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Warren Bill Would Mandate Sweeping Corporate Governance, Political Spending Reforms

Thomson Reuters Tax & Accounting  

Thomson Reuters Tax & Accounting  

By Bill Flook

Sen. Elizabeth Warren has reintroduced a measure that would put in place sweeping reforms to how large public companies elect directors, spend money to influence elections, and allow executives to off-load company stock.

The Massachusetts Democrat, who is seeking her party’s nomination for the 2020 presidential election, introduced the S. 3215, the Accountable Capitalism Act, on January 16, 2020, in the Senate Committee on Commerce, Science and Transportation. Warren first rolled out the legislation in August 2018.

The measure, which remains a long-shot in the GOP-controlled Senate, would, among other provisions, establish a new process by which companies with more than $1 billion in revenue would be required to become federally chartered through a new Office of United States Corporations within the Department of Commerce.

Those chartered corporations would be required to let employees elect at least 40 percent of the board of directors, while the SEC would be directed to issue rules within a year, ensuring that director elections are “fair and democratic,” and that employee representation is “meaningful and appropriate” with race, ethnicity, gender, sexual orientation, and gender identity taken into consideration, as well as “the affiliation to historically underrepresented groups,” including veterans and individuals with disabilities.

The bill places new restrictions on when corporate insiders can unload stock. Under the Accountable Capitalism Act, directors and officers would be prohibited from selling shares of a company within five years of acquiring them and within three years of a stock buyback under Rule 10b-18 of the Securities Exchange Act of 1934.

The bill also places new checks on how companies can spend money to influence elections, which would fulfill a longtime goal of corporate political spending transparency advocates following the Supreme Court ruling in Citizens United v. Federal Election Commission. The 2010 ruling lifted restrictions on independent political expenditures by corporations and unions.

Warren’s bill would require at least 75 percent of shareholders and 75 percent of directors to sign off on any political expenditure over $10,000 before that contribution is made. The legislation sets out a series of new disclosures that advocates have sought from public companies, requiring the businesses to tell investors of the amount of a proposed expenditure and the intended recipient.

Historically, financial reform advocates have backed the reforms. Warren in 2018 rolled out her bill with the backing of a dozen academics, as well as Dan Alpert of Westwood Capital LLC and Jeff Madrick of the Century Foundation.

Critics say the measure would empower the bureaucracy and stifle innovation. In a February 2019 testimony before the Senate Banking Committee, Thomas Quaadman, executive vice president of the Center for Capital Markets Competitiveness, wrote that the bill would “impose a bureaucratic merit review system that allows Washington to determine whether or not a company is worthy of doing business in the United States.”

“The legislation would fundamentally alter the relationship between government and business in this country and, contrary to what its proponents say, the Accountable Capitalism Act would only serve to concentrate wealth and power within a few favored industries instead of providing economic opportunity to millions of Americans,” he wrote.

 

This article originally appeared in the February 4, 2020 edition of Accounting & Compliance Alert, available on Checkpoint.

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