Reining In Citizens United
At Trillium, we hold to the widely accepted belief that transparent and well-functioning democracies are not only the best and most desirable forms of governance, but also provide the best climates for investment. Hence our nervousness at the potential of Citizens United v. Federal Election Commission to weaken democracy by exacerbating the already-great advantage corporations have in speaking louder than the rest of us.When Citizens United was handed down in January, the punditocracy was ablaze overnight with schemes for stemming the flood of corporate spending that is widely expected to be unleashed. Pass a constitutional amendment. Require shareholder preapproval of corporate political budgets as the British do. Ramp up disclosure. Implement campaign finance reform. The sense of urgency continues as the midterm congressional races approach.
With so many options for remedy, how should we prioritize? Will nothing short of a constitutional amendment or a reversal of the opinion fix the problem? Will Wall Street get in the way of change, concerned that any restrictions on corporate spending in the political sphere would weaken portfolio returns? Should investors demand approval of corporate political spending budgets, or would that risk unacceptable unintended consequences? Should investors be content to simply press for increased transparency, accountability and board oversight? These are the questions reform-minded investors are pondering in the new environment.
In this piece, we’ll review some of the leading proposals that have emerged for containing the impact of Citizens. We have concluded, as we expect the reader will, that there is no turnkey solution.
Amend the Constitution.
The first impulse in the wake of a bad Supreme Court decision is to undo it the most direct way available: amend the constitution to declare that corporations are not persons, or to limit their free speech rights. Senators John Kerry (D–MA) and Donna Edwards (D–MD) and a coalition of progressive organizations has vowed to do just that.1 Given the monumental and very long-term nature of this task, their commitment is admirable. However, even some legal scholars who believe that Citizens United was a bad constitutional decision believe that organizing for an amendment is inadvisable and unlikely to get us where we want to go. Kent Greenfield, professor at Boston College Law School and the author of The Failure of Corporate Law, has commented that an amendment declaring that corporations are not persons would still beg the important question of what rights they do have as organizations. He advocates focusing on democratizing corporate decision-making and expanding the largely untapped power of government to set conditions on corporate chartering.
In my view, the benefit of incorporation itself can be conditioned on the waiver of the “right” of corporations to participate in political campaigns. The Court has often upheld the ability of government to condition benefits on the waiver of rights. Admittedly, this gets complicated fast, but the basic rule is that if the government gives you something, it can limit the uses you make of it.2
Let It All Hang Out.
Under current law, corporations are not required to disclose general treasury payments to trade associations or other nonprofit entities3, nor are these recipients required to disclose who their patrons are. Hence, one thing that all reformers agree on is the virtue of more sunlight. As “Consumers United Explained” discussed above, conduits such as the U.S. Chamber of Commerce are brilliant at recycling (some would say laundering) corporate contributions toward the funding of political initiatives while hiding the source of the funds. This phenomenon is discussed at length in the 2006 report, Hidden Rivers: How Trade Associations Conceal Corporate Political Spending, Its Threat to Companies, and What Shareholders Can Do, by the Center for Political Accountability (CPA).4 The CPA has led a highly successful shareholder campaign that has persuaded 75 companies in the S&P 500 to adopt best practices in disclosure, governance and accountability. Using shareholder resolutions and dialogue, Trillium and other concerned investors who have partnered with the CPA have convinced such blue chip companies as Procter & Gamble, Microsoft and American Electric Power to commit to publicly disclose the portion of their trade association fees and other payments that are used for political purposes.
Post-Citizens United, it is more important than ever that this disclosure be mandated for all publicly traded corporations. The DISCLOSE5 Act (H.R. 5175/S. 3295 ), filed by Senator Chuck Schumer (D-NY) and Representative Christopher Van Hollen (D-MD), would require disclosure of political payments from both the recipient and donor. (Unions are also covered under the bill.) DISCLOSE would also impose a 24-hour reporting requirement to the Federal Elections Commission (FEC) for political expenditures greater than $10,000 made more than 20 days before an election and any exceeding $1,000 up to 20 days before an election. The FEC disclosures would be required to be linked to giver’s homepage and included in any financial reports provided to shareholders or members.
