In Citizens United v FEC the Supreme Court decided that corporations are people too, or at least that domestic corporations can spend money on “electioneering communications” just like a natural person, because the corporation has a constitutionally protected right of free political speech. The decision generated massive and instant concern (frenzy?, panic??) in the media, but the sky has not yet fallen. In fact, the impact of Citizens United is likely overestimated, and there is even some chance that the Citizens United backlash will be more powerful than its direct effect (why isn't frontlash a word?). At the very least, the decision will spotlight on some issues of corporate social responsibility and socially responsible investing that will benefit from the attention.
Why won't Citizens United be a huge deal? First, corporations can still be subjected to any campaign contribution limits that apply to individuals, like the $2,400 per candidate per election limit on campaign contributions for Federal office. Remember, the Supreme Court didn't say that corporations had more rights than regular people. This one is not so important because, as in the actual Citizens United case, limits on campaign contributions don't stop spending on independent ads – the individual or the corporation can swiftboat one candidate, without contributing a penny to the opposing candidate, or even run an “independent”, but supportive, ad. Second, corporations already had plenty of ways to spend money on elections, lobbying and politics in general and corporations don't really love to spend money. To the extent that Citizens United affords an opportunity for more effective political spending, the corporate funds will shift away from lobbying and into more direct electioneering. Citizens United will not, in and of itself, greatly change the cost/benefit analysis that already went into corporate political spending, and therefor it won't greatly change the total amount of corporate political spending. Third, corporations are nervous about making stockholders and customers angry. We'll consider some more refined SRI aspects in a moment, but even the most irresponsible corporation will think twice before putting its name on a political attack ad if it has to deal with a broad segment of the population as customers and/or investors.
There's backlash brewing on at least two fronts. Because Citizens United is based on a constitutional right, Congress can't overrule it with legislation, but take a peak at the summary headings from Citizens United legislation introduced by Senator Schumer and Congressman Van Hollen:
- PREVENT FOREIGN INFLUENCE IN U.S. ELECTIONS;
- BAN PAY-TO-PLAY (includes ban on campaign expenditures by govt. contractors);
- ENHANCE DISCLAIMERS TO IDENTIFY SPONSORS OF ADS;
- ENHANCE REQUIREMENTS FOR DISCLOSURE OF POLITICAL EXPENDITURES (includes reqd. web site posting for each expenditure within 24 hours);
- PROVIDE LOWEST UNIT RATE FOR CANDIDATES AND PARTIES;
- PREVENT CORPORATIONS FROM COORDINATING THEIR ACTIVITIES WITH CANDIDATES AND PARTIES.
If passed, this would make it impossible for government contractors and uncomfortable for all public companies to take advantage of the new electioneering opportunity created by Citizens United. Some elements of this legislation would effect current political spends, not just the new areas of electioneering expenditure opened up by Citizens United. Even if it's tough to get anything passed now, things will change quickly if corporations go crazy with electioneering activity.
In addition to possible legislation, Citizens United is a wake up call on corporate governance issues that have long surrounded corporate political activity. An approval process in which the board of directors is required to provide detailed prior approval of political spending and political spending is disclosed in some detail have long been best practice. Citizens United is already getting shareholder groups excited again about political spending. On February 24 the Council of Institutional Investors and Center for Political Accountability announced a letter writing campaign to persuade the companies comprising the S&P 500 that Citizens United would create new pressures and risks, making disclosure and board approval even more important.
The Citizens United backlash will dampen the effect of the decision itself and create a renewed focus on corporate electioneering and probably an even broader category of political expense,including lobbying. The backlash could go even farther. Is the issue for the SRI community just process? Consider Discloco, a company that has a great process to approve and disclose political expenditures, but uses the funds as follows: A) TV ad supporting a candidate who will vote against carbon cap legislation (because Discloco has old plants that are hard to retrofit); B) lobbying Congress for a loophole to be added to a new tax bill in conference, one that will benefit only the three companies in Discloco's industry; C) lobbying the administration to seek trade sanctions against foreign competition – the foreign competitors are actually selling goods at less than their true production cost thanks to government subsidies. Case A, and probably Case B, may give pause to anyone looking for socially responsible investments. Should corporations try to change the rules with political spending, or leave the rules to the voters, the ones who are actually people? Case C is a reminder, not all political expenditures are about changing the rules, sometimes it's about getting the system to work the way it is supposed to work. A total legislative ban on corporate political spending (if it was constitutionally possible), or a mutual fund using an absolute negative screen for any corporation that reports political spending, might be too simple to work. In any case, watch for that Citizens United backlash, and watch for it to generate a discussion on social responsibility that goes beyond approval and disclosure processes and takes on the substance of corporate political activity.
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