[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                       CORPORATE GOVERNANCE AFTER 
                            CITIZENS UNITED 

=======================================================================

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON CAPITAL MARKETS,

                       INSURANCE, AND GOVERNMENT

                         SPONSORED ENTERPRISES

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2010

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-109

                               ----------
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56-773 PDF                       WASHINGTON : 2010 

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES A. WILSON, Ohio              KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
 Subcommittee on Capital Markets, Insurance, and Government Sponsored 
                              Enterprises

               PAUL E. KANJORSKI, Pennsylvania, Chairman

GARY L. ACKERMAN, New York           SCOTT GARRETT, New Jersey
BRAD SHERMAN, California             TOM PRICE, Georgia
MICHAEL E. CAPUANO, Massachusetts    MICHAEL N. CASTLE, Delaware
RUBEN HINOJOSA, Texas                PETER T. KING, New York
CAROLYN McCARTHY, New York           FRANK D. LUCAS, Oklahoma
JOE BACA, California                 DONALD A. MANZULLO, Illinois
STEPHEN F. LYNCH, Massachusetts      EDWARD R. ROYCE, California
BRAD MILLER, North Carolina          JUDY BIGGERT, Illinois
DAVID SCOTT, Georgia                 SHELLEY MOORE CAPITO, West 
NYDIA M. VELAZQUEZ, New York             Virginia
CAROLYN B. MALONEY, New York         JEB HENSARLING, Texas
MELISSA L. BEAN, Illinois            ADAM PUTNAM, Florida
GWEN MOORE, Wisconsin                J. GRESHAM BARRETT, South Carolina
PAUL W. HODES, New Hampshire         JIM GERLACH, Pennsylvania
RON KLEIN, Florida                   JOHN CAMPBELL, California
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                THADDEUS G. McCOTTER, Michigan
ANDRE CARSON, Indiana                RANDY NEUGEBAUER, Texas
JACKIE SPEIER, California            KEVIN McCARTHY, California
TRAVIS CHILDERS, Mississippi         BILL POSEY, Florida
CHARLES A. WILSON, Ohio              LYNN JENKINS, Kansas
BILL FOSTER, Illinois
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan



















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 11, 2010...............................................     1
Appendix:
    March 11, 2010...............................................    29

                               WITNESSES
                        Thursday, March 11, 2010

Baran, Jan, Partner, Wiley Rein LLP..............................    17
Coffee, John C., Jr., Adolph A. Berle Professor of Law, Columbia 
  University Law School..........................................     5
Klausner, Michael, Nancy and Charles Munger Professor of Business 
  and Professor of Law, Stanford Law School......................    15
Minow, Nell, Editor and Co-Founder, The Corporate Library........    13
Sandstrom, Karl J., Of Counsel, Perkins Coie.....................     8
Verret, J.W., Assistant Professor of Law, George Mason University 
  School of Law..................................................    12
Yerger, Ann, Executive Director, Council of Institutional 
  Investors......................................................    10

                                APPENDIX

Prepared statements:
    Kanjorski, Hon. Paul E.......................................    30
    Garrett, Hon. Scott..........................................    31
    Baran, Jan...................................................    33
    Coffee, John C., Jr..........................................    44
    Klausner, Michael............................................    65
    Minow, Nell..................................................    72
    Sandstrom, Karl J............................................    79
    Verret, J.W..................................................    84
    Yerger, Ann..................................................    86

              Additional Material Submitted for the Record

Kanjorski, Hon. Paul E.:
    Written statement of Lisa Gilbert, U.S. PIRG.................   147
Capuano, Hon. Michael E.:
    Report of the Brennan Center for Justice by Ciara Torres-
      Spelliscy entitled, ``Corporate Campaign Spending: Giving 
      Shareholders A Voice''.....................................   149
    Written statement of Ciara Torres-Spelliscy..................   192
    Excerpt from U.S. News & World Report by Ciara Torres-
      Spelliscy entitled, ``To Fix the Supreme Court's Citizens 
      United Decision, Copy the Brits''..........................   211


