IB Union Calendar No. 362 111th CONGRESS 2d Session H. R. 4790 [Report No. 111–620, Part I] IN THE HOUSE OF REPRESENTATIVES March 9, 2010 Mr. Capuano (for himself, Mr. Ackerman, Mr. Filner, Mr. Grayson, Mr. Himes, Mr. Holt, Mrs. Maloney, Mr. Pallone, Mr. Peters, and Ms. Roybal-Allard) introduced the following bill; which was referred to the Committee on Financial Services, and in addition to the Committee on House Administration, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned September 22, 2010 Reported from the Committee on Financial Services with an amendment Strike out all after the enacting clause and insert the part printed in italic September 22, 2010 Additional sponsors: Mr. Frank of Massachusetts, Mr. McGovern, Ms. Moore of Wisconsin, Mr. Rothman of New Jersey, Mr. Garamendi, Mr. Gutierrez, Ms. Kilroy, Mr. Larson of Connecticut, Mr. Pascrell, Mr. Cummings, Mr. Heinrich, Ms. Waters, Mr. Weiner, Mr. Grijalva, Mr. Conyers, Mr. Gene Green of Texas, Mr. Hodes, Mr. Lynch, Mrs. Napolitano, Mr. Olver, Mr. Sarbanes, Ms. Woolsey, Mr. Blumenauer, Mr. Foster, Mr. Hinchey, Ms. Kilpatrick of Michigan, Ms. Hirono, Ms. Linda T. Sánchez of California, Ms. Shea-Porter, Ms. DeLauro, Mr. Hall of New York, Ms. Watson, Mr. Welch, Ms. Edwards of Maryland, Mr. Jackson of Illinois, Mr. Perlmutter, Mr. Polis of Colorado, Mr. Sherman, Mr. Clay, and Ms. Norton September 22, 2010 Committee on House Administration discharged; committed to the Committee of the Whole House on the State of the Union and ordered to be printed For text of introduced bill, see copy of bill as introduced on March 9, 2010 A BILL To amend the Securities Exchange Act of 1934 to require shareholder authorization before a public company may make certain political expenditures, and for other purposes.

1.

Short title

This Act may be cited as the Shareholder Protection Act of 2010.

2.

Findings

Congress finds the following: (1)Corporations make significant political contributions and expenditures that directly or indirectly influence the election of candidates and support or oppose political causes. Decisions to use corporate funds for political contributions and expenditures are usually made by corporate boards and executives, rather than shareholders. (2)Corporations, acting through their boards and executives, are obligated to conduct business for the best interests of their owners, the shareholders. (3)Historically, shareholders have not had a way to know, or to influence, the political activities of corporations they own. Shareholders and the public have a right to know how corporations are spending their funds to make political contributions or expenditures benefitting candidates, political parties, and political causes. (4)Corporations should be accountable to their shareholders in making political contributions or expenditures affecting Federal governance and public policy. Requiring the express approval of a corporation’s shareholders prior to making political contributions or expenditures will establish necessary accountability.

3.

Shareholder approval of corporate political activity

The Securities Exchange Act of 1934 is amended by inserting after section 14B the following new section:

14C.

Shareholder approval of certain political expenditures and disclosure of votes of institutional investors

(a)

Shareholder authorization for political expenditures

Any solicitation of any proxy or consent or authorization in respect of any security of an issuer shall— (1)contain a description of the specific nature of any expenditures for political activities proposed to be made by the issuer for the forthcoming fiscal year not previously approved, to the extent the specific nature is known to the issuer and including the total amount of such proposed expenditures; and (2)provide for a separate shareholder vote to authorize such proposed expenditures in such amount. (b)

Requirements for expenditures

No issuer shall make any expenditure for political activities in any fiscal year unless— (1)such expenditure is of the nature of those proposed by the issuer pursuant to subsection (a)(1); and (2)authorization for such expenditures has been granted by votes representing a majority of outstanding shares pursuant to subsection (a)(2). (c)

fiduciary duty; liability

A violation of subsection (b) shall be considered a breach of a fiduciary duty of the officers and directors who authorized such an expenditure. The officers and directors who authorize such an expenditure without first obtaining such authorization of shareholders shall be jointly and severally liable in any action brought in any court of competent jurisdiction to any individual or class of individuals who held shares at the time such expenditure was made for an amount equal to 3 times the amount of such expenditure. (d)

Definition of expenditure for political activities

As used in this section: (1)The term expenditure for political activities means— (A)an independent expenditure, as such term is defined in section 301(17) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(17)); (B)an electioneering communication, as such term is defined in section 304(f)(3) of such Act (2 U.S.C. 434(f)(3)) and any other public communication (as such term is defined in section 301(22) of such Act (2 U.S.C. 431(22))) that would be an electioneering communication if it were a broadcast, cable, or satellite communication; or (C)dues or other payments to trade associations or other tax exempt organizations that are, or could reasonably be anticipated to be, used or transferred to another association or organization for the purposes described in subparagraph (A) or (B). (2)Such term shall not include— (A)direct lobbying efforts through registered lobbyists employed or hired by the issuer; (B)communications by an issuer to its shareholders and executive or administrative personnel and their families; or (C)the establishment and administration of contributions to a separate segregated fund to be utilized for political purposes by a corporation. (e)

