Corporate Political Spending and Corporate Political Speech: Who Decides?, both by Lucian Bebchuk and Robert Jackson (discussed on the Forum here and here).

Leo Strine, Chief Justice of the Delaware Supreme Court, the Austin Wakeman Scott Lecturer on Law and a Senior Fellow of the Harvard Law School Program on Corporate Governance, recently issued an essay that is forthcoming in the Harvard Civil Rights-Civil Liberties Law Review. The essay, titled Corporate Power Ratchet: The Courts’ Role in Eroding “We the People’s” Ability to Constrain Our Corporate Creations, is available here. The abstract of Chief Justice Strine’s essay summarizes it as follows:

At the beginning of our nation and throughout much of our history, corporations, as the creation of society, were seen as distinctive from human citizens. Human beings were born with certain inalienable rights that government could not take away. By contrast, corporations were the opposite of Lockean-Jeffersonian citizens, in the sense that they had only such rights as society gave them. Under this understanding, society could charter corporations and benefit from their wealth-creating potential while reserving for itself the right to limit corporate activities through externality-reducing legislation and other means so as to protect the public interest.

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