Election

With Election Day fast approaching, corporations face increasing pressure from both internal and external forces to make legal decisions about political activities. This can be a fraught area of law, with little understood, highly technical regulatory issues that vary significantly across jurisdictions. Corporate counsel should be mindful of common—and sometimes…

Continue Reading Avoiding Pitfalls on the Path to Election Day: Common Political Law Risks for Corporations in Election Season

The second round of France’s snap parliamentary elections delivered a surprising result on Sunday: with 182 seats, the coalition of left-wing parties—the Nouveau Front populaire (“NFP”) emerged as the unexpected victor. Centrist parties supporting President Emmanuel Macron finished second with 168 seats altogether, whereas the far-right Rassemblement National (“RN”) and its allies—which in the first round had seemed to be within striking distance of an outright victory—secured only 143 seats, thwarting its hopes of being able to form the next government. With 289 seats needed for any single party to reach a majority in the lower house and form a government, President Macron’s decision to call early legislative elections has delivered an outcome that threatens gridlock in the EU’s second-largest economy.

There seems to be limited scope out of this deadlock: either a government formed of a grand coalition spanning from the centre right to the centre left, but excluding both the extremes (the RN on the far right and La France insoumise, “LFI”, on the far left); or to the formation of a caretaker, technocratic government until a political situation is found. Either way, the negotiations to form the next government threaten to be lengthy and torturous and the French Constitution prevents new parliamentary elections being held within the next 12 months. This situation will have profound implications not only for France but also for decision-making in the EU.

Background Context

In 2017, Emmanuel Macron’s unexpected yet victorious bid in the presidential elections had reshuffled the cards of the French political landscape, with traditional governing parties marginalised by a powerful central force, which vowed to overcome old cleavages. Surfing on a landslide victory in the parliamentary elections following his own election, the President’s first mandate (2017-2022) was marked by a willingness to boost France’s economic attractiveness: a labour reform, a single 30% tax rate on capital gains, the abolition of a wealth tax, and the reduction of corporate taxes have all contributed to curbing unemployment levels.

The French President’s approach to power, sometimes seen as vertical, was perceived to have prevented flagship reforms from being passed. In late 2018, the Yellow Vest movement provoked a political crisis and a year later, President Macron withdrew a pensions reform bill due to a prolonged national strike movement. The Covid-19 outbreak heralded further complications, with France’s unmatched fiscal measures to buffer the impact of the crisis leading to deteriorated public finances: the government deficit rose to 8.9% of GDP, while public debt rose by almost 20 percentage points, to 114.6% of GDP in 2020.

President Macron’s re-election in 2022 against Marine Le Pen, albeit by a smaller margin than in 2017, confirmed his strong ability to mobilise his electoral base. Yet, he was able to muster only a limited majority in the National Assembly. This was notwithstanding the alignment of presidential and parliamentary mandates (in a 2000 revision of the Constitution) that until now had mechanically enabled the President to obtain an absolute majority in the Parliament (called the “fait majoritaire”).Continue Reading France drifts towards uncertainty after snap elections

  • Mexico’s new political configuration gives current president Andrés Manuel López Obrador, president-elect Claudia Sheinbaum, and their party (Morena) ample margin to advance legislation (including constitutional reforms) starting in September when the new Congress is in place.
  • Sheinbaum will take office in October, leaving López Obrador a one-month window to use Morena’s new margin in Congress to implement policies he was previously unable to enact, including important constitutional reforms, such as a full overhaul of the Judiciary.
  • So far, Sheinbaum has voiced broad support for her predecessor’s policies. Markets (the dollar-peso exchange rate and interest rates) have thus far reacted negatively, reflecting a perception of increased political and regulatory risk, as well as a potential deterioration of the overall business environment.
  • Companies with business interests in Mexico, including those seeking to nearshore operations in response to U.S. trade measures, should closely monitor political developments in the country, and assess if their investments are adequately protected by an effective investment treaty.

The recent election resulted in an unambiguous win for president López Obrador and his Morena party. As his designated successor, Scheinbaum received 60 percent of the vote, allowing her to become Mexico’s first woman head of state. In addition, Morena also secured seven of the nine contested governorships, a qualified (two thirds) majority in the Chamber of Deputies (365/500 seats), and is just two seats shy of holding a majority in the Senate (83/128 seats). Morena also will hold a majority in 27 of the 32 state legislatures.Continue Reading Mexico’s Election Business Environment Implications

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…

Continue Reading Inflation Hits the FEC:  Contribution Limits for 2023-2024 Raised in the Largest Periodic Increase Ever

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…

Continue Reading Outlook for Party and Committee Leadership and Committee Priorities in the 118th Congress

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.

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