Century-old precedent barring direct corporate spending to control election outcomes is under attack

Last updated November 30, 2009

ReclaimDemocracy.org chose not to engage in an amicus curiae (friend of the court) brief in this case as we have in two related cases in recent years (Randall v. Sorrell and Nike v. Kasky). We knew some of our close allies (see below) would engage and we believe there is benefit in different organizations delivering the consistent message about the illegitimacy of corporations wielding political “rights.”

At least two amicus briefs filed in support of the appellee (the FEC) directly raise arguments against corporate personhood. It is the centerpiece of one written by Jeffrey Clements on behalf of the Program on Corporations, Law & Democracy; Women’s International League for Peace & Democracy; Democracy Unlimited of Humboldt County, et al. Read their press release here.

Image source: Wall Street Journal

The other brief was submitted by Demos on behalf of the American Independent Business Alliance. AMIBA’s participation illuminates the stark contrast between a group truly representing America’s small businesses and the U.S. Chamber of Commerce, representing global corporations. The Chamber argues for letting corporations dominate elections even more thoroughly. AMIBA’s press release offers an idea of the main argument, or see the full brief.

A ruling is likely by January of 2010.

Notable coverage from other sources (prior to Sept 8)

• The Supreme Court blog has a case summary and links to every brief filed in the case. For a comprehensive overview, see Rick Hasen’s case preview (pdf). Oral argument recording and transcript and some post-argument reports are available at Election Law Blog.
• On Sept 22, the NY Times devoted this editorial to rejecting corporate personhood, though they still used the term corporate rights, rather than privileges.
• The Wall St Journal noticed Justice Sotomayor’s critique of corporate personhood during oral argument.
• Corporations Are Not People by Jamie Raskin (NPR)
• Supreme Court to Hear Key Case…by Meg White (Buzzflash)
• The Real Court Radicals by E.J. Dionne, Jr., Washington Post column
• Keep My Investments Out Of Politics by Ciara Torres-Spelliscy in Forbes magazine
• A Century-Old Principle: Keep Corporate Money Out of Elections by Adam Cohen,NY Times, Aug. 11
• Public Citizen created the website DontGetRolled.org with additional information and action suggestions.
• For opposing viewpoints, see the website of Citizens United.

Read more on the underlying issue of Corporate Personhood

New Justice critiques “corporate personhood” during Citizens United v FEC oral argument

By Jess Bravin 
First Published by the Wall St. Journal, Sept 17, 2009

WASHINGTON — In her maiden Supreme Court appearance last week, Justice Sonia Sotomayor made a provocative comment that probed the foundations of corporate law.

During arguments in a campaign-finance case, the court’s majority conservatives seemed persuaded that corporations have broad First Amendment rights and that recent precedents upholding limits on corporate political spending should be overruled.

But Justice Sotomayor suggested the majority might have it all wrong — and that instead the court should reconsider the 19th century rulings that first afforded corporations the same rights flesh-and-blood people have.

Judges “created corporations as persons, gave birth to corporations as persons,” she said. “There could be an argument made that that was the court’s error to start with…[imbuing] a creature of state law with human characteristics.”

After a confirmation process that revealed little of her legal philosophy, the remark offered an early hint of the direction Justice Sotomayor might want to take the court.

“Progressives who think that corporations already have an unduly large influence on policy in the United States have to feel reassured that this was one of [her] first questions,” said Douglas Kendall, president of the liberal Constitutional Accountability Center.

“I don’t want to draw too much from one comment,” says Todd Gaziano, director of the Center for Legal and Judicial Studies at the conservative Heritage Foundation. But it “doesn’t give me a lot of confidence that she respects the corporate form and the type of rights that it should be afforded.”

For centuries, corporations have been considered beings apart from their human owners, yet sharing with them some attributes, such as the right to make contracts and own property. Originally, corporations were a relatively rare form of organization. The government granted charters to corporations, delineating their specific functions. Their powers were presumed limited to those their charter spelled out.

“A corporation is an artificial being, invisible, intangible,” Chief Justice John Marshall wrote in an 1819 case. “It possesses only those properties which the charter of its creation confers upon it.”

But as the Industrial Revolution took hold, corporations proliferated and views of their functions began to evolve.

In an 1886 tax dispute between the Southern Pacific Railroad and the state of California, the court reporter quoted Chief Justice Morrison Waite telling attorneys to skip arguments over whether the 14th Amendment’s equal-protection clause applied to corporations, because “we are all of opinion that it does.”

That seemingly off-hand comment reflected an “impulse to shield business activity from certain government regulation,” says David Millon, a law professor at Washington and Lee University.

“A positive way to put it is that the economy is booming, American production is leading the world and the courts want to promote that,” Mr. Millon says. Less charitably, “it’s all about protecting corporate wealth” from taxes, regulations or other legislative initiatives.

