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L. Paige Whitaker Legislative Attorney - page 10 / 31





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Legislative Options After Citizens United v. FEC: Constitutional and Legal Issues

more aware of the organization’s political activity. Additionally, particular proposals might contain limitations or protections that a court would find constitutionally sufficient.

Shareholder Notification and Approval45

There is congressional interest in amending federal securities laws to require a corporation to provide notice to shareholders of corporate political spending and/or to require that shareholders authorize corporate political spending.46 For example, a very general description of such a bill is a proposal requiring that no publicly traded company which must file annual and other reports with the Securities and Exchange Commission may make any political expenditure in excess of a certain amount in a fiscal year without first obtaining the authorization of a majority of the shareholders.

Congress does not appear to have enacted legislation which provides shareholders with voting authority concerning specific corporate expenditures. These matters have traditionally been left for individual corporations to handle. Most decisions involving corporate expenditures are made by corporate executives and boards of directors. Under the business judgment rule, if there is a reasonable basis that a corporate transaction was made in good faith, management will typically be immunized from liability.47 Arguably, the business judgment rule applies to decisions of management concerning corporate political expenditures.

However, this tradition of leaving corporate expenditure decisions to corporate executives does not mean that Congress is without constitutional authority to enact legislation requiring shareholder approval of corporate political expenditures. The Constitution’s Commerce Clause48 may arguably provide Congress with authority to enact legislation of the type in question. No case specifically on point may be cited as precedent for upholding such legislation, but courts have cited the Commerce Clause as providing Congress with constitutional authority to enact various kinds of broad legislation concerning corporations. For example, several cases were brought challenging the constitutionality of the Securities Act of 193349 and the Securities Exchange Act of 1934.50 The cases upheld the constitutionality of these major federal securities laws on the basis of Congress’s power under the Commerce Clause.51 Although these cases are approximately 70 years old, their holdings arguably remain within the philosophy of later interpretations by courts of the Commerce Clause.


This portion of the report discussing shareholder notification and approval was written by Michael V. Seitzinger.

46 See CRS Report R41054, Campaign Finance Policy After Citizens United v. Federal Election Commission: Issues and Options for Congress, by R. Sam Garrett.

47 The “business judgment rule … immunizes management from liability in corporate transaction undertaken within both power of corporation and authority of management where there is reasonable basis to indicate that transaction was made in good faith.” BLACKS LAW DICTIONARY 181 (5TH ed. 1979).

48 “The Congress shall have Power ... To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes....” U.S. CONST. art. I, § 8, cl. 3.


15 U.S.C. §§ 77a et seq.


15 U.S.C. §§ 78a et seq.

51 See, e.g., Wright v. Securities and Exchange Commission, 112 F.2d 89 (2d Cir. 1940); Oklahoma-Texas Trust v. Securities and Exchange Commission, 100 F.2d 888 (10th Cir. 1939); and Securities and Exchange Commission v. Jones, 12 F. Supp. 210 (S.D.N.Y. 1935), aff’d 79 F.2d 617 (2d Cir. 1935), cert. granted in part, 297 U.S. 705 (1936), cert. denied in part, 297 U.S. 705 (1936), rev’d in part on other grounds, 298 U.S. 1 (1936).

Congressional Research Service


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