Election

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February 16, 2023, Covington Alert

The 2023 proxy season is underway for public companies and their investors. Corporate secretaries, lawyers, and executives are actively engaged in the SEC’s shareholder proposal process. Consistent with recent proxy seasons, a significant number of companies are receiving proposals calling for new or enhanced political disclosures. Although these proposals have been around for some time, recent contentious election cycles, debate over hot-button issues, including the Supreme Court’s 2022 decision in Dobbs v. Jackson Women’s Health Organization, and increased investor focus on ESG matters (as well as criticism of such focus) have cast an ever-increasing focus on disclosure of corporate political expenditures.

Effectively responding to shareholder proposals on this issue is essential. Although shareholder proposals are non-binding, proposals that are approved – or that fail but with a substantial level of support – will give rise to an expectation that the company will address the subject matter of the proposal in the months following the annual meeting. A company’s failure to act on a shareholder proposal that is approved or that receives strong support can result in reputational damage to the company and could signal to shareholders and proxy advisory firms that the board is not responsive to a matter of significant shareholder concern. This can give rise to further shareholder proposals and potential votes against some or all of the company’s directors at the next annual meeting. In some circumstances, failure to effectively respond to a shareholder proposal could lead activist investors to threaten or initiate a proxy contest in advance of the next annual meeting.

In recent years, shareholders have submitted hundreds of proposals aimed at encouraging companies to voluntarily disclose more information on their websites with regard to their corporate political spending and processes. In Covington’s 2015 guide on “Responding to Corporate Political Disclosure Initiatives,” we noted that “although some have argued that these efforts are primarily intended to force companies to scale back their lobbying and political activities—not to promote transparency—they continue unabated.” The pace and breadth of these proposals has expanded in the ensuing years, with a significant number of shareholder proposals focused on two topics—political contributions and lobbying expenditures. According to the Center for Political Accountability (“CPA”), its model political disclosure resolution was used 22 times each in the 2021 and 2022 proxy seasons, resulting in six votes in excess of 50 percent in 2021 and two in 2022. We expect, and have begun to see, a similar number of politically-focused shareholder proposals this proxy season. As of December 2022, for example, CPA reported that its shareholder partners have “filed 25 proposals in the 2023 proxy season, with more expected over the coming months.”…

Continue Reading Tips for Responding To Corporate Political Disclosure Shareholder Proposals

February 10, 2023, Covington Alert

Political committees, advertisers, and advertising platforms have operated under a cloud of uncertainty regarding which disclaimers, if any, must appear on internet-based advertisements. Existing Federal Election Commission (“FEC”) regulations and guidance left many unanswered questions about the disclaimers required for these increasingly important internet ads. The FEC has finally offered some clarity in this area, though some tough questions remain.

In December, the FEC voted to expand the agency’s political advertising disclaimer requirements to explicitly address internet-based ads, capping a winding rulemaking process that began over 11 years ago. These new rules go into effect on March 1, 2023. This client alert discusses how the disclaimer rules have changed, what ambiguities still exist, and what political committees, advertisers, and advertising platforms should expect going forward.

How did the FEC’s disclaimer rules change?

The new FEC disclaimer rules expand the scope of the types of internet-based communications that must have disclaimers, and also describe the content that such internet advertising disclaimers must include.

Expanded Scope. FEC regulations place disclaimer requirements on all “public communications” that (1) are made by political committees, (2) contain express advocacy, or (3) solicit a contribution. While the content of the general disclaimer requirements depends on the identity of the entity making the communication, all disclaimers must be “clear and conspicuous,” must indicate whether the entity is authorized by a candidate, and must identify the person who paid for the ad.…

Continue Reading What You Need to Know about the FEC’s New Internet Communications Disclaimer Rules

The Federal Election Commission has announced contribution limits for 2023-2024.  The new “per election” limits are effective for the 2023-2024 election cycle (November 9, 2022 – November 5, 2024), and the calendar year limits are effective January 1, 2023. The new limits represent the largest election cycle increase since the limits started being indexed for…

With just one race in each chamber still pending, we know that in the 118th Congress, Republicans will control the House with a slim majority, and Democrats will hold the Senate with either 50 or 51 votes. Republicans will field new chairs for every House committee. On the Senate side, with Democrats maintaining control, there…

Public Policy

With Senate Democrats having secured the 50th vote needed to maintain control of the Senate,  both parties are eagerly awaiting the results of the Georgia runoff on December 6 between Democratic Senator Raphael Warnock (D-GA) and Republican candidate Herschel Walker.  If Walker wins, the Senate will be split 50-50.  The implications of a 51–49 Democratic majority versus a 50–50 Democratic majority are significant.

An Equally Divided Senate

Since February 3, 2021, the Senate has operated under an organizing resolution negotiated by Majority Leader Chuck Schumer (D-NY) and Minority Leader Mitch McConnell (R-KY).  The organizing resolution formalized a power-sharing agreement for the 117th Congress and was largely modeled on the 2001 power-sharing agreement reached by then-Democratic leader Tom Daschle (D-SD) and then-Republican leader Trent Lott (R-MS) following the November 2000 elections that resulted in a 50–50 Senate split for the 107th Congress.  The 2021 power-sharing agreement laid out internal rules of the Senate, apportioned the makeup and control of committees, and prescribed procedures for the control of Senate business.  Specifically, the 2021 power-sharing agreement provides that:

  • Senate committees be equally balanced with members of both parties;
  • The majority and minority on each committee have equal budgets and office space;
  • If a subcommittee vote is tied on either legislation or a nomination, the committee chair may discharge the matter and place it on the full committee’s agenda;
  • If a committee vote is tied, the Majority or Minority Leader may offer a motion to discharge the measure from committee, subject to a vote by the full Senate;
  • Debate may not be cut off for the first 12 hours; and
  • It is the “sense of the Senate” that both Majority and Minority leaders “shall seek to attain an equal balance of the interests of the two parties” when scheduling and debating legislative and executive business.

