April 6, 2011

SEC Decision on Shareholder Approval of Political Expenditures

Holland & Knight Alert
Christopher DeLacy

Publicly Traded Companies Are Affected

On March 25, 2011, the Securities and Exchange Commission (SEC) issued a “no action” letter rejecting a request from The Home Depot, Inc. to exclude from its proxy statement a shareholder proposal mandating disclosure of certain political activity, including political expenditures, and requiring a non-binding shareholder vote on future political activity. NorthStar Asset Management, Inc. had requested that the shareholder proposal be included in this year’s proxy statement. Home Depot had intended to exclude the proposal and sought advice from the SEC as to whether this was permissible.

The NorthStar proposal is a response to the U.S. Supreme Court’s decision in Citizens United v. Federal Election Commission, 130 S. Ct. 876 (2010) (See Holland & Knight’s Political Law Alert, January 25, 2010), which allows corporations and labor unions to pay for ads that urge the election or defeat of federal candidates (known as “express advocacy”). The proposal is patterned after H.R. 4790, the Shareholder Protection Act, which was introduced last year in the U.S. House of Representatives but did not become law.

What does this mean for my company?




The SEC will likely require similar proxy access for shareholders of other publicly traded companies. Companies should anticipate increased requests from shareholders for inclusion of similar proposals in proxy statements. Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, shareholders who satisfy certain conditions and comply with required procedures are entitled to submit a proposal for inclusion in a company’s proxy statement. Eligible shareholders are those who have continuously held, for at least one year, not less than $2,000 in market value, or 1 percent, of a company’s securities entitled to be voted on the proposal at the meeting, and who continue to hold those securities through the date of the meeting.

This decision does not apply to privately-held companies.

What types of political activity are involved?




The NorthStar proposal applies to “expenditures for electioneering communications,” which are defined as “spending directly, or through a third party, at any time during the year, on printed, internet or broadcast communications, which are reasonably susceptible to interpretation as in support of or opposition to a specific candidate.”

The shareholder proposal would require Home Depot’s proxy statement for each annual meeting to disclose:

  • the company’s policies on political expenditures
  • any political expenditures anticipated during the next fiscal year
  • the total cost of the anticipated political expenditures
  • a list of political expenditures made during the prior fiscal year



The NorthStar proposal would also require an advisory shareholder vote on Home Depot’s political expenditure policies and any proposed future political expenditures.

Where can I read the SEC letter?




Here is the SEC’s no action letter rejecting Home Depot’s request.

Related Insights