Shareholder Protection Act

I 116TH CONGRESS 1ST SESSION H. R. 4491 To amend the Securities Exchange Act of 1934 to require shareholder author- ization before a public company may make certain political expenditures, and for other purposes. IN THE HOUSE OF REPRESENTATIVES SEPTEMBER 25, 2019 Mr. MALINOWSKI (for himself and Mr. CLEAVER) introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Securities Exchange Act of 1934 to require shareholder authorization before a public company may make certain political expenditures, and for other pur- poses. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Shareholder Protection 4 Act’’. 5 SEC. 2. FINDINGS. 6 Congress finds that— 7 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 2 •HR 4491 IH (1) corporations make significant political con- 1 tributions and expenditures that directly or indi- 2 rectly influence the election of candidates and sup- 3 port or oppose political causes; 4 (2) decisions to use corporate funds for political 5 contributions and expenditures are usually made by 6 corporate boards and executives, rather than share- 7 holders; 8 (3) corporations, acting through boards and ex- 9 ecutives, are obligated to conduct business for the 10 best interests of their owners, the shareholders; 11 (4) historically, shareholders have not had a 12 way to know, or to influence, the political activities 13 of the corporations they own; 14 (5) shareholders and the public have a right to 15 know how corporate managers are spending com- 16 pany funds to make political contributions and ex- 17 penditures benefitting candidates, political parties, 18 and political causes; 19 (6) corporations should be accountable to share- 20 holders in making political contributions or expendi- 21 tures affecting Federal governance and public policy; 22 and 23 (7) requiring a corporation to obtain the ex- 24 press approval of shareholders before making polit- 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 3 •HR 4491 IH ical contributions or expenditures will establish nec- 1 essary accountability. 2 SEC. 3. SHAREHOLDER APPROVAL OF CORPORATE POLIT- 3 ICAL ACTIVITY. 4 (a) IN GENERAL.—The Securities Exchange Act of 5 1934 (15 U.S.C. 78a et seq.) is amended by inserting after 6 section 14B (15 U.S.C. 78n–2) the following: 7 ‘‘SEC. 14C. SHAREHOLDER APPROVAL OF CERTAIN POLIT- 8 ICAL EXPENDITURES AND DISCLOSURE OF 9 VOTES OF INSTITUTIONAL INVESTORS. 10 ‘‘(a) DEFINITIONS.—In this section— 11 ‘‘(1) the term ‘expenditure for political activi- 12 ties’— 13 ‘‘(A) means— 14 ‘‘(i) an independent expenditure (as 15 defined in section 301(17) of the Federal 16 Election Campaign Act of 1971 (52 U.S.C. 17 30101(17))); 18 ‘‘(ii) an electioneering communication 19 (as defined in section 304(f)(3) of that Act 20 (52 U.S.C. 30104(f)(3))) and any other 21 public communication (as defined in sec- 22 tion 301(22) of that Act (52 U.S.C. 23 30101(22))) that would be an election- 24 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 4 •HR 4491 IH eering communication if it were a broad- 1 cast, cable, or satellite communication; or 2 ‘‘(iii) dues or other payments to trade 3 associations or organizations described in 4 section 501(c) of the Internal Revenue 5 Code of 1986 and exempt from tax under 6 section 501(a) of that Code that are, or 7 could reasonably be anticipated to be, used 8 or transferred to another association or or- 9 ganization for the purposes described in 10 clauses (i) or (ii); and 11 ‘‘(B) does not include— 12 ‘‘(i) direct lobbying efforts through 13 registered lobbyists employed or hired by 14 the issuer; 15 ‘‘(ii) communications by an issuer to 16 its shareholders and executive or adminis- 17 trative personnel and their families; or 18 ‘‘(iii) the establishment, administra- 19 tion, and solicitation of contributions to a 20 separate segregated fund to be utilized for 21 political purposes by a corporation; and 22 ‘‘(2) the term ‘issuer’ does not include an in- 23 vestment company that is registered under section 8 24 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 5 •HR 4491 IH of the Investment Company Act of 1940 (15 U.S.C. 1 80a–8). 2 ‘‘(b) SHAREHOLDER AUTHORIZATION FOR POLIT- 3 ICAL EXPENDITURES.