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As SEC Considers How to Boost Shareholder Involvement, It Should Ensure Directors Are Not Captured by Management

Feb. 19, 2015

As SEC Considers How to Boost Shareholder Involvement, It Should Ensure Directors Are Not Captured by Management

Shareholders Don’t Know About Political Spending at Most Companies

Note: The Securities and Exchange Commission today hosts a roundtable to explore ways to improve the proxy voting process.

WASHINGTON, D.C. – As the Securities and Exchange Commission (SEC) entertains methods for improving shareholder involvement in director nominations for corporate boards, it should work to ensure that directors who legally serve as the agents of shareholders are not captured by management, Public Citizen said today.

“The fact that shareholders play no meaningful, practical role in the selection of directors who legally represent their interests is part of the dynamic of dysfunction in corporate governance that includes other glaring problems,” said Lisa Gilbert, director of Public Citizen’s Congress Watch division. “For example, company spending of shareholder funds on politics without full disclosure to those shareholders counts high among those problems.”

More than 1.2 million signatures have been gathered on petitions asking the SEC to adopt rules requiring full political spending disclosure.
“Congress charges the SEC with serving shareholders,” said Bartlett Naylor, Public Citizen’s financial policy advocate. “Ignoring this major expression of shareholder interest challenges whether the SEC is truly obliging its mandate.”

“The U.S. Supreme Court in its Citizens United decision assumed that corporate political spending would reflect shareholder interests,” added Gilbert. “The fact is that at most public companies, shareholders don’t even know how their money is being spent in politics. Add the fact that shareholders can’t even select directors who might be more attuned to their interests, and we have a shareholder democracy increasingly overwhelmed by elites insulated from their own constituents.”

Public Citizen supports the campaign by the New York City Comptroller to make shareholder ballots open to shareholder director nominations. The Comptroller’s target list of companies includes many firms with poor or even non-existent political spending policies, according to a Public Citizen analysis. Firms with directors chosen by shareholders instead of the boards themselves would naturally inform shareholders of relevant information, such as amount spent on politics.