By Ciara Torres-Spelliscy
First Published September 3, 2009
Like many Americans, I’m but a small-time investor, with investments in my 401(k) account, and that’s about it. I doubt the CEOs of the various corporations in which I own stock see eye-to-eye on many political questions. In Citizens United, a momentous case that is scheduled for re-argument on Sept. 9, the Supreme Court may hold that a corporation has a First Amendment right to spend its shareholders’ money on campaign advertisements that advance its own political agenda, without the knowledge or consent of ordinary shareholders like me. My retirement savings could be used to defeat health care reform, resist new regulations on financial instruments or combat environmental controls; other than liquidating my 401(k) holdings, there would be almost nothing I could do to prevent this.
Over 100 years of federal campaign finance laws kept money from investors like me out of federal politics. Existing laws require corporate managers to make political expenditures through corporate PACs so shareholders, officers and managers who would like the corporation to advance a political agenda can designate funds for that particular purpose. The Supreme Court itself stated in 1948 that “corporate officials [have] no moral right to use corporate funds for contribution to political parties without the consent of the stockholders.” And, as recently as 1990, Justice Brennan wrote in Austin that the corporate PAC requirement “protects dissenting shareholders of business corporations.”
The Citizens United Supreme Court re-argument, however, makes it plain: Long-standing laws that require corporations to pay for political expenditures through corporate PACs are under attack. Worse, the Supreme Court may use Citizens United as an opportunity to turn back the clock to a time when managers could spend corporate money for political expenditures. If this happens, shareholders will need new protections to guard against self-interested political spending by corporate managers.
Even if the Supreme Court does not use Citizens United to rewrite the prohibitions against the use of corporate treasury money to influence federal elections, there is already a significant amount of corporate money that is making its way into politics. Sound public policy demands that reforms be devised to better protect shareholders’ interests.
Today’s shareholders lack any real ability to consent to political spending by American corporations. Gaps between corporate and campaign finance law make it possible for U.S. corporations to make all kinds of political expenditures without notifying shareholders. In the 28 states that lack federal-style election rules, corporations can give political donations directly from their corporate treasuries to pay for legislative, executive and judicial elections.
Corporate political spending–and all corporate decisions–are designed to advance the bottom line. Yet corporate political spending may well be as troubling to shareholders’ wallets as well as to their political sensibilities.
A recent study of over 12,000 U.S. firms and their political giving before passage of 2002 McCain-Feingold law, entitled “Corporate Political Contributions: Investment or Agency?” (2009) by Aggarwal, Meschke and Wang at the University of Minnesota’s Carlson School of Management, found that large corporate political expenditures are linked with lower shareholder value and less effective corporate management. This study, which included soft money contributions directly from corporate treasury funds that were permissible prior to the 2002 McCain Feingold law, suggests that when managers use corporate funds to make political donations, the donations may advance their political views and own careers–not the interests of the corporations they manage.
In most instances, corporate managers are not required to disclose political spending, so donations pour out under the radar of regulators, shareholders and corporate boards. If corporations were required to disclose such spending, shareholders would, in the face of inappropriate expenditures, have but two blunt and unsatisfactory instruments with which to respond: (1) voting out the board or (2) selling their shares. Instead, we need either prophylactic rules to prevent corporate managers from spending investor money on politics in the first place, or we need to give shareholders a mechanism through which they can register their consent to corporate political spending.
The current Supreme Court, under the leadership of Chief Justice John Roberts, appears ready to change the law–to make explicit what has been implicit in a series of recent rulings–that the “free speech” rights of corporations prevents Congress from regulating corporate political expenditures. Such a ruling could leave corporate managers free to advance their own agendas using other people’s money. Instead, the Court should use the Citizens United case to recognize that the First Amendment protects the free speech interests of shareholders, who should not have their 401(k) accounts diverted in order to fund a candidate or policy they don’t know, don’t like or may even oppose.
Ciara Torres-Spelliscy is counsel at the Brennan Center for Justice at NYU School of Law and co-author of Electoral Competition and Low Contribution Limits.
© 2009 Ciara Torres-Spelliscy