Corporate Governance

Shearman & Sterling LLP Introduction | 3 POLITICAL CONTRIBUTION POLICIES The 2010 US Supreme Court decision in Citizens United v. Federal Election Commission confirmed that companies may make "independent political expenditures" — that is, expenditures for communications, including advertisements, that expressly advocate for the election or defeat of a candidate for office that are not made in coordination with a candidate or a political party. Since this landmark decision, the issue of corporate political contributions has received significant attention and is also currently the subject of a rulemaking petition pending before the Securities and Exchange Commission (the "SEC") that asks the SEC to develop rules that would require US-listed companies to disclose corporate political spending. Ninety-seven of the Top 100 Companies disclose a political contributions policy. Although the policy at 35 of these companies states that the company does not use corporate funds to make "independent political expenditures" — effectively negating the freedom afforded to companies by the Citizens United decision — the policies at 43 of the Top 100 Companies do permit the company to make political contributions to advance business initiatives. Seventy-one of the Top 100 Companies have disclosed some information concerning the company's political contributions or lobbying efforts, and 39 received a shareholder proposal in 2013 calling on the board to provide disclosure (or enhance current disclosure) concerning these matters. PROXY ACCESS Compared to many other corporate governance reforms, proxy access is still in its infancy. The SEC proposed proxy access rules in August 2010, but they were vacated following a successful legal challenge by the US Chamber of Commerce and the Business Roundtable, and the SEC has not to date proposed revised rules. The SEC's proposed proxy access rules would have allowed shareholders owning an aggregate of at least three percent of a company's shares continuously for at least three years to include nominees for directors representing up to 25% of the board in the company's proxy materials. A companion rule amendment that narrowed an exception in the existing proxy rules that permitted the exclusion of proxy access shareholder proposals from a company's proxy statement was not, however, also vacated and it became effective in September 2011. This allowed shareholders to pursue proxy access through shareholder proposal submissions, beginning with the 2012 proxy season.

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