Regular Session 2015-2016 House Bill 0705 P.N. 0830

PRINTER'S NO. 830

THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

No.

705

Session of

2015

INTRODUCED BY COHEN, FRANKEL, STURLA, BROWNLEE, M. DALEY,

DeLUCA, FREEMAN, KINSEY, McCARTER, O'BRIEN, RAVENSTAHL,

ROEBUCK, ROZZI, SCHLOSSBERG, SIMS, THOMAS AND YOUNGBLOOD,

MARCH 4, 2015

REFERRED TO COMMITTEE ON STATE GOVERNMENT, MARCH 4, 2015

AN ACT

Relating to corporate political accountability; and providing

for shareholder vote on corporate political activities, for

notification to shareholders of corporate political

activities, for public disclosure of corporate political

duties, for board approval for corporate political

expenditures and for applicability to foreign corporations.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1. Short title.

This act shall be known and may be cited as the Corporate

Political Accountability Act.

Section 2. Declaration of policy.

The General Assembly finds and declares as follows:

(1) Although corporations cannot vote, corporations make

significant political contributions and expenditures that

directly or indirectly influence the election of candidates

and support or oppose political causes at the Federal, State

and local levels. Decisions to use corporate treasury funds

for political contributions and expenditures are currently

made by corporate boards and executives, often without the

knowledge or consent of shareholders.

(2) Corporations acting through their boards and

executives have a fiduciary duty to conduct business in the

best interests of the shareholders. Corporate boards and

executives that use corporate funds to support and oppose

political candidates, political parties and political causes

in opposition to the interests of many or all of their

shareholders may not be acting in the best interests of the

corporation.

(3) Historically, shareholders of corporations in the

United States have not had a way to know of or to influence

the political activities of corporations they own.

Shareholders and the public have a right to know how these

corporations are spending their funds to make political

contributions or expenditures benefiting candidates,

political parties and political causes.

(4) Corporations should be accountable to their

shareholders prior to making political contributions or

expenditures affecting Federal, State and local governance

and public policy. Requiring the express approval of a

corporation's shareholders prior to making political

contributions or expenditures will help establish

accountability.

(5) If corporations use corporate general treasury funds

for political expenditures, then those funds should be

clearly reported to shareholders, and shareholders should be

able to authorize the use of corporate general treasury funds

for political expenditures.

Section 3. Definitions.

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The following words and phrases when used in this act shall

have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Contribution" or "expenditure." Includes any monetary and

nonmonetary political contributions and expenditures not

deductible under section 162(e)(1)(B) of the Internal Revenue

Code of 1986 (Public Law 99-514, 26 U.S.C. § 162(e)(1)(B)),

including, but not limited to, contributions to or expenditures

on behalf of political candidates, political parties, political

committees and other political entities organized and operating

under section 527 of the Internal Revenue Code of 1986 (26

U.S.C. § 527), and any portion of any dues or similar payments

made to any tax exempt organization that is used for an

expenditure or contribution and that if made directly by the

corporation would not be deductible under section 162(e)(1)(B)

of the Internal Revenue Code of 1986, any contribution or

expenditure, as those terms are defined in section 301 of the

Federal Election Campaign Act of 1971 (Public Law 92-225, 52

U.S.C. § 30101), as well as any contribution or expenditure

defined under section 1621 of the act of June 3, 1937 (P.L.1333,

No.320), known as the Pennsylvania Election Code. The term also

includes any direct or indirect payment, distribution, loan,

advance, deposit or gift of money, or any services, or anything

of value, except a loan of money by a national or State bank

made in accordance with the applicable banking laws and

regulations and in the ordinary course of business, to any

candidate, campaign committee or political party or

organization, in connection with any election to any office. The

term does not include:

(1) Communications by a corporation to its stockholders

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and executive or administrative personnel and their families

or by a labor organization to its members and their families

on any subject.

