Citizens United: Waking a Sleeping Giant

Editor’s Note: This post comes to us from Ciara Torres-Spelliscy, Counsel at the Brennan Center for Justice at NYU School of Law and Adjunct Professor of Constitutional Law at Rutgers University. A recent discussion paper issued by the Program, co-authored by Lucian Bebchuk and Robert Jackson Jr., discusses the corporate law rules that should govern political spending, and is available here.

As Professor Barry Friedman and Dahlia Lithwick noted in a recent piece, the Roberts Supreme Court is usual pretty savvy about gauging public opinion and acting accordingly, but when they decided Citizens United, they grossly misread the mood of the American public. They must have thought that this would be a little-noticed change to campaign finance minutia. Instead headlines from all over the country howled about the invitation of corporate money into American elections. Unwittingly, Citizens United, roused a sleeping giant, the American investor.

Maybe it’s the backdrop of the Great Recession juxtaposed with another record year for Wall St., but for whatever reason, Citizens United hit a raw nerve. One of the reasons that this is such an objectionable decision is it allows corporate managers in publicly traded companies to spend what Justice Brandeis called “other people’s money.” And as the Brennan Center noted in Congressional testimony right after the decision was announced, this raises a host of corporate governance issues.

Citizens United allows unlimited corporate and union spending in local, state and federal elections. Now that the 2010 election is in full swing, we can see the jump in outside money. And when they know about corporate political spending, shareholders are objecting. For example, Target’s institutional investors wanted to know how $150,000 got into the Governor’s race in Minnesota. Meanwhile, investors such as the Nathan Cummings Foundation are objecting to spending from News Corp. and the Investor Network on Climate Risk is focusing on spending by oil companies.

But frustratingly, much of the money being spent in the midterm election is secret— masked through the use of tax-exempt non-profits like trade associations. This secretive corporate political spending leaves voters and shareholders equally in the dark about the source of the funds. And this study from Investor Responsibility Research Center shows how far we need to go, finding 86% of the S&P 500 does not have stated policies on indirect political spending via contributions to trade associations and non-profit interest groups.

If American shareholders track likely voters who object to the holding in Citizens United by a margin of 4-1, then a goodly portion of shareholders are probably also displeased with the right of corporate managers to spend corporate money in this way. With roughly one out of every two American households invested, that is a lot of potential anger about the use of corporate funds in elections.

More than in any election since Watergate, in the 2010 midterm election obfuscation is winning over transparency. This was not inevitable and it needs to be fixed before the 2012 presidential election. We can address this by getting serious about changing state corporate law and federal securities law.

As Professor John Coates has noted, Citizens United has radically unsettled the expectations of corporate managers, shareholders and creditors alike. And as Professor John Coffee has argued corporate spending through trade associations thwarts accountability to shareholders. Both professors agree that at the very least, we need more transparency surrounding corporate political spending.

But is this where we should end the discussion of corporate governance after Citizens United? I think not. Here the problem is not just that shareholders are unwittingly funding corporate political expenditures, it that there is no mechanism under corporate law for them to register their consent or objection, short of selling their shares. As I have argued here and here, we need something akin to the British approach which allows shareholders a vote on political spending. And Professors Lucian Bebchuk and Robert Jackson contend, states can adopt even more stringent controls like requiring approval of political expenditures by independent directors or requiring super-majority shareholder votes to protect the interests of minority shareholders.

Legislation to address this problem is waiting in the wings. Both disclosure and a shareholder vote could be addressed by the Shareholder Protection Act (H.R. 4790). This bill would require shareholder approval before publicly-traded corporation can spend money on politics. Furthermore, corporations are required by the Act to report where they have spent the money. Congress can adopt this bill in the lame duck session after the election.

It is not too late to act to protect shareholders. We still have time to fix this problem before the 2012 election. Because once a presidential race is at stake, even the corporate managers who sat on the sidelines this time around, may find the new Citizens United authority to spend other people’s money in politics too irresistible to pass up.

Both comments and trackbacks are currently closed.


  1. Mark J. Guay
    Posted Thursday, October 21, 2010 at 10:24 am | Permalink

    I agree and I think for those of us to try to adhere to the National Assn. of Corporate Directors [NACD] 10 Key Agreed Principles to strengthen corporate governance for publicly traded companies. More specifically, Principle # II: Corporate Governance Transparency, and Principle # X: Shareholder Communications, are directly on point here. Its time to take these principles and put them into action. We have agreed to the “principles”, we now need to get the corporate “principals” to act accordingly. Or as my midwestern state wife would say: “I’m from Missouri, show me!”

  2. Brian Mexin
    Posted Friday, October 22, 2010 at 7:58 am | Permalink

    I agree that greater transparency/accountability is necessary in corporate political donations, as it is necessary in labor union political donations.

  3. Douglas B. Levene
    Posted Saturday, October 23, 2010 at 4:33 am | Permalink

    It seems to me that this all boils down to whose ox is being gored. You could just as easily say: “Unchecked [union] political spending threatens democracy. The risk to democracy is that [union] political spending will attempt to buy policies which are antithetical to the common good, instead benefiting only the [union] that purchased political advertisements.” If you want to limit union political activity (including the market value of in-kind contributions), then I suppose you could legitimately also want to limit corporate political activity. But I can’t see any principled argument for treating these various interest groups, or factions as they used to be called, differently.

  4. Caroline Austin
    Posted Sunday, October 24, 2010 at 1:05 am | Permalink

    Corporations are made up of people, living, imperfect human beings, who work together to deliver a good or service that a consumer wants to buy. If these individuals are not successful, make bad decisions, do not keep up with changing tastes, technologies, or a myriad of other factors, they are punished severely by the marketplace: they falter,then fail.