—Each solicitation of proxy, con- 4 sent, or authorization by an issuer with a class of equity 5 securities registered under section 12 shall— 6 ‘‘(1) contain— 7 ‘‘(A) a description of the specific nature of 8 any expenditure for political activities proposed 9 to be made by the issuer for the forthcoming 10 fiscal year that has not been authorized by a 11 vote of the shareholders of the issuer, to the ex- 12 tent the specific nature is known to the issuer; 13 and 14 ‘‘(B) the total amount of expenditures for 15 political activities proposed to be made by the 16 issuer for the forthcoming fiscal year; and 17 ‘‘(2) provide for a separate vote of the share- 18 holders of the issuer to authorize such expenditures 19 for political activities in the total amount described 20 in paragraph (1). 21 ‘‘(c) VOTE REQUIRED TO MAKE EXPENDITURES.— 22 No issuer may make an expenditure for political activities 23 in any fiscal year unless that expenditure— 24 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 6 •HR 4491 IH ‘‘(1) is of the nature of those proposed by the 1 issuer in subsection (b)(1); and 2 ‘‘(2) has been authorized by a vote of the ma- 3 jority of the outstanding shares of the issuer in ac- 4 cordance with subsection (b)(2). 5 ‘‘(d) FIDUCIARY DUTY; LIABILITY.— 6 ‘‘(1) FIDUCIARY DUTY.—A violation of sub- 7 section (c) by an issuer shall be considered to be a 8 breach of a fiduciary duty of any officer or director 9 of the issuer who authorized the expenditure for po- 10 litical activities described in that subsection. 11 ‘‘(2) LIABILITY.—An officer or director of an 12 issuer who authorizes an expenditure for political ac- 13 tivities in violation of subsection (c) shall be jointly 14 and severally liable in— 15 ‘‘(A) any action brought in a court of com- 16 petent jurisdiction to any person or class of per- 17 sons that held shares at the time the expendi- 18 ture for political activities was made; and 19 ‘‘(B) an amount that is equal to 3 times 20 the amount of the expenditure for political ac- 21 tivities. 22 ‘‘(e) DISCLOSURE OF VOTES.— 23 ‘‘(1) DISCLOSURE REQUIRED.—Each institu- 24 tional investment manager that is subject to section 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 7 •HR 4491 IH 13(f) shall disclose not less frequently than annually 1 how the institutional investment manager voted on 2 any shareholder vote under subsection (a), unless 3 the vote is otherwise required by rule of the Com- 4 mission to be reported publicly. 5 ‘‘(2) RULES.—Not later than 180 days after 6 the date of enactment of this section, the Commis- 7 sion shall issue rules to carry out this subsection 8 that require that a disclosure required under para- 9 graph (1)— 10 ‘‘(A) be made not later than 30 days after 11 the date on which a vote described in that para- 12 graph is held; and 13 ‘‘(B) be made available to the public 14 through the EDGAR system as soon as prac- 15 ticable. 16 ‘‘(f) SAFE HARBOR FOR CERTAIN DIVESTMENT DE- 17 CISIONS.—Notwithstanding any other provision of Federal 18 or State law, if an institutional investment manager makes 19 the disclosures required under subsection (e), no person 20 may bring any civil, criminal, or administrative action 21 against the institutional investment manager, or any em- 22 ployee, officer, or director of the institutional investment 23 manager, based solely upon a decision of the investment 24 manager to divest from, or not to invest in, securities of 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 8 •HR 4491 IH an issuer due to an expenditure for political activities 1 made by the issuer.’’. 2 (b) TECHNICAL AND CONFORMING AMENDMENT.— 3 Section 3(a)(8) of the Securities Exchange Act of 1934 4 (15 U.S.C. 78c(a)(8)) is amended by striking ‘‘The term’’ 5 and inserting ‘‘Except as otherwise expressly provided, the 6 term’’. 7 SEC. 4. REQUIRED BOARD VOTE ON CORPORATE EXPENDI- 8 TURES FOR POLITICAL ACTIVITIES. 9 The Securities Exchange Act of 1934 (15 U.S.C. 78a 10 et seq.) is amended by adding after section 16 (15 U.S.C. 11 78p) the following: 12 ‘‘SEC. 16A. REQUIRED BOARD VOTE ON CORPORATE EX- 13 PENDITURES FOR POLITICAL ACTIVITIES. 14 ‘‘(a) DEFINITIONS.—In this section— 15 ‘‘(1) the term ‘election’ has the meaning given 16 the term in section 301 of the Federal Election 17 Campaign Act of 1971 (52 U.S.C. 30101); and 18 ‘‘(2) the terms ‘expenditure for political activi- 19 ties’ and ‘issuer’ have the meanings given the terms 20 in section 14C. 21 ‘‘(b) LISTING ON EXCHANGES.—Not later than 180 22 days after the date of enactment of this section, the Com- 23 mission shall, by rule, direct the national securities ex- 24 changes and national securities associations to prohibit the 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 9 •HR 4491 IH listing of any class of equity security of an issuer that 1 is not in compliance with the requirements of any portion 2 of subsection (c). 