Disclosure of votes

Every institutional investment manager subject to section 13(f) shall report at least annually how it voted on any shareholder vote pursuant to subsection (a), unless such vote is otherwise required to be reported publicly by rule or regulation of the Commission. Not later than 6 months after the date of enactment of this section, the Commission shall issue rules and regulations to implement this subsection. Such rules shall require that such report be made not later than 30 days after such a vote and be made available to the public through the EDGAR system as soon as practicable. (f)

Safe harbor for certain divestment decisions

Notwithstanding any other provision of Federal or State law, no person may bring any civil, criminal, or administrative action against any institutional investment manager, or any employee, officer, or director thereof, based solely upon a decision of the investment manager to divest from, or not to invest in, securities of an issuer because of expenditures for political activities made by that issuer. This subsection shall not apply to any institutional investment manager, or any employee, officer, or director thereof, unless the institutional investment manager makes disclosures in accordance with regulations prescribed by the Commission.

.

4.

Required board vote on corporate expenditures for political activities

(a)

Required Vote

The Securities Exchange Act of 1934 is amended by adding after section 16 the following new section:

16A.

Required board vote on corporate expenditures for political activities

(a)

Listing on exchanges

Effective not later than 180 days after the date of enactment of this section, the Commission shall, by rule, direct the national securities exchanges and national securities associations to prohibit the listing of any class of equity security of an issuer that is not in compliance with the requirements of any portion of subsection (b). (b)

Requirement for vote in corporate bylaws

The corporate bylaws of an issuer shall expressly provide for a vote of the directors of the issuer on any individual expenditure for political activities (as such term is defined in section 14C(d)(1)) in excess of $50,000, or any expenditure that makes the total amount spent by the issuer for the particular election (as such term is defined in section 301(1) of the Federal Election Campaign Act of 1971 (2 U.S.C. 431(1))) $50,000 or more. An issuer shall make publicly available the individual votes of the directors required by the preceding sentence within 48 hours of the vote, including in a clear and conspicuous location on the Internet website of the issuer.

. (b)

No Effect on Determination of Coordination With Candidates or Campaigns

For purposes of determining whether an expenditure for political activities by an issuer under the Securities Exchange Act of 1934 is an independent expenditure under the Federal Election Campaign Act of 1971, the expenditure may not be treated as made in concert or cooperation with, or at the request or suggestion of, any candidate or committee solely on the grounds that any director of the issuer voted on the expenditure as required under section 16A(b) of the Securities Exchange Act of 1934 (as added by subsection (a)).

5.

Reporting requirements

Section 13 of the Securities Exchange Act of 1934 (15 U.S.C. 78m) is amended by adding at the end the following: (r)

Reporting requirements relating to certain political expenditures

(1)

Quarterly reports

Not later than 180 days after the date of enactment of this subsection, the Commission shall modify its reporting rules under this section to require issuers to disclose quarterly any expenditure for political activities (as such term is defined in section 14C(d)(1)) made during the preceding quarter and the individual votes by board members authorizing such expenditures as required under section 16A(b). Such a report shall be filed with the Commission and provided to shareholders and shall include— (A)the date of each expenditure; (B)the amount of each expenditure; (C)if the expenditure was made for or against a candidate, the name of the candidate, the office sought by and the political party affiliation of the candidate; and (D)the name or identity of trade associations or other tax-exempt organizations which receive dues or other payments as described in section 14C(d)(1)(B). (2)

Annual reports

Not later than 180 days after the date of enactment of this subsection, the Commission shall, by rule, require each issuer to include in its annual report to shareholders an annual summary of all expenditures for political activities (as such term is defined in section 14C(d)(1)) made during the preceding year in excess of $10,000. (3)

Disclosure of materials purchased by political expenditures

The Commission shall, by rule, require each issuer to obtain and disclose in the reports required under this section, any materials created with or purchased by any expenditure for political activities (as such term is defined in section 14C(d)) made by the issuer. Such rule shall also require that each issuer disclose such materials in a clear and conspicuous location on the Internet website of the issuer within 48 hours of obtaining the materials. (4)

Public availability

The Commission shall ensure that, to the greatest extent practicable, the quarterly reports required by this subsection are publicly available through the Commission website and through the EDGAR system in a manner that is searchable, sortable, and downloadable, consistent with the requirements of section 24. .

6.

Reports

The Securities and Exchange Commission shall annually assess the compliance of public corporations and their management with the requirements of the amendments made by this Act, and shall transmit to Congress an annual report of its findings. The Comptroller General of the United States shall periodically evaluate and report to Congress on the effectiveness of the Securities and Exchange Commission’s oversight of the reporting and disclosure requirements of the amendments made by this Act.

7.

Severability

If any provision of this Act, an amendment made by this Act, or the application of such provision or amendment to any person or circumstance is held to be unconstitutional, the remainder of this Act, the amendments made by this Act, and the application of such provision or amendment to any person or circumstance shall not be affected thereby.

September 22, 2010 Reported from the Committee on Financial Services with an amendment September 22, 2010 Committee on House Administration discharged; committed to the Committee of the Whole House on the State of the Union and ordered to be printed