Subsequent opinions expanded corporate rights. In 1928, the court struck down a Pennsylvania tax on transportation corporations because individual taxicab drivers were exempt. Corporations get “the same protection of equal laws that natural persons” have, Justice Pierce Butler wrote.

From the mid-20th century, though, the court has vacillated on how far corporate rights extend. In a 1973 case before a more liberal court, Justice William O. Douglas rejected the Butler opinion as “a relic” that overstepped “the narrow confines of judicial review” by second-guessing the legislature’s decision to tax corporations differently than individuals.

Today, it’s “just complete confusion” over which rights corporations can claim, says Prof. William Simon of Columbia Law School.

Even conservatives sometimes have been skeptical of corporate rights. Then-Associate Justice William Rehnquist dissented in 1979 from a decision voiding Massachusetts’s restriction of corporate political spending on referendums. Since corporations receive special legal and tax benefits, “it might reasonably be concluded that those properties, so beneficial in the economic sphere, pose special dangers in the political sphere,” he wrote.

On today’s court, the direction Justice Sotomayor suggested is unlikely to prevail. During arguments, the court’s conservative justices seem to view corporate political spending as beneficial to the democratic process. “Corporations have lots of knowledge about environment, transportation issues, and you are silencing them during the election,” Justice Anthony Kennedy said during arguments last week.

But Justice Sotomayor may have found a like mind in Justice Ruth Bader Ginsburg. “A corporation, after all, is not endowed by its creator with inalienable rights,” Justice Ginsburg said, evoking the Declaration of Independence.

How far Justice Sotomayor pursues the theme could become clearer when the campaign-finance decision is delivered, probably by year’s end.

© 2009 Dow Jones Co.

Supreme Court weighs dangerous reversal of campaign finance law

In 2008, Exxon’s Political Action Committee solicited Exxon executives and employees nationwide for cash donations to build a campaign war chest on behalf of federal candidates. The Exxon PAC raised less than $1 million in voluntary individual contributions.

During the same election cycle, Exxon’s corporate profits were $85 billion, or more than 8,000 times as much. If the company’s CEO could freely write checks from the corporate treasury account to spend on partisan campaigns or to contribute directly to candidates for federal office, a decision to spend a modest 1 percent of those profits — $850 million — on political campaigns would have been more than five times what all corporate PACs in America raised to spend on congressional campaigns that year, which was $150 million.

Such a reversal of more than a century of democratic laws passed to confine the political activities of private business corporations would send shock waves through our democracy. Although Exxon and other Fortune 500 firms could easily participate in every single federal and state race in the nation, even the decision to spend tens of millions of dollars to defeat five targeted candidates would successfully destroy any future political opposition in Congress or the states to corporate positions.

Some justices on the Supreme Court seem hungry to usher in a new “corporate democracy.” This spectacular outburst of conservative judicial activism would enthrone corporations, diverting them from their job of generating wealth through economic activity and radically changing their role in law and society.

A corporation is not, nor has it ever been, a constitutional person with voting rights; it is not, not has it ever been, a democratic citizen; nor has it ever been a constituent member of “We the People ” The founders did not mention the word “corporation” in the Declaration of Independence or the Constitution, and only a handful of corporations were even in existence at the time the Constitution was written.

The corporation is not a membership organization but an “artificial entity,” as the Supreme Court has called it, chartered by the state or federal governments to serve public purposes. Legally speaking, it has no independent constitutional standing outside of the rights of the people who own it — and they already have the right as citizens to contribute and spend on campaigns. The idea now being promoted that CEOs have a First Amendment right to take other people’s money out of corporate treasuries to spend on politics is outlandish.

Chief Justice John Marshall wrote in the Dartmouth College case that, “A corporation is an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law, it possesses only those properties which the charter of creation confers upon it, either expressly, or as incidental to its very existence.”

In our time, Justice Byron White pointed out that we endow private corporations with all kinds of legal benefits — “limited liability, perpetual life and the accumulation, distribution and taxation of assets” — in order to “strengthen the economy generally.” But he emphasized that a corporation has no right to convert its economic resources into political power. As he put it, “The state need not permit its own creation to consume it.” Chief Justice William Rehnquist agreed.

The sovereign actors of American democracy — we, the people — have also understood that business corporations, which are magnificent agents of capital accumulation and wealth maximization in the economic sphere, pose extreme dangers in the political sphere. Our best leaders have wanted business to prosper but never to govern.

We should be as clear-eyed today as Abraham Lincoln was in 1864 when he said that “as a result of the war, corporations have become enthroned, and an era of corruption in high places will follow. The money power of the country will endeavor to prolong its rule by preying upon the prejudices of the people until all wealth is concentrated in a few hands and the Republic is destroyed.”

And we should be as passionate in defense of popular government as Thomas Jefferson, who wrote in 1816: “I hope we shall crush in its birth the aristocracy of our moneyed corporations which dare already to challenge our government to a trial of strength and bid defiance the laws of our country.”

© 2009 Jamie Raskin

More on Corporate Personhood

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 through options like the best bitcoin wallet 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