DISCLOSE goes beyond the shareholder campaign’s demands in barring companies with government contracts exceeding $50,000 from making campaign-related expenditures, and in closing a Citizens United loophole that would allow domestic corporations controlled by foreign nationals. It would also require organizations that spend more than $10,000 on political expenditures or electioneering communications in a given year disclose the names of any large donors whose contributions were used to fund these activities. Under DISCLOSE, organizations may not use donor contributions for campaign-related activities if the donor so specifies, and they must specify that any disbursements that are made for campaign-related activity were not made in coordination with a candidate.
The headline-grabbing provision of DISCLOSE has been its requirement that leaders of corporations, unions and other organizations appear on camera to identify themselves as the sponsors of their political ads.
Just Check the Box Marked “Yes.”
The Shareholder Protection Act of 2010 (H. 4790), filed by Representative Mike Capuano (D–MA), would require shareholder approval for political expenditures. Companies would have to provide a description of their “specific nature…to the extent that [it] is known,” along the total amount sought. Board approval would be required for any political expenditures in excess of $50,000. Officers and directors would be prohibited from spending outside the approved purposes without additional approval by a majority of shareholders.
Companies would be required to post individual directors’ votes within 48 hours on a “clear and conspicuous” location on its website, and make quarterly reports specifying the dates, amounts, and recipients of political expenditures, including whether the payments were made for or against a candidate and the candidate’s party. The bill would also require the stock exchanges to prohibit listing any securities from companies not in compliance. Institutional investors would also be required to disclose how they voted on all ballot questions.
In our view, shareholder pre-approval would be highly problematic at this time. Although shareholder awareness of the risks of corporate political spending has been growing appreciably in recent years, we have yet to see a majority of investors in any company approve shareholder proposals simply seeking greater transparency and board oversight. If shareholders are content with current levels of opacity and (lack of) accountability, the risk is high that they will rubber-stamp political budgets that carry risks they do fully appreciate.
We began this article by noting how important an open and transparent democratic system is in creating an attractive climate for investors. At the enterprise level, greater transparency, board oversight, and increased accountability to shareholders will all certainly be a necessary counterweight to Citizens United. But we cannot kid ourselves that changing one company at a time, or even most of the blue chips, will solve the larger problem of Too Much Money in Politics. Systemic change will require broader campaign finance reform through such vehicles as the Fair Elections Now Act, which provides public funds for congressional candidates who accept only small, private contributions and is sponsored by 150 members of Congress. Investors should also lend support less glamorous goals (such as the effort to require broadcasters to offer the lowest rates to candidates) even as we lobby for the big ticket items such as viable proposals to amend the constitution or require corporate chartering at the federal level with strings attached. “Change we can believe in” won’t really begin to take place until candidates and incumbents are freed from having to chase donations with 24-7 intensity. They need to hear from the business sector, but not to exclusion of everyone else.
1. Move To Amend (www.movetoamend.org), a project of the Campain to Legalize Democracy, has collected nearly 80,000 signatures endorsing a constitutional amendment that would declare that “money is not speech, and that humans beings, not corporations, are persons entitled to constitutional rights.”
2. “A Way Out of the Citizens United Mess?” Huffington Post, January 22, 2010. http://www.huffingtonpost.com/kent-greenfield/a-way-out-of-the-citizens_b_431990.html
3. Trade associations are incorporated under Section 501(c)(6) of the IRS Code. Other entities of concern are 501(c)(4)s (lobbying organizations) and 527s (a 527 was the vehicle for the infamous Swift Boat Veterans).
4. Available at http://politicalaccountability.net. The author is a board director of the Center for Political Accountability
5. DISCLOSE stands for “Democracy is Strengthened by Casting Light on Spending in Elections.”