               CORPORATE GOVERNANCE AFTER CITIZENS UNITED

                              ----------                              


                        Thursday, March 11, 2010

             U.S. House of Representatives,
                   Subcommittee on Capital Markets,
                          Insurance, and Government
                             Sponsored Enterprises,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:30 a.m., in 
room 2128, Rayburn House Office Building, Hon. Paul E. 
Kanjorski [chairman of the subcommittee] presiding.
    Members present: Representatives Kanjorski, Capuano, Lynch, 
Perlmutter, Grayson; Garrett and Castle.
    Ex officio present: Representative Frank.
    Chairman Kanjorski. This hearing of the Subcommittee on 
Capital Markets, Insurance, and Government Sponsored 
Enterprises will come to order. Pursuant to committee rules, 
each side will have 20 minutes for opening statements. Without 
objection, all members' statements will be made a part of the 
record.
    The Chairman. Paul, I don't think your microphone is on.
    Chairman Kanjorski. Can you hear me now? Still off? Okay. 
Well, I get a chance to say good morning again. For the 
convenience of the caucus and this committee, we will first 
recognize the chairman of the full committee, Chairman Frank, 
for his opening statement.
    The Chairman. I thank the chairman of the subcommittee. 
People were asked, apparently there was a Democratic caucus 
going on, but having invited a number of very busy people to a 
hearing, I think it would be inappropriate for us to either 
cancel this or delay it, so we are going to go ahead with this 
hearing.
    This is a very important subject. The Supreme Court has 
made a decision that many of us dislike. I must say I was 
struck by the sensitivity of the Chief Justice. Since he's not 
here, I can comment without further wounding his apparently 
delicate feelings. But he was quoted as saying that he thought 
it troubling that he had to sit in a room full of Members of 
Congress who were cheering a criticism of his opinion, and I 
trust that sensitivity does not translate into his First 
Amendment rulings going forward. The notion that people should 
be constrained about criticizing a Supreme Court ruling in the 
presence of a Justice is not one that I have a great deal of 
sympathy for.
    But our purpose today is not to criticize the ruling--a 
little side thing we may do, but that's not our purpose. It is 
to, in an entirely appropriate and constitutional way, occupy 
the space that the opinion leaves for appropriate regulation. 
The Court has ruled that corporations have certain rights, but 
I guess if we were to follow the Declaration of Independence, 
if they are endowed by their Creator with those inalienable 
rights, since we are the creators of corporations, because they 
get their form from law, we can put some rules here. And the 
purpose of this hearing is to, in an entirely constitutional 
way, as I say, explore ways in which we can, in my view, 
protect the political process from further diminution of the 
one man, one vote principle by money coming in, in 
inappropriate ways.
    What we are talking about is disclosure and shareholder 
voting. I believe what we are doing is entirely constitutional 
and within the spirit of the opinion, and I think we are 
talking about ways that we can--and in my judgment, what the 
Supreme Court did undercuts the democratic process. I think we 
are reducing that, but even people who were all for the 
decision don't necessarily have to be against this bill.
    But what we are talking about here is a matter of corporate 
democracy and of corporate governance, and what we have done 
and I think the gentleman from Massachusetts and the gentleman 
from Florida, Mr. Grayson, has worked with him, and Mr. Capuano 
of Massachusetts and others, have come up with a very 
appropriate way to make sure that democracy is protected and 
the integrity of the electoral process is protected. And I 
thank the chairman of the subcommittee for calling this 
hearing, and this is something we intend to move on. Mr. 
Chairman, I appreciate your recognizing me.
    Chairman Kanjorski. The Chair recognizes Representative 
Castle for 5 minutes.
    Mr. Castle. Thank you, Mr. Chairman. And I would like to 
thank obviously all the witnesses for being here today, and I 
appreciate you holding today's hearing. Corporate governance is 
a very important issue to me and to this committee obviously. 
In my home State of Delaware and across the country, 
corporations are a major source of economic activity. In this 
economy when we must remain focused on job retention and job 
creation, we must be especially careful when considering 
proposals that would alter 150 years of State corporate 
governance laws.
    With that said, I believe the Congress must act in response 
to the campaign finance restrictions overturned by the Citizens 
United v. FEC case. This ruling now allows corporations and 
unions to spend unlimited funds from their general treasuries 
in campaign advertisements targeted at a specific candidate. I 
was one of four Members of Congress who filed an amicus brief 
prior to the ruling asking the Supreme Court to uphold the laws 
that long prevented corporate and union spending from being a 
deciding force in the political process. For this reason, I 
have introduced a bill with Representative David Price from 
North Carolina called the Stand By Every Ad Act, which extends 
the Stand By Your Ad disclosure currently required of 
candidates and political advertisements to CEOs of corporations 
and the union leaders. I believe this is a targeted response to 
the Citizens United case.
    I look forward to listening to the testimony of the 
witnesses before us today. We know there's a lot of other 
legislation, and I would be interested in your comments about 
that and again thank you all for being here. We look forward to 
the hearing. I yield back, Mr. Chairman.
    Chairman Kanjorski. Thank you, Mr. Castle. Today, we meet 
to examine the likely effects of the Supreme Court's decision 
in Citizens United v. the Federal Election Commission. In 
response to this groundbreaking ruling, Members of Congress 
have introduced no less than 30 bills. While other panels in 
the House have jurisdiction over many of these measures, the 
Financial Services Committee has the responsibility to examine 
these bills related to shareholders' rights and corporate 
governance.
    Like many, I was disappointed in the Supreme Court's 
ruling. In our system of capitalism, corporations enjoy many 
benefits designed to promote the efficient allocation of 
resources in a variant economy. Unduly influencing elections 
should not be one of those privileges. Moreover, shareholders 
have financial interests in companies, not political interests. 
Finally, I should note that in our political system, people 
vote. Corporations lack such rights.
    To limit the influence of the Citizens United decision, the 
Capital Markets Subcommittee now has under consideration 
several proposals. Those thoughtful bills generally aim to 
increase shareholders' participation in the electioneering 
decisions of public companies, enhance public transparency on 
corporate campaign spending, and contain corporate political 
activities. At the very least, we ought to act to empower 
shareholders to determine whether and how corporations can 
spend their money for political purposes. Shareholders should 
not expect that a company will use their money to invest in 
candidates that the shareholders themselves do not support. In 
this regard, corporate management should obtain some form of 
approval from their shareholders regarding corporate campaign 
expenditures.
    We also ought to enhance public disclosures of corporate 
political expenditures. Many have said that transparency is the 
best disinfectant. Better information about how corporations 
spend their money on political activities will help to hold 
corporations accountable for their actions. Today, we will 
examine pending legislative proposals introduced by Mr. 
Ackerman, Mr. Capuano, Mr. Peters, Mr. Grayson, and Ms. Kilroy 
that achieve these desired ends. We will also explore ways to 
refine these bills.
    I look forward to a vigorous debate at this hearing so that 
we can determine the best way to move ahead on these important 
policy matters. Moreover, because we have many ideas 
concurrently in motion, I am also hopeful that we can work 
today to achieve consensus, improve coordination, and ensure a 
comprehensive legislative reaction.
    In sum, while courts have long granted corporations the 
status of personhood, they are not actually people. We need a 
legislative response to the Citizens United case in order to 
restore the balance in our democratic system. And corporate 
governance reforms represent an important facet of an effective 
solution. Such reforms can give American citizens--the living, 
breathing, voting people we are here to represent--faith that 
our system of representative democracy will long endure and 
thrive.
    Mr. Capuano is recognized for 3 minutes.
    Mr. Capuano. Thank you, Mr. Chairman. First of all, I want 
to welcome the witnesses today. My hope is that--we have been 
working on this original draft bill for a while now. We have 
actually taken out some of the provisions I think some people 
might be concerned with, that I was concerned with, relative to 
the numbers of votes specifically by shareholders and the like. 
And I hope that you have a chance to look at the redrafted bill 
soon to get further input. I think we have addressed most of 
the concerns that some people might raise that I had myself.
    And of course, what this bill is, is exactly what has 
already been told. The bill is an attempt to do what we can do 
within the limits of the law, without impeding anybody's First 
Amendment rights or rights to gather or anything else. When I 
was in law school, I was taught that corporations had three 
basic rules: Use somebody else's money; make a profit; and keep 
both. My understanding is that the Supreme Court has kind of 
expanded that just a little bit more, and I respect that. I may 
disagree with it vehemently, but it's not the first Supreme 
Court ruling I have ever disagreed with, and I have no doubt 
that it will not be the last. At the same time, that does not 
mean that we should not then have an appropriate and thorough 
response to it to the best of our abilities, knowing full well 
that someone will bring something to court again. That's why we 
have this system. We do what we think is best to the best of 
our abilities without intentionally breaking any laws or 
violating the Constitution and have those attempts tested in 
court. And that's why we're back today. We thought we had fixed 
this once, but apparently we didn't, so now we'll try it again.
    I'm looking forward to hearing testimony today and ideas as 
we go forward as to what it is that we can do, knowing full 
well that some people think that we shouldn't do anything, and 
I respect that position. I just strongly disagree with it. And 
I'm even open to suggestions by people who do disagree with 
this. I'm not trying to intentionally stifle corporations, 
though I would like to. I make no bones about it. My 
preferences lost in court a few months ago, and that's life. At 
the same time, all I want now is if that's going that be the 
case, the question then becomes, whose money is this that 
corporations can now use? And the answer is, it is 
shareholders' money. That's whose money it is. And if that's 
their money, if they choose to be involved in politics, fine. 
Now I would love to get it to a situation where we could have 
it only direct money, and I would love to be open to that idea, 
because I would love to have ads on TV against me saying, don't 
vote for Mike Capuano, he's a horrendous guy, brought to you by 
the Exxon Corporation. That would be perfectly okay with me. We 
can't get there yet, and I haven't found a way to require that 
just yet, so I would love to hear ideas on that.
    But in the meantime, we're going to do the best we can to 
come up with a bill that is constitutional yet thorough and 
clear to make sure that the free speech that has now been given 
to these transparent yet fake organizations, at least 
responsible to those people who own the money, which is 
shareholders. So with that, Mr. Chairman, I yield back my one 
second.
    Chairman Kanjorski. Thank you very much. It is my pleasure 
to introduce the panel and call for their testimony. I want to 
thank the entire panel for appearing before the subcommittee 
today, and without objection, your written statements will be 
made a part of the record. You will each be recognized for a 5-
minute summary of your testimony.
    First, we have Professor John C. Coffee, Jr., Adolf A. 
Berle Professor of Law, Columbia Law School. Professor Coffee?

