Supreme Court Strikes Down Restrictions on Corporate Speech

On January 21, 2010, the U.S. Supreme Court issued a groundbreaking decision in Citizens United v. Federal Election Commission, which held that portions of the McCain-Feingold campaign finance law banning corporate and union expenditures on political speech violate the First Amendment. The decision also calls into question similar restrictions on corporate speech in two dozen States.

The case arose out of Citizens United’s January 2008 release of Hillary: The Movie, a 90-minute critical documentary about then-Senator Hillary Clinton, who was a candidate for the Democratic Party’s presidential nomination. Citizens United sought to distribute the movie through Video On Demand, but was prohibited from doing so because federal law made it a felony for corporations–including nonprofit corporations–to use their general treasury funds for political advocacy. Citizens United filed suit challenging those restrictions. After Citizens United lost before a three-judge district court, the Supreme Court granted review and set the case for argument in March 2009. At its final sitting before its summer recess, the Court then took the highly unusual step of ordering re-argument of the case at a special September 2009 sitting.

In its highly anticipated 5-4 decision, the Court held that the government cannot prohibit corporations and labor unions from funding political speech. In his opinion for the Court, Justice Kennedy explained that, if the First Amendment “has any force, it prohibits Congress from fining or jailing citizens, or associations of citizens, for simply engaging in political speech.” The Court expressly invalidated the prohibition on corporate and union “electioneering communications” established by McCain-Feingold as well as the prohibition on corporate and union express advocacy, which had stood for more than sixty years. In so doing, the Court explicitly overruled its 1990 decision in Austin v. Michigan Chamber of Commerce and portions of its 2003 decision in McConnell v. Federal Election Commission, which had upheld the constitutionality of restrictions on corporate and union political speech.

Austin and McConnell rested on the theory that corporate political speech could constitutionally be banned in order to prevent “the corrosive and distorting effects of immense aggregations of [corporate] wealth” that purportedly had “little or no correlation to the public’s support for the corporation’s political ideas.” The Court’s decision in Citizens United emphatically rejected that so-called “anti-distortion rationale.”

The Supreme Court’s decision frees corporations and unions to disseminate their views about political candidates through independent expenditures that are not coordinated with candidates or their parties, and applies with equal force to nonprofit advocacy groups, such as Citizens United, and large, for-profit corporations. The decision leaves in place the federal prohibition on corporate and union contributions to political campaigns.

Finally, the decision creates new corporate governance issues by shifting efforts to restrict corporate political speech from Congress to the boardroom. In Citizens United, the Supreme Court rejected the government’s argument that corporate political speech can be banned in order to protect dissenting shareholders from being compelled to fund political speech with which they disagree. In the aftermath of Citizens United, it can be expected that shareholders in some corporations will attempt to adopt measures restricting corporate participation in the electoral process and mandating disclosure of corporations’ political activities.