    Governments want to influence, and as evidenced by recent legislative and governmental actions , to control the actions of corporations, even when such actions are not in the interest of the corporation, its employees or its owners (shareholders). These shareholders are most often retirees, or workers saving for their retirements through mutual funds, public and private pension plans or other investments.
    Governments, sometimes for good reason, and often for only political reasons, try to force corporations to behave in ways that the people who founded these companies have never dreamed that they would be asked to behave, even when it is not in their best interest. It is only reasonable that corporations (collections of humans working together) have the opportunity to make their opinions known as to the types of decisions made or contemplated by government, that heavily impact their ability to create wealth for people associated with the corporation,(e.g. employees and shareholders.)

    However, in the marketplace of ideas, one type of company may gain from certain policies, while others may lose. Preferring “green” energy over oil and gas clearly illustrates completely different outcomes for corporations in the “energy” field. Without a debate over what is right or wrong, should those working in the oil and gas field not have the opportunity to express concern over the future of their livlihood? Should people who have spent a lifetime developing skills in petroleum engineering, shareholders who have invested heavily in oil and gas technologies or equipment be forced to sit idly by without being able to express their concern for their property and future opportunity while that future is being debated by a government not fully informed of the ramifications of certain decisions it makes?

    Based on the behavior of government, investors will also drastically change their behavior. Massive changes in government policy, without thoroughly examining the unintended consequences leads to behaviors not fully understood unless measured thoughtful deliberation takes place. This means ALL thoughts should be explored fully before legislation is passed.

    Unfortunately, bills passed without being read are creating massive uncertainty and lack of investment as we speak creating the real reason for lack of economic recovery. We are living the consequences of bad government making uninformed decisions without thinking through all consequences.

    Corporations must navigate the consequences of an evermore aggressive government. It should clearly be in the public discourse what the intended and unintended consequences of government action or inaction are, and the effects government has on the lives of its citizens. Individual citizens are not able to afford to get this message into the public discourse as effectively as through their corporations. Public officials who

    If seems to be the opinion of many who are not familiar with how corporations really work that there is infinite resource within corporations. There is not. There is no unlimited pile of cash ready to pile into campaign contributions at the whim of a CEO. However, the more adversely certain policy stances may affect this collection of people, the more heavily they will want to be involved the political process, and a corporation will divert assets from other projects if its “life” is threatened. Issues of taxation, health and benefit mandates, and other government requirements or regulation can easily make major changes to the fortunes of a company and consequently its employees and owners.

    Unions, on the otherhand, do not have the same market punishment, required public disclosure, whistleblower outlets, Sarbanes Oxley internal control reporting, and other close regulatory scrutiny.
    Unions can compel new employees to union membership even though they are hired years or even decades after a union vote has been taken. Members must hand over cash to be used as union leaders see fit. Whole industries, such as teaching in public schools, are controlled by monopolistic unions who can exclude or mute entire populations of persons who do not think or have similar beliefs as union leadership, exclude them from their power ranks, or merely force them to pay for stances to which they do not subscribe, and potentially derive no benefit. In many states, should a person aspire to be a public school teacher, the teacher must move to a right-to-work state to avoid compulsory union membership.

    Unlike corporate employment, persons disagreeing with stances of particular companies can leave, and take their skill to another company needing similar skills.

    However, with certain union controlled industries, finding employment with certain skill sets are marketable only to union controlled workplaces. Such control of political thought, the wallets of its employee, and over whole industries, such as primary and secondary education, has no parallel in the private sector.

    Additionally, public sector unions continually pay for campaign and lobbying efforts aimed at unlimited access to the public purse in the form of growing salaries, benefits, medical and other benefits which are simply becoming unaffordable to the taxpayors.

    Interestingly, we treat these organizations as though they are equal. In an even more interesting twist, we treat unions, who have no competition or market discipline, do not create jobs, wealth, or opportunity as somehow more beneficial.

    However, corporations representing a marketplace of competing ideas just as valid as those of a union and clearly more diverse are somehow considered not valid.
    In the debate of political speech, it seems that a greater understanding of the marketplace of ideas should be addressed.

  5. John Coates
    Posted Wednesday, October 27, 2010 at 7:41 pm | Permalink

    Unions are already subject to greater restrictions on political spending than corporations. Unions may not use the dues of workers for political spending unless the workers individually permit it. Abood v. Detroit Bd. of Ed., 431 U. S. 209, 235–236 (1977); Davenport v. Washington Education Association, 551 U.S. 177 (2007); Communications Workers v. Beck, 487 U.S. 735 (1988).

  6. Martin G. Evans
    Posted Thursday, November 18, 2010 at 11:25 am | Permalink

    Does Citizens United remove some or all of the constraints mentioned by Mr. Coates?

  7. Martin G. Evans
    Posted Thursday, November 18, 2010 at 11:53 am | Permalink

    I must also comment on Ms. Austin’s position (Comment 6).

    She argues that people in the collectivity should have the opportunity to make their views known.

    The point is that they already have that right as citizens and can put their own financial and human capital resources to make that opinion known.

    The question is do they also have a second right through the corporation? My answer is no; even if we were to say yes, then shouldn’t employees, shareholders, and even customers (as major stakeholders) have a voice in deciding the political stance that the corporation should take?

2 Trackbacks

  1. By Election Law on Thursday, October 21, 2010 at 10:33 am

    Torres-Spelliscy on Shareholder Protection at Harvard Corporate Governance Blog…


  2. […] HLS Forum on Corporate Governance & Financial Regulation: Citizens United: Waking the Sleeping Giant – Been bombarded by even more annoying political commercials this campaign season?  You can thank […]