STATEMENT OF JOHN C. COFFEE, JR., ADOLPH A. BERLE PROFESSOR OF 
              LAW, COLUMBIA UNIVERSITY LAW SCHOOL

    Mr. Coffee. Thank you, Chairman Kanjorski, and members of 
the subcommittee. My message is going to be very simple: 
Congress cannot really fight with the Supreme Court or with the 
scope of the First Amendment. What Congress can do, what 
Congress should do, and what I would say Congress must do, is 
increase the transparency and accountability surrounding 
corporate involvement in the political process.
    The best means to that end is to use Congress' unquestioned 
power over the Federal securities laws and particularly the 
proxy rules, because that already is an established system of 
disclosure that is widely used and relied on, and only modest 
adjustments are necessary.
    The goal, however, has to be not only to increase 
transparency and disclosure, but to give shareholders an 
effective remedy by which to challenge decisions of which they 
disapprove, because this is a world in which shareholder and 
managerial interests are not well aligned. There may be 
perfectly legitimate corporate contributions, but for every 
dollar contributed by a corporation that maximize shareholder 
wealth, there are other dollars that are contributed to pursue 
the personal, political or ideological agenda of senior 
managers, and all of that is hidden. It is hidden because we 
today have an election contribution system that works through 
conduit organizations, typically trade associations and others, 
and there is no obligation for the corporation to disclose non-
earmarked payments to trade associations, even though they're 
perfectly aware and are actually told by the trade association 
that these payments are substantially going for political and 
electioneering expenses.
    Our focus I think today is on implementation, and what 
would I suggest? First of all, I would ask the SEC to form an 
advisory committee to reexamine its disclosure rules. We have 
the end report on Form 10K, the quarterly report on Form 10Q 
and the proxy statement, all of which are providing 
shareholders a rich range of information, but absolutely 
nothing today about political contributions or contributions to 
conduit organizations such as trade associations. Here you 
don't need legislation. We need to prod the SEC to put 
something else on their rather busy and overcrowded agenda. 
That's step one.
    Step two, we need to give shareholders an actual remedy 
that allows them contest a decision once it's brought to light. 
And here there's a problem that Citizens United just ignores. 
It assumes that shareholders have practical remedies by which 
to contest decisions of managers to make contributions. In 
fact, they have very few rights. What can we do? As a corporate 
governance specialist, let me tell you that there are always 
really three basic options: You can give shareholders the right 
to sue. I'm not recommending that. I think it would be largely 
futile, but others can suggest that.
    You can give shareholders increased voice, and increased 
voice means a right to vote on specific proposals that are 
focused on a particular company's situation and what has been 
disclosed about that company's behavior.
    Next, you can finally give shareholders a right to exit, a 
right to sell their shares if they are dissatisfied. And that 
right only works if they are given specific disclosure about 
what contributions have been made, how they have been made, 
what the process was within the company for approving these, 
and what the rationale was.
    Now most importantly, what I would tell you is that to 
really give shareholders an effective remedy, they must be 
given an enhanced right to vote. Classically, the right to vote 
in this field was implemented through shareholder-approved 
bylaw amendments. For generations, shareholders have had the 
rights in virtually every State to adopt bylaw amendments that 
could regulate anything in the corporation's business and 
affairs. Such bylaw amendments might, for example: one, require 
a committee of independent directors to approve all political 
contributions and electioneering expenses; two, require that 
there be a report annually to shareholders of what the purposes 
were and what the justifications were and what the process was 
for the contributions that were made; and three, prohibit 
certain kind of payments that are not really related to the 
company's line of business or to the goal of shareholder wealth 
maximization, but appear to be related to social issues, 
whether it's same-sex marriage or abortion, either side of 
these issues, there's no real nexus between those issues and 
shareholder wealth maximization.
    Such bylaw amendments do not have to obtain a majority vote 
to be effective. There's a lot of experience here. And the 
moment you have a bylaw amendment that can get a 20 percent 
shareholder vote and could be put up in the next year, 
management will come in and negotiate, and you'll get a 
practical solution between the shareholders and the management 
because no management wants to have a quarter or more of its 
shareholders dissatisfied. So once these issues can be put on 
the agenda, then we will get a practical resolution. That has 
been the experience in a lot of areas with shareholder bylaw 
proposals.
    But there are two major obstacles, and they are both new, 
and this is where implementation really hits a rocky road: 
first, there's a major State law problem; and second, there's a 
major problem with SEC rules as they are currently interpreted. 
The major State law problem is a decision a year-and-a-half-old 
called CA Inc. v. AFSME. It was a Delaware Supreme Court 
decision a year-and-a-half ago, and it says that shareholder 
power to amend the bylaws can never intrude upon, encroach or 
interfere with the power of the board of directors to 
substantively direct the business and affairs of the company.
    It's an old tension, but this is a new decision, and it has 
really curbed the power of shareholder bylaw amendments. This 
is an area where I think Congress could add a simple modest 
provision to the Federal securities laws and the Security 
Exchange Act of 1934, that could be limited just to bylaw 
amendments dealing with corporate political activity and 
electioneering expenses giving shareholders a uniform Federal 
rule, because this is not an area where we want State-by-State 
variation, so that shareholders of any public corporation could 
adopt a bylaw amendment restricting or curbing or otherwise 
influencing corporate political behavior and corporate election 
expenses.
    The idea here would be to give a continuing right to adopt 
bylaw amendments, because if we only have one vote up front, 
the problem is there we'll get a blanket authorization that the 
shareholders will vote forward in order not to cripple the 
company. We want our specific amendments from time to time that 
are focused on what the company is doing.
    That is the State law problem. Now, we move to the SEC's 
problem. Shareholder voting basically depends today on one SEC 
rule called Rule 14(a)(8). Shareholders can place an issue on 
the corporation's agenda. The issue might be a bylaw amendment, 
or more typically the issue has been a shareholder request to 
get an informational report. So shareholders may request the 
board of directors to report to them about the company's 
behavior and activities in the political process and election 
expenses. That is a technique that has been used for 20 years 
or more.
    But something new has happened. In the last year, year-and-
a-half, the SEC has fallen back on several broad, ambiguous 
exemptions under Rule 14(a)(8) and it has ruled that the 
corporation may exclude shareholder proposals seeking more 
information about the corporation's involvement in politics or 
in campaign contributions. It may do so, the SEC staff has 
ruled, at a very low level at the SEC, because there is a broad 
exemption in 14(a)(8) that says shareholders may not make 
proposals that relate to ``ordinary business operations.'' That 
is a very ambiguous phrase, ``ordinary business operations.''
    And the staff has said that any proposals dealing with 
lobbying or political contributions are really dealing with 
ordinary business operations. Frankly, I think that's 
symptomatic. If we say that the company's involvement in 
politics or in campaign contributions is only ordinary business 
operations, we are assuming a giant conclusion without 
information about what is really going on. Thus, I would 
suggest that this committee can prod the SEC to reexamine these 
broad and ambiguous resolutions.
    The truth is that under 14(a)(8), the SEC staff once took 
the position that broad bylaws--the broad policy saying the 
company would not hire or retain any employee who was gay, was 
a matter of ordinary business operations. Over time, the SEC 
became embarrassed by that position, and Congress prodded them 
to reexamine it, and now they have ruled that any kind of 
discrimination is not a matter of ordinary business operations.
    I similarly think that their position that political 
campaign contributions are always ordinary business operations 
is overly broad, undesirable, and has to be reversed. Until it 
is reversed, shareholders are not going to have an effective 
remedy by which they can prod and push the company to take 
stronger, clearer positions.
    In conclusion, I'm suggesting there really are three things 
that should be done. One, Congress can prod the SEC to 
reexamine its disclosure rules, which is a continuous 
disclosure system involving the 10K, the 10Q and the proxy 
statement, and have a section in each that describes what the 
company is doing in its political operations. That's something 
that the SEC can do without legislation, but it has to be 
prodded because the SEC often has a very full plate and isn't 
looking at these issues today.
    Two, I think Congress should prod the SEC to revise and 
narrow its overly broad exemptions under Rule 14(a)(8). There 
shouldn't be any concept that ordinary business operations 
includes political contributions.
    Finally, and I'll stop here, most ambitiously, Congress 
could amend the Securities Exchange Act and give the 
shareholder the right to adopt bylaw amendments that would 
limit corporate involvement in political and electioneering 
expenses. Then and only then would the key premise to Citizens 
United that shareholders can take effective action become 
accurate.
    Thank you.
    [The prepared statement of Professor Coffee can be found on 
page 44 of the appendix.]
    Chairman Kanjorski. Thank you very much, Professor. Now, we 
have a little bit of a dilemma. We have about what, 10\1/2\ 
minutes left, and I want to give the other witnesses equal 
time, since we allowed the professor to run over a little bit. 
Do you want to take your 5 minutes now? But we will have to 
limit you to no more than 6 minutes, because we have to make a 
vote on the Floor.
    Mr. Sandstrom. I will happily try to summarize my testimony 
in 6 minutes.
    Chairman Kanjorski. Okay, then. We will recognize Mr. Karl 
Sandstrom, of counsel, Perkins Coie.
    Mr. Sandstrom.

    STATEMENT OF KARL J. SANDSTROM, OF COUNSEL, PERKINS COIE

    Mr. Sandstrom. Chairman Kanjorski, Congressman Castle, 
Congressman Capuano, I thank you for the opportunity to appear 
here today to testify on an issue that I think is of great 
importance. I will summarize my testimony and request that the 
public opinion polls that I refer to be made part of the 
record.
    When Citizens United was first argued, the issue before the 
Court was whether Citizens United was required to disclose the 
corporations and other contributors who paid for the 
advertising and broadcasting of the film. The argument was made 
to the Court that disclosure was likely to chill giving by 
corporations. Many corporations, the Court was told, prefer 
anonymity. They did not want to be associated with 
controversial issues like climate change and financial 
regulation.
    In an 8 to 1 decision, the Court rejected this argument and 
found that disclosure was essential to the ability of 
shareholders, and more generally to the public, to monitor 
management's use of corporate resources. Justice Kennedy wrote, 
``With the advent of the Internet, prompt disclosure of 
expenditures can provide shareholders and citizens with 
information needed to hold corporations and elected officials 
accountable for their positions and supporters. Shareholders 
can determine whether their corporation's political speech 
advances the corporation's interest in making profits and 
citizens can see where their elected officials are in the 
pocket of so-called monied interests.''
    When the case was reargued, the issue that was added to the 
case was whether corporations enjoyed the same rights as 
citizens to spend unlimited sums promoting or opposing their 
candidates of choice. One argument that was made to the Court 
against extending that right to corporations is that dissenting 
shareholders' reports to underwrite spending in support of 
candidates that they personally opposed. The Court rejected 
this argument, finding that the government's legitimate 
interests in protecting shareholders could be achieved through 
strengthening the rights of shareholders through corporate 
governance. The Court found that there was little evidence of 
abuse that could not be corrected by shareholders through the 
procedures of corporate democracy.
    This decision stands for two propositions that are 
particularly relevant to this committee: first, disclosure 
served important governmental interests; and second, corporate 
governance is the means the Court envisions as being available 
for companies to be held accountable for their political 
spending. If transparency and accountability in the wake of 
Citizens United is to be more than a mirage, Congress will need 
to act.
    Current law is not up to the task. Corporations cannot 
disclose to shareholders what they do not know. Current law 
encourages companies to rely on outside groups to do their 
politics. The less a company knows about the political spending 
that it finances, the less likely it will be publicly 
associated with that spending. The more involved a corporation 
is in making an expenditure, the greater the likelihood that it 
will not need to be disclosed.
    Current law perversely creates incentives for corporations 
to remain ignorant regarding how their money is spent. The 
first step is to require corporations to be made aware of how 
corporate funds are used. Corporations should know and in turn 
inform their shareholders and the public when corporate money 
is being used to support or oppose a candidate. Unless a 
corporation is provided with the necessary information, it 
should not be allowed to contribute to an outside organization 
that engages in politics. Persons using a corporate donation to 
pay for political ads should be required to disclose its 
spending to the public and to the donating corporation and 
confirm that the corporate donors approved of the use.
    Transparency is insufficient without accountability. 
Substantial political expenditures should require a 
shareholder, at least a minimum, board of director approval. 
The approval needs to be specific and not general. The 
shareholders and the board need to know what candidates are 
being promoted or attacked with corporate funds, and why this 
spending is in the interest of the corporation.
    If the shareholder approval is required, an institutional 
shareholder should not be allowed to sit on the sidelines. An 
institutional shareholder needs to independently evaluate the 
proposed spending and determine it is in the best interests of 
its beneficiaries.
    In conclusion, only Congress can provide the protection to 
which the Court suggests shareholders are entitled. Therefore, 
I would urge this committee to accept the Court's challenge and 
bring transparency and accountability to corporate political 
spending.
    [The prepared statement of Mr. Sandstrom can be found on 
page 79 of the appendix.]
    Chairman Kanjorski. We are so well organized right now in 
the House that we can have a conference going on with the 
Republicans and a Democratic caucus going on at the same time 
and have a quorum call. So you can see we are really on track 
here to get the House well organized and on its way. And 
unfortunately, in the middle of this hearing, we have the 
pending quorum call.
    What we are going to do is take a 15-minute recess so we 
can record our votes, and then we will come back and finish the 
witness statements. So with no further ado, the hearing will 
stand in recess for 15 minutes.
    [recess]
    Chairman Kanjorski. The committee will come to order. The 
next presenter will be Ms. Ann Yerger, executive director, 
Council of Institutional Investors.
    Ms. Yerger.

