Corporate Governance and Campaign Finance: Citizens United v. FEC (The Need for Federal Intervention)(Part 1)

We are discussing Citizens United v. Federal Election Commission,  No. 08–205,  Jan. 21, 2010, the Supreme Court's recent decision on campaign finance.

So what is Congress to do?  We don't have any conclusions with respect to a specific federal regulatory regime, although presumably it would include substantial disclosure of the expenses and at least the type of disclaimers upheld by the majority.

Instead, we consider reforms that would address the problem through shifts in corporate governance.  Some have suggested that the expenditures ought to require shareholder approval.  Mark Tushnet at Harvard had this to say:

• Requiring shareholders to approve a general power in the corporation to spend money on campaigns probably wouldn't accomplish much. Requiring them to approve specific expenditures—in advance—would, probably to the point of making such expenditures impossible for large general-purpose corporations. (It probably wouldn't affect small corporations or ideological ones like Citizens United much, which is an attractive feature of the proposal.)  Or, you could require that some supermajority of shareholders approve a general power to spend money on campaigns -- say, two-thirds or three-quarters -- and treat spending in the absence of such approval as ultra vires the corporation.

Shareholder approval, in advance, is very rare.  In the corporate codes of most states, only four matters typically require pre-approval of shareholders (dissolution, merger, sale of all/substantially all of the assets, and amendments to the charter).  To the extent pre-approval was required, it would make these types of expenditures relatively rare. 

Nonetheless, that would change.  At least for companies that regularly see their business tied up with campaign support, they could easily place the matter on the agenda of the annual shareholder meeting.  Moreover, it would likely pass in most instances.  First, shareholders opposing the effort confront the usual collective action problems (for a discussion of these problems, see Opting Only in: Contractarians, Waiver of Liability Provisions, and the Race to the Bottom).  Second, many shareholders would likely support the expenditures.  While they may negatively affect the public interest, the expenditures are likley good for business.  In short, they will help companies profit maximize, which is something supported by most shareholders.

In short, shareholder approval is a road block to the expenditures and would prevent companies without sufficient foresight to make them.  On the other hand, there is no reason to believe that it will correct the problems raised by Citizens United.  Large expenditures by large companies may still be common.

Comments

[Matt]

Why choose two thirds or three quarters as the bar? Why not 100%? 100% would still not block the Citizens United situation. 100% is analogous to the individual case (I have 100% of my own vote for what speech I as an individual choose to support).

One might argue that 100% is a difficult bar to reach for a corporation, but so is 67% or 75%. 100% has the advantage that it means that all of the shareholders agree that the corporation participate in political speech. Further, the remedy that the court endorsed was for shareholders who do not agree to sell their stock. If that happened, then the result would be to create a support of 100%. This rule would simply insist that they get the support first. A requirement of 67% or 75% does not have that same moral advantage.

For private corporations, this is a high but not unreachable bar. For public corporations, it might be unreachable, but the corporation could always go private, change to a political speech participant, and then go public again. The basic requirement is that if a corporation wants to change from not participating to participating, the owners favoring participation must buy out those opposing it.