(2) Nonpartisan registration and get-out-the-vote

campaigns by a corporation aimed at its stockholders and

executive or administrative personnel and their families or

by a labor organization aimed at its members and their

families.

(3) The establishment, administration and solicitation

of contributions to a separate segregated fund to be utilized

for political purposes by a corporation, labor organization,

membership organization, cooperative or corporation without

capital stock.

"Department." The Department of State of the Commonwealth.

"General treasury funds." Money in possession of a

corporation incorporated under the laws of Pennsylvania in the

normal course of business, including funds from sales, accounts

payable, loans, investments, bonds or debt instruments.

"Issue advocacy campaign." Contributions or expenditures for

any communication to the general public intended to encourage

the public to contact a government official regarding pending

legislation, public policy or a government rule or regulation.

The term does not include contributions or expenditures for

registered lobbyists or other persons employed by the

corporation to lobby Federal or State government officials

directly.

"Known at the time of the authorization vote." At the time

the corporation seeks authorization from shareholders to spend

corporate funds for political activities:

(1) the corporation's officers, directors or employees

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have identified a specific political activity for the

corporation to support or oppose;

(2) corporate officers, directors or employees have

taken steps to obligate funds to a political activity; or

(3) the corporation has a regularly scheduled payment to

a trade association or other entity to pay for a political

activity in the next 12 months.

"Majority of shareholders." Fifty percent plus one of all

outstanding voting securities. Shareholders not casting votes

shall not count toward affirmative authorization under this

section.

"Political activities." Any contributions or expenditures

made directly or indirectly to, or in support of or opposition

to, any candidate, political party, committee, electioneering

communication, ballot measure campaign or an issue advocacy

campaign. The term does not include activities defined as

lobbying under any Federal, State or local law.

"Separate segregated fund." A political action committee

formed by a corporation for the purpose of making contributions

to candidates for office or to political parties. A separate

segregated fund which supports Federal candidates shall have the

same meaning as that found in section 316 of the Federal

Election Campaign Act of 1971 (Public Law 92-225, 52 U.S.C. §

30118).

Section 4. Shareholder vote on corporate political activities.

(a) Annual vote.--

(1) Any corporation incorporated in this Commonwealth

that spends in the aggregate $10,000 or more of corporate

treasury funds on all political activities must comply with

the requirements of this section.

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(2) Any proxy or consent or authorization for an annual

meeting of the shareholders of a corporation incorporated in

this Commonwealth, or a special meeting in lieu of such

meeting, where proxies are solicited in respect of any

security occurring on or after six months following the date

on which final regulations are published under subsection (d)

shall provide for a separate resolution subject to

shareholder vote to approve any spending of $10,000 or more

by the corporation for any political activity.

(3) Notwithstanding the requirement for an annual

shareholder vote to authorize any spending of $10,000 or more

by the corporation for any political activity, a corporation

may request authorization for spending on political

activities on a more frequent basis. Any authorization

request by the corporation that is not made during an annual

authorization shall be deemed a special authorization.

(4) If a corporation spends less than an aggregate of

$10,000 in a 12-month period for political activities, then

it does not have to seek shareholder authorization for such

spending.

(b) Shareholder approval.--

(1) When seeking shareholder authorization for

expenditures for political activities, the corporation shall

request the authority to spend a maximum dollar amount in the

next 12 months.

(2) If known at the time of the authorization vote, the

company shall articulate whether the corporate treasury funds

so authorized are intended to benefit or defeat specific

candidates, ballot measures or issue advocacy campaigns or

whether it will be paid to specific nonprofits or trade

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associations for political activities. The following apply:

(i) To be effective, the authorization vote must

garner support from a majority of shareholders.

(ii) A vote by the shareholders to approve or

disapprove any spending of $10,000 or more by a

corporation for a political activity shall be binding on

the corporation.

