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Other People's Money

Anthony Kammer

When people talk about corporations spending money in politics, it’s commonly assumed that the corporation is a single thing with a clear position on any given issue. This masks the fact that corporations are complex, state-created entities with their own governance structures and a multitude of conflicting interests. 

In reality, there are a variety of stakeholders in every corporation – from management and directors to employees and shareholders – and these stakeholders often have very different political views and priorities. Under current corporate law, the views of management and directors enjoy a privileged position when it comes to deciding what kinds of political spending the corporation engages in or whether to spend at all. At present, management is not even required to disclose its political spending to the corporation’s own shareholders.

In our new Demos explainer, my colleague Liz Kennedy and I provide a short overview of the ways in which corporate law, in conjunction with Citizens United, operates to elevate the interests of corporate managers relative to shareholders, employees, and other corporate stakeholders. As we note in the paper:

One of the ironies of the Citizens United decision is that in attempting to address one First Amendment issue, it gave rise to another. Taking at face value for a moment the idea that money is speech, giving managers and directors unchecked authority over undisclosed corporate political spending should give us pause. Money in a corporation’s treasury is owned by a web of individuals with different legal claims on that money. Corporate managers who choose to spend that money on political expenditures are, under the logic of Citizens United, exercising other individuals’ rights and speaking on behalf of others.

There are a variety of policy solutions that could help address these challenges:

Corporate law is becoming increasingly vital to a number of public-interest reforms, and a number of proposals have been made that would help restore a legal balance between corporate leadership, shareholders, and other stakeholders. Imbalances in current corporate law as it relates to political speech could also be addressed by increasing the role of independent directors on corporate boards, requiring approval of a supermajority of shareholders, or otherwise enhancing shareholder involvement in corporate governance. Other corporate stakeholders could similarly be given a larger role in decisions relating to political activity.

The government could increase transparency and accountability by enacting laws or adopting regulations that would require management and directors to disclose corporate political spending to other stakeholders in the corporation. Disclosure standards could be improved in a number of other ways as well. The Securities & Exchange Commission (SEC) has the authority to require public companies to disclose their political expenditures and is currently considering a petition, which is now the most commented-on and most supported petition in the agency’s history. Congress could fix the lack of transparency immediately by enacting legislation such as the DISCLOSE Act. . . . [S]hareholders may also submit proxy proposals so that they can vote to demand greater transparency from management and directors. And the number of companies who voluntarily disclose their political spending continues to grow.