3 ‘‘(c) REQUIREMENT FOR VOTE IN CORPORATE BY- 4 LAWS.— 5 ‘‘(1) VOTE REQUIRED.—The bylaws of an 6 issuer shall expressly provide for a vote of the board 7 of directors of the issuer on any expenditure for po- 8 litical activities— 9 ‘‘(A) in an amount that is more than 10 $50,000; and 11 ‘‘(B) that would result in the total amount 12 spent by the issuer for a particular election to 13 be more than $50,000. 14 ‘‘(2) PUBLIC AVAILABILITY.—An issuer shall 15 make the votes of each member of the board of di- 16 rectors of the issuer for a vote required under para- 17 graph (1) publicly available not later than 48 hours 18 after the vote, including in a clear and conspicuous 19 location on the internet website of the issuer. 20 ‘‘(d) NO EFFECT ON DETERMINATION OF COORDINA- 21 TION WITH CANDIDATES OR CAMPAIGNS.—For purposes 22 of the Federal Election Campaign Act of 1971 (52 U.S.C. 23 30101 et seq.), an expenditure for political activities by 24 an issuer shall not be treated as made in concert or co- 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 10 •HR 4491 IH operation with, or at the request or suggestion of, any can- 1 didate or committee solely because a member of the board 2 of directors of the issuer voted on the expenditure as re- 3 quired under this section.’’. 4 SEC. 5. REPORTING REQUIREMENTS. 5 Section 13 of the Securities Exchange Act of 1934 6 (15 U.S.C. 78m) is amended by adding at the end the 7 following: 8 ‘‘(s) REPORTING REQUIREMENTS RELATING TO CER- 9 TAIN POLITICAL EXPENDITURES.— 10 ‘‘(1) DEFINITIONS.—In this subsection, the 11 terms ‘expenditure for political activities’ and 12 ‘issuer’ have the meanings given the terms in section 13 14C. 14 ‘‘(2) QUARTERLY REPORTS.— 15 ‘‘(A) REPORTS REQUIRED.—Not later than 16 180 days after the date of enactment of this 17 subsection, the Commission shall amend the re- 18 porting rules under this section to require each 19 issuer with a class of equity securities reg- 20 istered under section 12 to submit to the Com- 21 mission and the shareholders of the issuer a 22 quarterly report containing— 23 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 11 •HR 4491 IH ‘‘(i) a description of any expenditure 1 for political activities made during the pre- 2 ceding quarter; 3 ‘‘(ii) the date of each expenditure for 4 political activities; 5 ‘‘(iii) the amount of each expenditure 6 for political activities; 7 ‘‘(iv) the votes of each member of the 8 board of directors of the issuer authorizing 9 the expenditure for political activity, as re- 10 quired under section 16A(c); 11 ‘‘(v) if the expenditure for political ac- 12 tivities was made in support of or in oppo- 13 sition to a candidate, the name of the can- 14 didate and the office sought by, and the 15 political party affiliation of, the candidate; 16 and 17 ‘‘(vi) the name or identity of trade as- 18 sociations or organizations described in 19 section 501(c) of the Internal Revenue 20 Code of 1986 and exempt from tax under 21 section 501(a) of such Code that receive 22 dues or other payments as described in 23 section 14C(a)(1)(A)(iii). 24 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnson on DSK79L0C42 with BILLS 12 •HR 4491 IH ‘‘(B) PUBLIC AVAILABILITY.—The Com- 1 mission shall ensure that, to the greatest extent 2 practicable, the quarterly reports required 3 under this paragraph are publicly available 4 through the internet website of the Commission 5 and through the EDGAR system in a manner 6 that is searchable, sortable, and downloadable, 7 consistent with the requirements under section 8 24. 9 ‘‘(3) ANNUAL REPORTS.—Not later than 180 10 days after the date of enactment of this subsection, 11 the Commission shall, by rule, require each issuer to 12 include in the annual report of the issuer to share- 13 holders a summary of each expenditure for political 14 activities made during the preceding year in excess 15 of $10,000, and each expenditure for political activi- 16 ties for a particular election if the total amount of 17 such expenditures for that election is in excess of 18 $10,000.’’. 19 SEC. 6. REPORTS. 20 (a) SECURITIES AND EXCHANGE COMMISSION.—The 21 Securities and Exchange Commission shall— 22 (1) conduct an annual assessment of the com- 23 pliance of issuers and officers and members of the 24 boards of directors of issuers with sections 13(s), 25 VerDate Sep 11 2014 02:36 Oct 01, 2019 Jkt 089200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\H4491.IH H4491 kjohnso [Text truncated for display. Full text available on Congress.gov.]