(iii) Notwithstanding the requirement for an annual

shareholder vote to authorize any spending of $10,000 or

more by the corporation for any political activity, a

corporation may request a special authorization for

additional spending on political activities, provided

that:

(A) all spending on political activities of

$10,000 or more must be authorized by a shareholder

majority vote; and

(B) for any special authorization, the company

shall articulate whether the corporate treasury funds

so authorized are intended to benefit or defeat

candidates, ballot measures or issue advocacy

campaigns or will be paid to specific nonprofits or

trade associations for political activities at the

time the special authorization is requested.

unauthorized contribution or expenditure for a political

activity, then the corporation's directors at the time that the

unauthorized contribution or expenditure was incurred are

jointly and severally liable to repay to the corporation the

amount of the unauthorized expenditure, with interest at the

rate of 8% per year.

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(d) Rulemaking.--No later than six months after the

effective date of this act, the department shall promulgate

final regulations to implement this section.

(e) Sole proprietorships excluded.--Nothing in this section

shall be construed to apply a new duty to the owner of a sole

proprietorship.

Section 5. Notification to shareholders of corporate political

activities.

(a) Notification to shareholders.--

(1) At least quarterly during each fiscal year, a

corporation incorporated in this Commonwealth that makes

contributions or expenditures for political activities must

notify its shareholders and the department in writing of the

nature of all its political activities, funded by either its

separate segregated fund or through its general corporate

treasury, including contributions or expenditures made

directly or indirectly.

(2) A report made pursuant to this section shall include

the following:

(i) The date of the contributions or expenditures.

(ii) The amount of the contributions or

expenditures.

(iii) The identity of the candidate, political

party, committee, electioneering communication, ballot

measure campaign or issue advocacy campaign.

(iv) If the contributions or expenditures were made

for or against a candidate, including an electioneering

communication as defined in section 304 of the Federal

Election Campaign Act of 1971 (Public Law 92-225, 52

U.S.C. § 30104), the office sought by the candidate and

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the political party affiliation of the candidate.

(v) If the contributions or expenditures were made

for or against a ballot measure, the purpose of the

measure and whether the contributions or expenditures

were made in support or opposition to the ballot measure.

(vi) If the contributions or expenditures were made

for or against an issue advocacy campaign, the nature of

the political issue and whether the contributions were

made in support or opposition to the political issue.

(vii) All expenditures made by a separate segregated

fund affiliated with the corporation.

(b) Public disclosure.--

(1) The quarterly reports of political activities by a

corporation incorporated in this Commonwealth to shareholders

shall be public records.

(2) A copy of the reports filed pursuant to subsection

(a)(1) shall be posted for at least one year on the

corporation's Internet website, if any.

Section 6. Public disclosure of corporate political activities

by the department.

(a) Department duty.--The quarterly reports of political

activities by a corporation incorporated in this Commonwealth to

shareholders shall be made publicly available by the department.

(b) Electronic form.--A quarterly report required to be

filed under this section shall be filed in electronic form using

filing software approved or developed by the department in

addition to filing in any other form that the department may

require by regulation.

greatest extent practicable, the quarterly reports on political

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activities are publicly available through the department's

Internet website in a format that permits the reports to be

searched, sorted and downloaded.

Section 7. Report by Department of the Auditor General.

(a) Audit.--On an annual basis, the Department of the

Auditor General shall audit the effectiveness of the department

in meeting the reporting and disclosure requirements of this

act.

(b) Report.--Not later than April 1 of each year, the

Department of the Auditor General shall submit to the Governor a

report on the review required by subsection (a) for the

preceding year.

Section 8. Board approval for corporate political expenditures.

(a) Approval required.--Notwithstanding any other provision

of law, no corporation and no trade, business or professional

association shall make any campaign contribution or expenditure

unless specifically authorized to do so whether:

(1) By the vote of the board of directors of the

corporation or of the executive committee of the trade,

business or professional association at a regular or special

meeting.

(2) By the president, vice president, secretary or

treasurer of a corporation whom the board has specifically

empowered to authorize such contributions or expenditures.