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Continue Reading Governing the Senate in the 118th Congress

Immediate Reaction

With Republicans only holding a slim majority in the House and the Democrats keeping their majority in the Senate, there is almost universal agreement that President Biden and the Democratic Party as a whole have outperformed expectations.  The President and the White House surely view these results as validation of his approach, his agenda, and his work so far.  A key part of this, which is at the core of his unity agenda and something he reiterated in his speech following this election, is his long-standing commitment to reaching across the aisle.  We can therefore expect the Administration to continue to seek out opportunities to work with Republicans, particularly in areas that garner bipartisan attention such as technology, children, and veterans.  We can also expect judicial nominations to remain a priority, both in the lame duck and in the next Congress, and for the President to continue advancing his agenda by taking Executive action when legally able.

Meanwhile, agencies will continue their work implementing key laws passed by this Congress—including the Bipartisan Infrastructure Law, the Inflation Reduction Act, and the PACT Act—at the same time that they look for new ways to implement the President’s agenda through rulemaking and enforcement.  In particular, it seems likely that the Federal Trade Commission and the Justice Department’s Antitrust Division will become even more active consistent with the Administration’s larger competition agenda. 

A key question moving into the next Congress is how those agency actions will interact with the strain of populism that partially animates efforts in both parties to regulate “Big Tech.”  The push to move certain antitrust legislation during the lame duck is unlikely to materialize; instead, it is likely to morph in the next Congress into a focus on content moderation and amending Section 230 of the Communications Decency Act.  Other priorities—like privacy and child protection, including bills like the Kids Online Safety Act—will almost certainly remain at the top of next year’s agenda if they do not pass as part of a larger spending bill this Congress.    …

Continue Reading Midterm Elections: Democratic Reaction

The post-election Life Sciences policy menu can generally be described as lame duck leftovers and meaty oversight next Congress.

A number of “super riders” and other add-ons were  ultimately not included in the 5 year re-authorization of the various FDA user-fee acts (UFAs), “clean” versions of which passed in the current Continuing Resolution (CR).

Since the must-pass UFAs are typically a vehicle for other health policy related reforms, stakeholders were understandably disappointed – but remain hopeful of moving their priorities during the lame duck session.  

For what it is worth, there is some level of bipartisan support for attaching each of the super riders in the end of year package — including The VALID Act (Lab Developed Tests), Cosmetics reform, Dietary Supplement Reform, ARPA-H authorizing legislation and the PREVENT Pandemics Act — as well as a mental health package and targeted reforms that address, among other things, insulin pricing, clinical trial diversity and accelerated approval. But there are many competing priorities and time is short.

Next Congress will see attention to the landmark Medicare negotiations and other Rx price controls of the Inflation Reduction Act (IRA), which were unanimously opposed by the GOP.  Efforts to repeal writ large are a non-starter — though bills have been introduced to do just that. While some Republicans might recognize the need to make substantive changes, politically that could also be a non-starter because, like with the ACA, there will be resistance to making what in their minds is bad legislation marginally less bad.…

Continue Reading  Post-Election Life Sciences Policy Menu

Republicans are very disappointed in the “red fizzle,” but they are still very likely to take control of the House of Representatives and they see a silver lining and a positive future in Ron DeSantis’s tremendous victory in Florida. The result has some parallels to 2020 when Democrats won the White House but lost seats in the House. There are clearly cross-currents in the electorate and neither party has a mandate.

It’s notable that the shots Donald Trump took at Governor DeSantis before the election had no impact at all. In fact, DeSantis was far the biggest winner on Tuesday. He won by a huge margin. He won Miami-Dade County. He won Hispanics. He won women. He won the suburbs. He now has a Republican supermajority in the state legislature. Florida was a purple state not long ago. It is as if the projected red tsunami occurred, but only in Florida.

House Republicans will meet on Tuesday to choose their leaders. These are simple majority votes amongst Republicans in conference, except for Kevin McCarthy who will also need a majority of the whole House in January to become Speaker. The narrower than expected majority means he may have to make some promises to various groups of members. Nancy Pelosi had to do the same thing a few years ago. Steve Scalise is fairly certain to be the majority leader, but there is an ongoing race for Republican Whip.

When it comes to committees, the key thing to remember is that Republicans have term limits for their chairmen, so we’ll have some new faces. The powerful Ways and Means Committee will have a new chairman, and there is a spirited contest underway for that. Cathy McMorris Rogers will take the gavel at the very important Energy & Commerce Committee. Virginia Foxx is favored to get a term-limits waiver to take back the gavel of the Education and Labor Committee, citing both precedent and strong support from her colleagues. Jim Jordan, a leader of the Freedom Caucus, will be chairman of the Judiciary Committee.…

Continue Reading A Quick Take on the New House Majority

On January 4, 2021, the narrowed Democratic majority in the House of Representatives passed, in a party-line vote, a set of rules governing the House for the 117th Congress.  While the House, unlike the Senate, has to approve its rules every Congress, the rules stay generally consistent from Congress-to-Congress, with more significant amendments often coming…

After the election of two Democratic Senate candidates in the Georgia runoff elections on January 5, 2021, the Senate this year will be equally divided between 50 Democratic Senators (and those caucusing with them) and 50 Republican Senators. Governing in an equally divided Senate presents several challenges regarding the internal rules of the Senate, the…