    STATEMENT OF ANN YERGER, EXECUTIVE DIRECTOR, COUNCIL OF 
                    INSTITUTIONAL INVESTORS

    Ms. Yerger. Good morning--I think it's still morning. Thank 
you very much for the opportunity to share the Council's views 
on the very important issues under consideration today. By way 
of introduction, the Council is a nonpartisan association of 
public, union, and corporate employee benefit plans with assets 
exceeding $3 trillion. Council members are responsible for 
safeguarding assets used to fund the retirement benefits of 
millions throughout the United States. Our members are quite 
diverse and include the State funds from almost all of your 
States, along with corporations such as Johnson & Johnson and 
unions such as the AFL-CIO. So clearly, there is a wide variety 
of views on issues within the membership.
    Our members do share some very important characteristics. 
First, they have a very significant commitment to the domestic 
markets, on average investing about 60 percent of their 
portfolios in stocks and bonds of U.S. public companies, and 
they are long-term patient investors due to their lengthy 
investment horizons and heavy commitment to passive investment 
strategies.
    As an initial matter, I want to state up-front that 
consistent with our membership-approved policies, the Council 
has no position on the legal issues arising from the Citizens 
United decision, including whether there should be limits on 
corporate political activity. And since we are an organization 
of investors, I have no position either on the need for 
limitations on activities by nonpublic entities. Rather, we 
view the issue of corporate political activities solely from 
the lens of an investor organization that advocates corporate 
governance best practices and shareowner rights.
    Our long-standing policies reflect consensus among Council 
members that political and charitable contributions by public 
companies are important corporate governance matters warranting 
robust board and shareowner oversight, comprehensive and 
accessible public disclosure, and meaningful director 
accountability.
    Corporate governance at its most fundamental is about 
ensuring that investors' capital is prudently used to create 
long-term value. Heightened scrutiny is warranted any time 
corporate executives may simply give away investors' money. The 
Council acknowledges that to date, corporate political and 
charitable contributions are generally immaterial in amount. 
However, as Professor Coffee noted, given the potential for 
conflicts, waste, and legal, reputational, and governance risks 
that may arise from corporate political and charitable 
contributions, enhanced oversight is particularly important.
    The Council believes such oversight is best addressed by 
directors and shareowners through a combined approach focused 
on disclosure and board accountability. Thus, we believe 
Congress should consider taking steps that would facilitate a 
market-based, disclosure-focused approach to corporate 
political and charitable activity. That approach should include 
at least two elements:
    First, requiring all public companies to disclose their 
charitable and political contributions as well as their board's 
policy for monitoring, assessing, and approving such spending. 
To be useful to investors, those disclosures should include 
amounts and recipients. They should also be readily accessible 
through some electronic, widely-used format that facilitates 
comparisons and other analyses.
    Second, providing shareowners with meaningful tools to hold 
directors accountable if they are disappointed with their 
oversight of the corporation's charitable and political 
activity. More specifically, all public companies should be 
required to: first, have majority voting for the uncontested 
election of directors; and second, provide long-term 
shareowners the ability to include director's candidates on 
management's proxy card. That's the so-called proxy access 
reform.
    I should note that the Securities and Exchange Commission 
is considering a proposal addressing proxy access, and the 
Council strongly supports this proposal. The Council also 
commends the House for affirming the SEC's authority in this 
area in the Wall Street Reform and Consumer Protection Act of 
2009.
    I agree transparency is the best disinfectant. However, 
that's only half of the solution. Without basic reforms to the 
director election process, shareowners simply will not have the 
tools they need to hold directors and boards accountable for 
their oversight performance, including their oversight of 
political and charitable spending.
    Before closing, I would like to note for the record that at 
this time, the Council's policies do not address shareowner 
approval of political and charitable contributions. Views are 
mixed within the Council membership on this issue. Some members 
strongly support such approval. Others have concerns, 
particularly regarding the workability and effectiveness of 
such a vote.
    Thank you, Mr. Chairman, for inviting me to participate, 
and I look forward to answering your questions.
    [The prepared statement of Ms. Yerger can be found on page 
86 of the appendix.]
    Chairman Kanjorski. Thank you very much, Ms. Yerger. We 
will now hear from Mr. J.W. Verret, assistant professor of law, 
George Mason University School of Law.
    Mr. Verret.

 STATEMENT OF J.W. VERRET, ASSISTANT PROFESSOR OF LAW, GEORGE 
                 MASON UNIVERSITY SCHOOL OF LAW

    Mr. Verret. Chairman Kanjorski, Ranking Member Garrett, and 
distinguished members of the committee, it's a privilege to 
testify today. I thank you for the invitation. My name is J.W. 
Verret. I am a professor of law at George Mason Law School, and 
I am also a senior scholar in the Mercatus Center at George 
Mason University, where I am a member of the Financial Markets 
Working Group. I also direct the Corporate Federalism 
Initiative, a network of scholars dedicated to studying the 
intersection of State and Federal authority in corporate 
governance.
    The one group with the most to gain from H.R. 4537 and 
other bills under consideration today, including H.R. 4537, the 
Shareholders Protection Act of 2010, are large institutional 
shareholders that have unique conflicts of interest. The group 
that stands to suffer the most from much of the legislation 
under consideration today are ordinary Main Street shareholders 
who hold shares through their 401(k)s.
    There are two types of shareholders in American publicly 
traded companies. The first are retail investors or ordinary 
Americans holding shares through retirement funds and 401(k)s. 
Half of all American households own stocks in this way. The 
other type of investor is the institutional investor, including 
union pension funds as well as State pension funds run by 
elected officials. H.R. 4537 and other legislation seeks to 
give those institutional investors leverage over companies for 
political purposes at the expense of retail investors. We have 
seen numerous instances where institutional shareholders use 
their leverage to achieve political goals, like CalPERS, the 
California pension fund, and their insistence on environmental 
or health policy changes that are paid in the end by ordinary 
shareholders.
    Today's legislation attempts to contort the securities laws 
to regulate campaign finance. In doing so, it risks limiting 
the ability of companies to communicate with legislators by 
giving special interest institutional shareholders like unions 
power to stop those communications. This bill does not limit 
union political spending in any way, I might add. And it has 
nothing to do with the investor protection goals of the 
Securities Exchange Act, other than the fact that in the end of 
the day, it actually harms those goals.
    Shareholders have two available remedies if they become 
dissatisfied with the performance of their companies: they can 
sell the shares; or they can vote for an alternative nominee. 
They do both with some frequency. In the rare event that 
political advocacy results in corruption, there's a third line 
of defense in place. If the audit committee of the board of 
directors, which is independent of company management, 
determines that donations are inappropriate, they are required 
under the Foreign Corrupt Practices Act to stop them 
immediately.
    The structure of American corporate law rests the authority 
to manage the day-to-day affairs of the company, including 
decisions of how to invest the company's funds, with the board 
of directors. Putting expenditures to a shareholder vote, like 
the legislation today requires, is the first step toward 
turning shareholder votes into town hall meetings.
    Some shareholders may want the company to locate a new 
factor in their town or give away health benefits for employees 
without regard to whether those expenses risk bankrupting the 
company. Shareholders choose the board of directors and 
delegate authority to make those decisions to the board in 
order to avoid that very problem.
    Political risk poses a danger to the 401(k)s of ordinary 
Americans more now than ever before. Leaders responsible for 
policies that subsidized dangerous mortgage practices, for 
instance, through Fannie Mae and Freddie Mac, now seek to 
expand financial regulations to generate the appearance of 
responsive action.
    The Supreme Court recently affirmed that companies have a 
constitutional right to advocate on behalf of their 
shareholders. Corporations do so particularly to protect the 
property rights of those shareholders from expenses associated 
with regulations whose costs might exceed their benefits. Many 
reputable companies spend money in this way. Berkshire 
Hathaway, for example, one of the most highly regarded 
companies in America, spent $3 million last year advocating for 
the interests of the school and its shareholders.
    Today's bill purports to redefine State corporate law, to 
make unvoted expenditures a violation of the company's 
fiduciary duty. This is a serious misunderstanding of the 
structure of corporate law. As Justice Powell wrote, ``No 
principle of corporate law is more firmly established than a 
State's authority to regulate domestic corporations, including 
the authority to define the voting rights of shareholders.''
    The Shareholder Protection Act of 2010 has nothing to do 
with reforming financial regulation in response to the 
financial crisis, and indeed is a distraction from that vital 
work. It risks giving powerful institutions such as pension 
funds and State-elected treasurers dangerous leverage over the 
retirement savings of ordinary Americans. To call H.R. 4537 a 
Shareholder Protection Act is fundamentally misleading.
    Thank you for the opportunity to testify, and I look 
forward to answering your questions.
    [The prepared statement of Professor Verret can be found on 
page 84 of the appendix.]
    Chairman Kanjorski. And next, we have Ms. Nell Minow, 
editor and co-founder of The Corporate Library. Ms. Minow, I 
understand you are the daughter of Newton Minow. Is that--
    Ms. Minow. Yes, I am.
    Chairman Kanjorski. Oh, congratulations. He is quite a 
famous fellow.
    Ms. Minow. He's also the world's best father.
    Chairman Kanjorski. Great.

