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Citizens United, Shareholder Rights, and Free Speech: Restoring the Primacy of Politics to the First Amendment, Part II

The following is the conclusion of an opinion piece on the decision in Citizens United v. Federal Election Commission by Professor Bradley A. Smith.  The piece starts in the post below, here.

At the same time that the Citizens United v. FEC dissenters launch their remarkable assault on shareholder rights, they claim to be defending the rights of shareholders.  This schizophrenic position seems to be the result of schizophrenic beliefs about a subsidiary issue.  The desire to “do something,” as we have seen, comes about precisely from the belief that corporations, when engaging in political participation, will focus solely on turning a profit for their shareholders, as Justice Stevens said in the Citizens dissent.  This is the quid pro quo rationale that has long undergirded campaign finance restrictions, since Buckley v. Valeo, and even the “corrosion” rationale behind the now overruled Austin v. Michigan Chamber of Commerce: corporations will attempt to influence public policy solely to gain undue favors that enrich their shareholders.  Yet now, we are told that corporate spending must be limited to protect those same shareholders from, in Professor Tribe’s words, corporations “squandering their property in federal elections.”  Thus, corporate spending on politics must be limited because managers (unlike other individuals?) will promote policies solely to maximize profits to the corporation, but must be restricted because in doing so they are “squandering” corporate resources.  The two propositions do not work in tandem.

If shareholder rights are really at issue, then the problem really arises when managers spend corporate funds in ways not intended to boost corporate profits.  This is why critics attack Citizens United as allowing corporate managers to “spend other people’s money.”  But even if this is true, this is a question not of campaign finance law, but of corporate law.  What is really under attack here is the business judgment rule.  If the business judgment rule is the problem, corporate political spending is the least of our worries.  Even before McCain-Feingold, Fortune 500 companies spent roughly ten times as much money on lobbying as on campaign expenditures.  Must shareholders approve all lobbying in advance?  (And, from the public interest side, is it better if corporations seek to exercise influence by lobbying lawmakers rather than lobbying the public, through campaign spending?).  Furthermore, these companies give away roughly ten times as much money as they spend on lobbying.  These donations can go not only to such causes as United Way or the local opera, which many shareholders might not like, but to controversial “political” charities, including groups such as the Brennan Center for Justice (which has long received corporate contributions to support its crusade for campaign finance reform, without ever expressing concern for whether the shareholders were in agreement with its agenda), Planned Parenthood, and even the Boy Scouts, once non-controversial but now a lightning rod for gay rights organizations (which, themselves, are sometimes controversial recipients of corporate charity).  Many corporations voluntarily support affirmative action, even though many shareholders disagree with such policies.  The managers do this under the business judgment rule.  Similarly, managers may decide to increase pollution within legal limits in order to boost profits, though some shareholders would prefer they do not – or they may decide to make a voluntary reduction in pollution at some cost in profitability, even though some shareholders would prefer that they do not.  Or corporations may run product ads suggesting that competitors are not treating their customers fairly, leading some shareholders to fear that the long-term effects of such ads will be to turn public opinion in favor of industry-wide regulation that will harm the corporation’s own profitability.  But these types of decisions are all made under the business judgment rule.

Corporate law scholars have long wrestled with the scope of the business judgment rule – indeed, it may be fair to say that there is no more vexing issue in corporate law than the question of how to have efficient corporate governance while preventing officers and managers from betraying their duties to shareholders.  But that is precisely why it would be a huge mistake to make a radical assault on long considered issues of corporate law due to a short term populist panic about corporate political spending, which is a miniscule portion of what any for-profit corporation does.

Meanwhile, the various specific solutions posed also indicate a certain schizophrenia.  Professor Tribe, having argued that shareholders must be protected from resources being “squandered” on political ads, seeks added disclosure on corporate ads.  He argues that “the impact of a campaign ad, whether in the form of a thirty-second spot or an extended production, would be cut down to size if it had to be (accurately) presented as a self-interested attempt by big pharma or by a cigarette or oil company or a bank holding company or hedge fund to influence the outcome of a candidate election for the benefit of the sponsoring company’s bottom line rather than masquerading behind a veil of public-spiritedness.”  But if the concern is really for shareholders, shouldn’t we want the corporate spending to be done as effectively as possible, with as much impact as possible?  Why would we limit that? (And as an aside, since when do most politicians, or individual voters, forthrightly declare that they simply want more stuff from the government, rather than hiding behind the “public interest”?)