(3) For a corporation, by any other person designated by

resolution of the board of directors of a corporation to

authorize contributions or expenditures.

(b) Form of contribution.--No corporation, trade, business

or professional association shall make any contribution or

expenditure as defined under Federal or State law, other than an

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in-kind contribution or expenditure, except by check.

Section 9. Applicability to foreign corporations.

(a) General rule.--A foreign corporation, other than a

foreign association or foreign nonprofit corporation, but

including a foreign parent corporation even if the foreign

parent corporation does not transact intrastate business, is

subject to the requirements of sections 4, 5, 6 and 7, if:

(1) the average of the property factor, payroll factor

and sales factor, as those terms are defined in section 401

of the act of March 4, 1971 (P.L.6, No.2), known as the Tax

Reform Code of 1971, with respect to the foreign corporation,

is more than 50% during its latest full-income year; and

(2) more than one-half of its outstanding voting

securities are held of record by persons having addresses in

this Commonwealth appearing on the books of the corporation

on the record date for the latest meeting of shareholders

held during its latest full-income year or, if no meeting was

held during that year, on the last day of the latest full-

income year.

(b) Determination.--The determination of the property

factor, payroll factor and sales factor under subsection (a)

with respect to any parent corporation shall be made on a

consolidated basis, including in a unitary computation, after

elimination of intercompany transactions, the property, payroll

and sales of the parent and all of its subsidiaries in which it

owns directly or indirectly more than 50% of the outstanding

shares entitled to vote for the election of directors, but

deducting a percentage of the property, payroll and sales of any

subsidiary equal to the percentage minority ownership, if any,

in the subsidiary. For the purpose of this section, any

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securities held to the knowledge of the issuer in the names of

broker-dealers, nominees for broker-dealers, including clearing

corporations or banks, associations or other entities holding

securities in a nominee name or otherwise on behalf of a

beneficial owner, collectively nominee holders, shall not be

considered outstanding. However, if the foreign corporation

requests all nominee holders to certify, with respect to all

beneficial owners for whom securities are held, the number of

shares held for those beneficial owners having addresses as

shown on the records of the nominee holder in this Commonwealth

and outside of this Commonwealth, then all shares so certified

shall be considered outstanding and held of record by persons

having addresses either in this Commonwealth or outside of this

Commonwealth as so certified, provided that the certification so

provided shall be retained with the record of shareholders and

made available for inspection and copying. A current list of

beneficial owners of a foreign corporation's securities provided

to the corporation by one or more nominee holders or agent

thereof under the requirements of 17 CFR § 240.14b-1(b)(3)

(relating to obligation of registered brokers and dealers in

connection with the prompt forwarding of certain communications

to beneficial owners) or 240.14b-2(b)(3) (relating to obligation

of banks, associations and other entities that exercise

fiduciary powers in connection with the prompt forwarding of

certain communications to beneficial owners) promulgated under

the Securities Exchange Act of 1934 (Public Law 48-881, 15

U.S.C. § 78a et seq.) shall constitute an acceptable

certification with respect to beneficial owners for the purposes

of this subsection.

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corporation:

(1) With outstanding securities listed on the New York

Stock Exchange or the American Stock Exchange.

(2) With outstanding securities designated as qualified

for trading on the Nasdaq National Market of the Nasdaq Stock

Market, or any successor thereto.

(3) If all of its voting shares, other than directors'

qualifying shares, are owned directly or indirectly by a

corporation or corporations not subject to this section.

(d) Liability.--Any party that obtains a final determination

by a court of competent jurisdiction that the corporation failed

to provide to the party information required to be provided by

this act or provided the party information of the kind required

to be provided by this act that is incorrect, then the court, in

its discretion, shall have the power to include in its judgment

recovery by the party from the corporation of all court costs

and reasonable attorney fees incurred in that legal proceeding

to the extent they relate to obtaining that final determination.

Section 10. Effective date.

This act shall take effect in 60 days.

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