 STATEMENT OF NELL MINOW, EDITOR AND CO-FOUNDER, THE CORPORATE 
                            LIBRARY

    Ms. Minow. Thank you very much, Mr. Chairman, and members 
of the committee. It's an honor to be back in this room to talk 
with you about one of my favorite subjects, corporate 
governance.
    I want to associate myself with the remarks of the first 
three panelists in particular, and so I'm not going to 
reiterate their points. I'm just going to move over them 
quickly so that we can get to the question part. But I think we 
can all agree that the bedrock principle here in the United 
States is freedom of speech. We're all in favor of freedom of 
speech. We're all in favor of the marketplace of ideas and of 
allowing even bad ideas in and countering them with better 
ideas, but we cannot let the marketplace of ideas be tainted by 
that other marketplace, the one that involves actual money. And 
I think that is what's happening here.
    I'm a little surprised by Professor Verret, aside from the 
fact that he's factually wrong on a number of his assertions. 
401(k) investors, for example, invest largely through 
institutional investors and don't do individual stock picks. 
But I'm a little surprised because I thought that he understood 
that markets run on information. And what we're really about 
here is getting that information out there.
    The conflict of interest is not at the shareholder level; 
it's definitely at the executive level. Executives are the ones 
who spend corporate money hiding it through intermediaries to 
influence the political outcomes in a way that is even contrary 
to their expressed views. We need to clean that up.
    If in fact, as the Court says, corporations are assemblages 
of individuals with First Amendment rights, let's make sure 
that the corporate positions reflect the views of those 
individuals. I really particularly object to his point that 
apparently shareholders are smart enough to buy the stock and 
to sell the stock but they're not smart enough to vote the 
stock intelligently. I think the whole idea of shareholder 
rights is that shareholders will in aggregate make the right 
decision, and when they don't, they bear the consequences. 
That's what markets are all about.
    So the problem, as always under a capitalist system, is 
agency costs. How do we give corporate managers enough 
authority to run the company in a way that is sustainable over 
the long term without giving them so much that they appropriate 
corporate funds for their own ends? The secret is, of course, 
better disclosure. If we had a better idea of what they were 
doing, then perhaps I would be able to tell you exactly how 
much money the insurance industry is spending to stop health 
care reform instead of saying it's between $10 million and $20 
million. I don't know. How do I not know? Because it's not 
disclosed. Problem number one is the lack of disclosure to the 
current and potential investors in the company.
    Problem number two, as Ann Yerger said, is that even if 
shareholders know how their money is being spent and what 
positions it's being used to support, there's no way for them 
to respond effectively to provide necessary direction. I always 
love explaining to people who know better than anyone else in 
the world what an election means in the corporate world: no one 
runs against you; and management nominates the candidates and 
counts the votes. Not only that, but if you only get one vote, 
you get elected. We currently have over 80 directors serving 
even though a majority of the shareholders voted against them. 
We have to have a better system than that. We must require 
majority vote and give shareholders access to the proxy to run 
their own candidates.
    The third problem, and the one I really want to focus on, 
is the problem of intermediaries. It's not enough that 
corporations must disclose every penny that they spend on 
political contributions, lobbying, ads, etc. We have to get 
them to disclose what they funnel through intermediaries, 
whether it is the Chamber of Commerce, which has been 
completely co-opted by the executives to the detriment of 
business, or these fake groups that are called something like 
``Citizens for a Better Tomorrow.''
    The Chamber of Commerce, which recently was found to have 
overstated its membership by 900 percent, has been particularly 
susceptible to this kind of manipulation. They now have of 
course only 300,000 members, not the 3 million they had 
previously trumpeted, but their tax filings show that just 19 
donors contributed one-third of their income. We need to find 
out where that money is coming from and where it is going and 
who it benefits.
    The fourth problem, and this is the one that I think is 
most important, is once shareholders have the information, do 
they have the right and the opportunity and the obligation to 
act on it? Shareholders, institutional shareholders of course 
are fiduciaries, the strictest standard under our legal system. 
I think that's intended to address the conflicts of interest 
that may exist that Professor Verret refers to, but we need to 
make sure. I would really love to see this committee call in 
Fidelity, Vanguard, etc., and ask them: ``How do you vote on 
these issues? What do you look for? Why aren't you doing a 
better job?''
    Finally, the fifth problem is that political elections, as 
you know, are too expensive in this country. I think we need to 
work on that side of it, too. I urge the members of the 
committee to give careful consideration to the Fair Elections 
Act and to making free television time available. Because 
frankly, if that was available, politics would not be so 
expensive and we wouldn't have this problem to begin with.
    Thank you again for allowing me to comment, and I look 
forward to your questions.
    [The prepared statement of Ms. Minow can be found on page 
72 of the appendix.]
    Chairman Kanjorski. Thank you very much, Ms. Minow. Next, 
we will have Professor Michael Klausner, Nancy and Charles 
Munger Professor of Business and Professor of Law, Stanford Law 
School.
    Professor Klausner.

    STATEMENT OF MICHAEL KLAUSNER, NANCY AND CHARLES MUNGER 
PROFESSOR OF BUSINESS AND PROFESSOR OF LAW, STANFORD LAW SCHOOL

    Mr. Klausner. Thank you, Chairman Kanjorski, and members of 
the committee. I too agree with much of what the first three 
speakers said, and Ms. Minow as well, so I'll be brief. In 
Citizens United, the Supreme Court recognized that its decision 
left open the question of how the corporate governance regime 
would address political advocacy by corporations. The Court 
suggested that concern over management control of political 
expenditures could be ``corrected by shareholders through the 
procedures of corporate democracy.'' The Court further stated 
that ``the remedy is not to restrict speech but to consider and 
explore other regulatory mechanisms.'' So that's what we're 
doing today.
    The threshold question is, what can shareholders do under 
the current governance regime if they would like to influence 
management's use of corporate funds for political activities? 
And the answer is, not much. The only potential tool available 
to shareholders, as Professor Verret said, is their right to 
vote annually for nominees to the board of directors. That 
mechanism, however, is poorly designed for the purposes of 
controlling political expenditures. It doesn't allow 
shareholders to exert any sort of advanced power, nor does it 
allow shareholders to vote out boards of directors, as Ms. 
Minow said. So the vote for nominees to the board is not going 
to be effective in this realm, in my view.
    The other potential response, also referred to by Professor 
Verret, is that shareholders can sell their shares. That 
response, however, won't influence management's political 
expenditures, and in fact, it barely amounts to self-
expression. Management won't even know the shares have been 
sold. They will be bought by other investors who don't know of 
or aren't bothered by the political expenditures. Unless the 
political expenditure is significantly bad for business, there 
will be no effect on the company's share price and therefore no 
influence on management before or after the fact of their 
political expenditure.
    Now if a political expenditure is materially bad for 
business, then the share price will decline as a result of 
normal share trading, regardless of whether they are 
politically motivated stock sales. So in sum, the current 
system of voting for boards of directors and selling shares 
isn't really a response to the political expenditure question.
    The basic problem is that the current system is not 
designed to give shareholders a direct voice in management 
decisionmaking, nor should it be. The assumption of the system 
is, first, that shareholders essentially have uniform interests 
in having management maximize the return on their investment. 
And second, that shareholders lack the expertise to manage the 
company. These are valid assumptions in the context of business 
decisions. But they don't apply in the context of political 
expenditures. Shareholders are not uniform in their political 
views, and there is no reason to defer to management on this 
dimension.
    Now the fact that shareholders lack effective means of 
controlling political expenditures doesn't mean that they will 
do nothing. To the contrary, they could well decide, and I 
expect they would, to use the annual vote for board nominees as 
a mean of expressing dissatisfaction, even if doing so will not 
result in displacing the board. This use of the shareholder 
vote would undermine the signal that vote could send with 
respect to the quality of management and its business 
decisions. I therefore think not only is the shareholder vote 
inadequate, but it actually is a poor vehicle through which to 
try to control political expenditures.
    So what do I think this committee should consider? I 
propose the following. That corporations be required to let 
shareholders vote annually on whether they want their company 
to exercise the rights Citizens United gave to them. Managers 
who seek shareholder approval of political expenditures would 
use this opportunity to explain the expenditures they intend to 
make, how those expenditures would be in the shareholders' 
interest, and what the cost would be. It need not be a line 
item disclosure, just a description of the types of 
expenditures management anticipates. The vote would be separate 
from the vote for board nominees. Therefore, shareholders would 
be able to express their views on politics separately from 
their views on how well management is doing at running the 
company.
    The mechanism isn't perfect, but I think it's an 
improvement over what we have, now that Citizens United has 
been decided. Thank you, and I look forward to your questions.
    [The prepared statement of Professor Klausner can be found 
on page 65 of the appendix.]
    Chairman Kanjorski. Thank you, professor.
    And finally, we will hear from Mr. Jan Baran, partner, 
Wiley Rein.
    Mr. Baran.