Professor Tribe says that the idea is not “to suppress political speech,” but in fact that is exactly the idea.  He makes a series of proposals specifically designed to suppress political speech.  For example, he wants all corporate political ads to feature the name of the corporation’s CEO and the percentage of its treasury spent on the ad.  But of what benefit would any of that be to the listening public?  The apparent goal is simply to discourage speech.  Moreover, he proposes making corporate executives personally liable for treble damages and attorneys fees as a “deterrence” to spending corporate dollars on political activity.  The basis of such claims would be a “federal cause of action for corporate waste.”  This would either be toothless, simply relying on the manager’s claims of good faith, or would result in hindsight second guessing by prosecutors, minority shareholders, and juries as to whether the corporation could show specific quid pro quo benefits from its political involvement – exactly the thing that campaign finance reformers have long argued should be prevented, not required, when corporations engage in politics.

The lack of wisdom in these proposals is illustrated by the fact that there is no evidence that any substantial percentage of decisions on corporate political spending is in fact opposed by shareholder majorities.  It seems more likely that the opposite is true.  These proposals are clearly intended to make it much harder, if not impossible, for the shareholder majority to support its own best interests (which, again, the reformers seem to presume is contrary to the policy preferences of the reformers), in the name of shareholder rights.  It is hard to defend any of this as a victory for shareholder rights, rather than an effort to silence voices that the silencers seem to assume they will not like.

In summary, lacking a rationale for the corporate speech ban that can withstand even rational basis First Amendment analysis, opponents of corporate political speech are making a series of contradictory arguments, both underinclusive and overinclusive in their scope, in the name of shareholder rights, with the specific intent of hindering corporate speech by majority shareholders.

Finally and unfortunately, at this stage no discussion of Citizens United can be complete without addressing the question of foreign corporations engaging in political spending.  Of course, no one seriously believes that the ban on corporate spending was enacted to prevent foreign corporations from engaging in spending, as opposed to all corporations, nor did the government defend the statute on that basis, but even if we take that argument in good faith, it makes little sense.  First, a separate and very broad provision of the law clearly bans all foreign nationals from participating financially in any U.S. election, from dog catcher to president.  It is true that U.S. subsidiaries of foreign owned corporations could spend money in an election (just as they were able to do in twenty-eight states before Citizens United), but even to do that the subsidiary must be U.S. incorporated and U.S. headquartered, and must make expenditures from funds earned in the United States.  So a foreign corporation could not simply run money into the company to then make expenditures.  Furthermore, no foreign national can be involved, directly or indirectly, in any way, in decisions to spend, or on how to spend, any funds for political purposes.  So to address one hypothetical I have heard, it would be a violation of the law for a Saudi billionaire to suggest to the U.S. citizens making decisions that the U.S. subsidiary spend money in an election.  And finally, note that these U.S. subsidiaries are already eligible to spend unlimited sums on lobbying Congress or on promoting or opposing state ballot measures.  Additionally, these U.S. subsidiaries already have, and have long had, the right to create and pay the expenses for corporate Political Action Committees, which can not only spend on political races without limit, but can contribute directly to candidates.  The horror stories about foreign corporations simply illustrate, again, how weak are the both the First Amendment and broader Constitutional arguments against the Court’s ruling in Citizens United.

Citizens United is important not because it will lead to a flood of corporate and union spending in political races, but because it re-establishes a core principle of First Amendment law, which is that the government cannot be in the business of discriminating against U.S. citizens engaged in political activity simply because of the organizational form of their engagement.  But even if it should lead to a flood of corporate spending, the alternative endorsed by the government and the dissenting justices on the Supreme Court – an America where the government could ban political books and movies – is clearly far worse.