        STATEMENT OF JAN BARAN, PARTNER, WILEY REIN LLP

    Mr. Baran. Thank you, Mr. Chairman, and thank you for your 
excellent Polish pronunciation of my name.
    My name is Jan Baran. I am a partner at the Washington, 
D.C. law firm of Wiley Rein LLP, and I head the firm's Election 
Law and Government Ethics Group. I am here today in a purely 
personal capacity, even though I was involved in the Citizens 
United case through the submission of an amicus brief. I am not 
representing any party to that case or any client of my firm.
    I would like to touch on three subjects in summarizing my 
prepared comments which were submitted to the subcommittee: 
first, I would like to just spend a moment to make sure we 
understand the scope of what the Supreme Court did; second, I 
wish to comment on some of the constitutional ramifications of 
that decision in the context of what you're considering here in 
this subcommittee; and third, I want to touch on some practical 
concerns I would have that I'm sure you will want to keep in 
mind when you undertake your legislative drafting.
    In terms of the Citizens United case, the technical 
conclusion of the Court was that the First Amendment does not 
allow Congress to prohibit corporations, and presumably unions, 
with respect to the content of certain public advertising. That 
content involves what is called express advocacy or 
electioneering communications. Until the decision, Federal law 
and the law in approximately 24 States prohibited corporations 
from financing public advertising that says ``vote for'' or 
``vote against'' a named candidate.
    Up until the Citizens United case, there were many other 
forms of corporate financed advertising, including political 
advertising, that were permitted, and in fact protected under 
the First Amendment, including so-called issue advertising, 
discussion of public officials with respect to public issues 
and legislation. In fact, 2 days before the Citizens United 
case, there was a special election in the Commonwealth of 
Massachusetts, and in that election, which predated Citizens 
United under then-existing law, there was approximately $4.5 
million in advertising financed by corporations and unions and 
other groups with respect to that election.
    So the technical consequence of Citizens United is that 
corporations can now be unburdened with any content regulation 
as to what they say independently of any candidate or political 
party, and they can do so at any time. They cannot be limited 
in their pre-election communications to the public.
    Having made that conclusion, this subcommittee and Congress 
has a challenge of addressing what forms of regulations it may 
want to implement in light of Citizens United. Obviously, I 
have heard a great deal of discussion today about corporate 
governance and corporate law principles, which is what I assume 
is the typical jurisdiction of this committee. But when you 
legislate now, you are legislating in an area of First 
Amendment rights, and you don't have as free a hand, assuming 
you did before.
    One of the principles in First Amendment jurisprudence is 
that political speakers must be treated equally. This has been 
evidenced in numerous Supreme Court cases involving, for 
example, First Amendment exercise of picketing and other forms 
of expression. There were laws in Illinois at one time that 
prohibited certain types of picketing except by labor unions. 
The Supreme Court in the Mosley case said, well, there's no 
reason to distinguish between these types of activities, 
between unions and corporations and other organizations. And 
just last month, the Colorado Supreme Court struck down a State 
law that imposed contribution prohibitions and limitations on 
labor unions if they had a contract with the State but did not 
do so with respect to private corporations or other types of 
entities that had government contracts. The reason that the 
court struck it down is that in these types of cases the 
government has an obligation when questioned in court to come 
forward and explain why different speakers, different 
participants in the political process exercising First 
Amendment rights are being treated differently. And you have to 
demonstrate a compelling governmental interest in justifying 
the disparate treatment.
    So how does that affect you and this legislative issue that 
you are addressing? Well, if you are going to require 
shareholder voting because you want to have the participants in 
a corporation make this type of decision, why will that not be 
true of other speakers spending money, including labor unions? 
Will their members now approve any expense over $10,000? And 
what about other types of incorporated entities such as trade 
associations? Will a trade association require the vote of its 
members before it spends more than $10,000? What about groups 
like the National Rifle Association or the Sierra Club? If 
they're not going to be required to ``approve'' this type of an 
expense, what is the reason that you are requiring business 
corporations to do that?
    There are also other types of discriminatory effects that 
you will have to be mindful of. I know that Congressman 
Capuano's proposed legislation as currently drafted--I have not 
seen any of your revisions, sir--requires shareholder votes for 
expenses over $10,000, except for media corporations. There's 
an exception for media corporations. So there has to be an 
explanation. Why are we treating public media corporations 
differently than other types of public corporations? That 
presents a big problem, because the Supreme Court in Citizens 
United noted the discrepancy of treatment of public media 
corporations and said that really wasn't fair. All corporations 
should have the same rights that media corporations have. In 
practical terms, some media corporations are actually 
subsidized by subsidiaries that aren't media corporations. I'm 
thinking of The Washington Post Company. The newspaper is a 
money-losing proposition. But the company is quite profitable, 
mainly because of Kaplan Educational Services. So one can say 
that's a media company, but in fact it's being subsidized by 
non-media corporate activity.
    Finally, as noted in my written testimony, you will have to 
confront some very practical implications in anything that you 
propose, including proposals by other committees or other 
legislation that may not be handled here. For example, I note 
the question of what's going to happen to foreign corporations? 
There is a suggestion elsewhere to treat corporations that are 
more than 20 percent owned by foreign nationals, however that's 
defined, to be a foreign company, and therefore, they cannot 
make any expenditures. That proposal presents some unique 
issues, but it also runs into some of the things you're 
considering. If you require public corporations to have a vote 
of stockholders, what does that mean for a foreigner who owns 
stock in one of these corporations? Are you requiring them to 
vote on this, or are you going to prohibit them from voting on 
these types of issues because, after all, they're foreigners. 
Separately, there's the issue of, well, what does make a 
company foreign, 20 percent stock ownership? What about a 
company whose revenues from foreign sales well exceeds 20 
percent of all its revenues? That's foreign money coming in 
here to a corporation. Does that make that corporation 
``foreign'' in the sense that it is now benefitting from 
foreign financing, which theoretically could be used here in 
the United States for political expression?
    Thank you for this opportunity and I look forward to your 
questions.
    [The prepared statement of Mr. Baran can be found on page 
33 of the appendix.]
    Chairman Kanjorski. Thank you very much, Mr. Baran. I will 
take my few moments and then we will hear from the experts in 
the committee. First of all, it strikes me that we should be 
considering a resolution to establish the United Corporations 
of America, because is that not the path we are really going 
down? We are trying to make corporations and other entities 
like that so human as to be true, complete citizens of the 
United States.
    You know, that sounds far fetched, but I am not sure we are 
not running down a path that will not become very popular in a 
short period of time to call for and convene another 
Constitutional Convention in the United States to reexamine the 
First Amendment and the rights attendant thereto. And I think 
we were on that track ever since Sullivan v. New York Times, to 
tell you the truth, and that whole course of conduct that we 
are in. And it somewhat frightens me. Just to take it out of 
the realm of humor in terms of establishing a Constitutional 
Convention, maybe that should be serious.
    But, you know, in Pennsylvania at the turn of the century, 
we had a very unique thing. The three industries of 
Pennsylvania--the railroad, the steel industry and the mining 
industry--actually had reserved seats in the State Senate of 
Pennsylvania so that they could participate right on the Floor 
with the Senators so they would not get too far away from the 
intended principles of capital. And it always struck me that is 
about as far as the country and certainly Pennsylvania had 
gone, and then we swung back to the progressive era of 
Roosevelt and changed some of those things, but we seem to be 
on that same course right now.
    We ran across this incidentally, in this committee most 
recently of how to get our arms around rating agencies with 
their constitutional protection under the First Amendment and 
what do you do and what the effect is and how do you regulate 
them. I am not at all sure that if I had my d'ruthers, I would 
view the First Amendment to the Constitution in terms of free 
speech as not being corporate free speech. That if you want the 
protection of free speech, be a single entity. Once you start 
getting in a conglomerate, you should lose those rights. But we 
have lost that battle. Now we are into corporations. And I 
happen to agree with you, Professor, if 21 percent of a 
corporation is ``foreignly'' owned as compared to 19 percent, 
and who should participate.
    I am more worried about the amount of monies involved and 
the effect of that money on elections. Having participated in 
13 or 14 primary and general elections in my term in Congress, 
I have seen what money can do in campaigns, and it seems to 
pollute them every year more and more. And sometimes humorously 
on the Floor, we comment that really it would be much better if 
everybody just announced that they were no longer going to take 
a salary or take an office allowance, but that they would have 
their sponsors pick that up and you could go to your 
constituents and say, I'm not costing you anything to cast your 
representative vote in Congress because I represent United 
States Steel, and they pay my salary and they pay--and 
everybody go out and get their corporate sponsor. And I am sure 
some segment of the American population may think that is a 
great cost savings. I hope not, but I am afraid that may be the 
truth.
    Where do you see this--and maybe I will start with you, 
Professor Coffee, where do you see this all to be heading? I 
know your presentation got us to how to handle immediately 
using the governance provisions. But do you think we ought to 
go beyond that in addressing this issue and think about going 
to the basis of the Constitution itself and whether or not we 
lost control of that definition?
    Mr. Coffee. I would hesitate to encourage anyone to convene 
a Constitutional Convention. There are so many different issues 
here. The rating agencies are one issue. The courts can still 
handle that. There is this area where we're told corporations 
have speech, but the Supreme Court is also telling us that 
shareholders have full control over limiting, curbing, and 
focusing that speech. And I think that should play out for a 
bit. I think you should think about a range of options for 
shareholders, whether it's an annual vote, whether it's bylaw 
votes, whether it's referendums, giving them all the possible 
mechanisms to control their own organization. I think that's 
the least drastic means. And I would suggest we approach this 
by looking for the least restrictive alternative, and I think 
that's enabling self-regulation.
    If self-regulation fails, and we may decide that in 4 or 5 
years, then we can come to the Constitutional Convention. But 
I'm not sure that we have the same people that we had when 
Madison, Hamilton, and the Founding Fathers were putting this 
together, and I think that this would be also intensely 
lobbied. So I would first give the chance for self-regulation 
to work by empowering shareholders and by prodding the SEC, of 
which I'm a great admirer, but they're very busy. And they need 
to respond to this new revolution.
    Citizens United is a revolution, and they have to think 
about how they should reform and revise their own disclosure 
medium to give shareholders more information. Only then will 
voting work. Voting works when there's full information. So I'm 
suggesting self-regulation first and maybe ultimately you'll be 
right and we have to have this convention, but I wouldn't rush 
there.
    Chairman Kanjorski. No, I am afraid--I agree with you in 
terms of we probably would lose a good portion of the Bill of 
Rights if we convened a convention. The price would be 
extraordinary. But it looks like we are headed down that path. 
Do any of you as Constitution scholars see, has the Court gone 
to its extreme with this thought process, or are they going to 
go beyond this and continue to go beyond this and just push us 
to a corporate society?
    Mr. Coffee. I think it depends a lot on who is on the 
Court.
    Chairman Kanjorski. Well, I--
    Mr. Coffee. --we're going to have a transition, it's 
coming. I would think that the Court has taken a strong 
position but it has also left open a lot of room for self-
regulation and for regulation that enhances the power of 
shareholders to curb and control the corporation. And I think 
that's the area that can be most exploited in the short run.
    Chairman Kanjorski. How do you handle Mr. Baran's problem 
with the ownership problem?
    Mr. Coffee. You know, I did hear--Mr. Baran and Mr. Verret, 
and they different views, but they were somewhat similar. I 
don't believe there's a fundamental conflict here between 
institutional investors and retail shareholders. There may be 
in some other areas like securities litigation, but I don't 
think there is here. In terms of Mr. Baran's problem about 
foreign shareholders, I don't think there's any danger about 
this bill being underinclusive because it covers only publicly 
held corporations. That's where we have the problem of 
disbursed ownership, where there are tens of thousands of 
shareholders and management that is effectively immune from 
shareholder control.
    When you look at privately held corporations, there are 
powerful shareholders there, and they can find their own ways 
to control managers. So I would start with the publicly held 
corporation where Congress has always directed the securities 
laws at the publicly held corporation. And I don't think there 
is any danger of a statute being found unconstitutional because 
it's underinclusive. Obviously, you want to comment.
    Chairman Kanjorski. How do you handle the hidden ownership 
question of whether the ownership is in trusts or other devices 
that really do not readily disclose who the owners are? How do 
we know that in fact China is not a participant in a trust held 
in one of our major banks?
    Mr. Coffee. I think you can't handle every problem at the 
first crack of the bat. It could well be that there are 
conflicts that you will find among institutional investors, but 
institutional investors probably own over 70 percent of our 
largest companies. And if we feel that there are conflicts 
there influencing their voting, Congress can come back and give 
the beneficiaries greater control over the institutions. But I 
would start with the manageable problem of giving the 
shareholders of the company a greater say in this process. 
Because right now, they don't know what's going on.
    Chairman Kanjorski. Mr. Castle, I exceeded my time and I am 
going to get to your questions.
    Mr. Castle. Thank you, Mr. Chairman. Mr. Baran, you stated 
in your testimony, and I think I wrote it down, I think you 
said that this case applies to corporations. I think you said 
presumably unions too. I have not read it, and I'm not an 
expert on it anyhow, but does anyone disagree here on the panel 
that it applies to unions as well as to corporations? Mr. 
Sandstrom?
    Mr. Sandstrom. Mr. Castle, I think the regulator, the 
Federal Election Commission, has determined how it's going to 
enforce the law, and it's going to enforce the law in the same 
way against labor unions as corporations. The labor unions will 
be free to make independent expenditures from labor funds.
    Mr. Castle. I don't know if this hearing is about just Mr. 
Capuano's bill or not, but it has been referred to, and it 
refers to shareholder protection and deals with just 
corporations. Would you not agree that we need to deal with the 
union issue as well?
    Mr. Sandstrom. I think the union issue is somewhat 
different. First, with respect to disclosure, one of the 
problems in the corporate area is most of the money is not 
disclosed. Most of the money unions use in politics is 
disclosed. Second, I don't think anybody, even Mr. Capuano's 
bill, is looking that the beneficial shareholders actually have 
a vote. But when you have a large number of institutional 
shareholders and others who are representing the interests of 
those beneficial shareholders, the millions of Americans out 
there who hold stock beneficially, that they should have--be 
required to act in this area.
    Mr. Castle. I'm not sure I agree with you. The mere fact 
it's disclosed may not be sufficient. Should the various union 
members be given the right to vote on whether or not the actual 
expenditures are being made? Why wouldn't the same rules apply? 
There are different circumstances of stockholders and union 
members, but why wouldn't the same rules apply?
    Mr. Sandstrom. I think the issue would be how to define 
those rules, who would have--
    Mr. Castle. I agree with that.
    Mr. Sandstrom. --to vote on.
    Ms. Minow. May I respond to that, please? There are several 
differences, but the main difference is that, as I discussed in 
my testimony, we do not have a robust system for electing 
corporate directors. We do have a very robust system for 
electing representatives in these other kinds of entities. I'm 
not saying that we shouldn't have rules that apply to them and 
disclosure rules, but the fact is that union members can 
actually change their management if they don't like the 
political positions that they're taking. I'm open to the idea--
    Mr. Castle. Let me interrupt you. They can't change their--
I mean, you can change a board of directors, too. They can't 
change their officials that easily.
    Ms. Minow. Actually, you can't change the board of 
directors.
    Mr. Castle. They could change them--
    Ms. Minow. That's my point. Eighty directors are currently 
serving on public companies in this country, even though a 
majority of the shareholders voted against them. It's almost 
impossible. It's less than a fraction of 1 percent of the cases 
where--
    Mr. Castle. That doesn't make your earlier statement 
correct, though. Your earlier statement was that they could 
change their--the people running the union. They can't do that 
until there's an election or something of that nature.
    Ms. Minow. Until there's an election. But then they can. 
But they actually can when that happens. There are also 
several--you know, they're different, they're different kind of 
entities, they're organized differently. I'm not saying that 
that shouldn't be addressed, but we should understand their 
differences as we address them.
    Mr. Castle. Okay.
    Mr. Verret. Representative Castle, if I could add to that 
as well, and just in counter to the view that elections aren't 
contested for boards of directors. Last year, at 59 companies, 
dissidents were victorious in contested elections, dissidents 
against the incumbents.
    Mr. Castle. Thank you.
    Ms. Minow. Again, I did say a fraction of one percent, and 
that is a fraction of one percent.
    Mr. Castle. Thank you. Professor Verret, you indicated that 
the--who has the most to gain by all this is the large 
institutional stockholders and the ordinary retail investors 
might have the least to gain. I'm a little bit concerned about 
that as well. I mean, in a broad--talking about the corporate 
structures now, in a broad sense, in that you may have 
somebody, anyone who owns 100 shares of something and then you 
have those who own 20,000 shares of something or whatever it 
may be, and who's really going to benefit from this and who is 
not in terms of making decisions. Can you expand on that a 
little bit?
    Mr. Verret. Yes. I would offer that retail shareholders who 
own mostly through 401(k)s, whether through mutual funds or 
indirectly in shares, don't have the time to vote their shares 
the way that a union pension fund would or the way that a State 
pension fund would. They don't have the incentive to do so the 
way that those large institutions do, and they don't have the 
time and the resources. But we have seen some political 
conflicts of interest from some of the large institutional 
shareholders.
    For instance, Mr. Angelides, when he was treasurer of the 
State of California, a very dedicated public servant, but 
certainly a political figure, as everybody would agree, said 
look, CalPERS has very strong policies about environmental 
regulation and about health care, and we're going to use our 
shareholder power to see those through, policies we can't get 
through Washington, we're going to use our shareholder powers 
to get them. Now those might be very important issues, but I 
would take issue with the fact, with the instance of using 
Federal securities laws and using ownership in companies to 
deal with those policy issues. Because I don't think ordinary 
investors through their 401(k)s want to pay for that.
    Ms. Yerger. But if I may just clarify, ordinary investors 
who are indeed generally investing through 401(k)s are 
investing through mutual fund companies, institutional 
investors, who have a fiduciary duty to vote on behalf of those 
individuals. So those individuals don't even have the right to 
vote those shares. But the mutual fund company does have the 
right and the responsibility. And those votes, I might add, are 
publicly disclosed. So I actually strongly disagree with your 
assertion there.
    Mr. Verret. I don't disagree with respect to mutual funds. 
In fact, my concern is not really with mutual funds today. It's 
more with the institutions that have demonstrated political 
interests.
    Ms. Yerger. But they are indeed a minority of the 
institutional owners.
    Ms. Minow. And I disagree with your characterization of 
those interests as political interests. Are you saying that 
there is no legitimate interest of a fiduciary investor in the 
environmental policies of the portfolio companies? Of course 
it's a completely legitimate interest, and you're making a 
completely false dichotomy.
    Mr. Verret. I'm suggesting that fiduciary law is not 
sufficient to deal with these conflicts of interest with 
respect to State pension funds and union pension funds. Yes, I 
am suggesting that.
    Mr. Klausner. Can I just clarify one thing?
    Mr. Castle. Wait a minute. Mr. Chairman, how are we doing 
time-wise here?
    Chairman Kanjorski. We are down to about 2\1/2\ minutes.
    Mr. Castle. On the vote?
    Chairman Kanjorski. Yes.
    Mr. Castle. On the Floor. I think we're going to have to 
suspend at this point. I yield back.
    Chairman Kanjorski. If I may call the attention of the 
panel, Professor Klausner and Mr. Baran have a conflict that 
require them to leave by 12:30. We are faced with six votes now 
on the Floor, and that would necessitate us being away until 
about 12:30. We will return. We ask the rest of the panel to 
remain until that time, and the next examiner will be Mr. 
Capuano of Massachusetts. We are going to recess now, and you 
will be first up. And if you are first back, take the chair, 
start and convene.
    Mr. Capuano. Okay.
    Chairman Kanjorski. This committee will stand in recess.
    [recess]
    Mr. Capuano. [presiding] I would be very interested in your 
comments after you get a chance to look at it. But I think, I'm 
not sure, that it addresses most of the concerns. I mean, even 
the original bill, I just--the idea was to try to do something 
we think is legal and constitutional without overstepping the 
bounds. Who knows where the bounds are. The courts will make 
that determination in some future time. But the concept is not 
to make it so onerous as to be de facto prohibition.
    So what we have done is we'll change it from a--the 
original proposal was every time there's an expenditure over 
$10,000, it would be a one-time annual vote followed by a 
disclosure by the board of directors any time they vote to 
spend more than $50,000, not an additional vote of the 
shareholders, but simply a notification online, and then in the 
quarterly report to shareholders that this is what we have 
done, and the annual shareholder vote would be to set a limit 
to say you can spend up to ``X'' dollars, whatever that might 
be.
    It would be a separate vote that's required, and we did not 
try to take on--one of the reasons this bill is what it is, 
including some of the union issues, I think some of the union 
questions are fair questions--is that I tried to draft this 
bill in the jurisdiction of this committee.
    These other issues go to other committees, and you all know 
that there are other bills pending at the moment to address 
some of the other concerns, including some of the greater 
corporate concerns which I think are legitimate as well. And 
though Mr. Baran is gone, I just want to make sure he knows 
that we did take out that specific language relative to media 
corporations because it's not necessary as we understand it 
now.
    But that's the basic idea. And I want to be really clear. 
The whole concept of this bill is to try to thread the needle, 
to say what can we do without being overly burdensome, but also 
asking, whose money is it? And in this situation, it is clearly 
and unequivocally the shareholders' money. And honestly, one of 
the things we did, I want to be clear, is that there was some 
debate as to how we could get to each individual shareholder so 
as to not disadvantage one shareholder over another, we 
couldn't figure out a way to get to the people represented by 
proxies without creating a system that was so burdensome that I 
think that a court probably would have ruled it so and said it 
was a de facto prohibition.
    So we let the proxies do it as long as they report to the 
people that they are voting on in their behalf. And again, if 
somebody has a suggestion as to how we could do it, I totally 
agree I would prefer a situation where each individual 
shareholder could cast that vote. We couldn't come up with a 
way that would do it that we thought would stand the test of 
the Constitution.
    But I want to be clear. I don't know and I'm not all that 
fearful of most corporations doing, and if I had my d'ruthers, 
and everybody has different goals and motivations, my 
motivation in a perfect world would be to get everybody out of 
the electoral process except those of us who have our names on 
the ballot. Everybody else should be out of it. I can't do it, 
you know, that's the way it is, but I would have not just no 
corporate money, no union money, no 527s, no D triple C, no 
nobody, if I had my d'ruthers. Just me, my opponents, and the 
voters. I can't get there, at least if you can help me get 
there, I would be more than happy to listen, but absent that, 
the next best thing I can do is at least allow the voters to 
know who is saying what about who.
    And I have, under that situation, I have no serious 
concerns. If Exxon Corporation wants to take out an ad that 
says I'm good, bad or indifferent, I don't like and I actually 
would love to find a way to get away from the Citizens for a 
Better World saying Mike Capuano stinks, you know, who are 
they? And we're trying to do that in other bills. The whole 
idea is the battle over ideas and philosophies should be 
between the voters and the people that they are electing. And 
others should either stay out or put their name on the ballot 
or at least, at the very least, let the voters know who they 
are as they speak. And that's for both sides.
    And at the moment, as I understand it, the entire money 
spent on Federal elections in 2008 was in the $5 billion range. 
That's every penny that was spent by every Federal candidate, 
both themselves and D triple C, the RNCC and all the others 
that play in these games. The problem is, up until now, without 
the general treasuries of these corporations being involved, 
okay, we know the universe, you know, the impact is minimal 
even if there was--I think it was Mr. Baran who said there was 
something like $4 million spent in the Massachusetts election. 
Well, that's out of about $30 million that was spent on that 
whole election.
    The problem is the Exxon Corporation is just one 
corporation, made a profit of $45 billion in the same year that 
the total spent on elections was $5 billion. They could take 10 
percent of their profit, not their operating expenses, of just 
their profit, and equal every penny spent in every election 
across the country and clearly have a serious voice. Okay. We 
can't stop that. I got it. But we can certainly let people know 
where it comes from.
    So actually, I have heard several ideas here today that I 
do want to follow up with several of you on specific comments, 
because, you know, I am open to anything and even Professor 
Verret. I don't agree with some of your philosophical views, 
that's fair. But honestly, I am more than open to try to find a 
way. I'm not trying to stick it to anybody. I'm trying to do 
just the opposite. And I fully suspect we will come up with a 
different philosophical viewpoint, but that doesn't mean you 
can't help us find a way to at least better impose a philosophy 
that you don't agree with. And I would ask that you do so.
    So I would ask that you read the new bill, and I would ask 
that you look at it in that way. And again, if there's a more 
perfect way to do it, I want to hear it. And I am involved with 
some of the other bills that are being written for other 
committees, and I will tell you that these are not easy things 
to do. You know that. And if there are suggestions as we go 
along as to how to do it, please, you guys are the experts 
here. Help us do it, even if you don't agree with us.
    And so that honestly--I don't have questions, but I will 
tell you that we will be calling on you and I really do ask 
that you read the bill and take a look at it, and again, give 
us your viewpoint, and, you know, the philosophical viewpoints 
sounds like I'll agree with some. Professor, I presume we won't 
agree. But that's okay. That's what we do here. I still would 
like to have your input on the details if you find a detail you 
think that we could change, I'm not only open, I encourage you 
to do it.
    Mr. Verret. You got it.
    Mr. Capuano. Thank you. With that, I really don't have 
questions per se. Oh, yes, right. I have something here from 
the Brennan Center that they have asked that we submit in the 
official record. And with your permission, Mr. Chairman, we 
will do that.
    Chairman Kanjorski. Without objection, it is so ordered.
    Mr. Capuano. They are a well respected organization with 
some interesting thoughts. And with that, I think, again, I 
apologize for holding you here, but you guys know the system 
and thank you very much. Thank you, Mr. Chairman.
    Chairman Kanjorski. Thank you very much, Mr. Capuano.
    Do any other members seek recognition?
    Okay. I apologize for the lack of good scheduling in the 
House. But there are a lot of things happening that required us 
to remain there and now return with several other votes. But we 
appreciate your input, certainly your testimony, and we look 
forward to having your expertise available as we start down 
this road.
    One of the thoughts, if you could give some thought to it, 
is many of you may be familiar with the Landrum-Griffith Act as 
it guarantees democratic processes for labor unions. I do not 
think we have a comparable act regarding corporations, and it 
may be an interesting time since corporations are going to be 
taking part in the political process that we may find a 
corollary type of act requiring corporations to have democratic 
principles apply and methodologies of enforcing the same. When 
I was in private practice before my election to Congress, I was 
fortunate to have the first damage case against one of our 
national unions under the Landrum-Griffith Act. And their 
denial of democratic practices after that recovery, which was 
substantial, changed the course of how unions operated. Maybe 
we could apply the same principles to corporations in order to 
provide democratic principles in how they act and whatever we 
do in terms of their activities, and that will be perhaps a 
good enforcement mechanism. But if you would think about it and 
analyze it as we go through this process.
    Now without any further ado, the Chair notes that some 
members may have additional questions for this panel which they 
may wish to submit in writing. Without objection, the hearing 
record will remain open for 30 days for members to submit 
written questions to these witnesses and to place their 
responses in the record.
    Before we adjourn, the following will be made part of the 
record of this hearing, the written statement of Lisa Gilbert, 
United States Public Interest Research Group, and without 
objection, we will enter the polling that was offered earlier, 
which I had not entered into the record. Now let it be noted 
that without any objection, that polling will be attached to 
the witness' testimony and entered into the record.
    Without any objection, it is so ordered. The panel is 
dismissed, and this hearing is adjourned.
    [Whereupon, at 1:30 p.m., the hearing was adjourned.]















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                             March 11, 2010

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