Constitution Check: Do stockholders need a veto over corporate campaign spending?

Lyle Denniston looks at the effort to get the the Securities and Exchange Commission to rule on the matter of corporations being forced to disclose how they spend political campaign money.


Image via mokra/Stock Exchange.

Image via mokra/Stock Exchange.

“It is an uphill battle to get disclosure in dark money.  We saw an opening with the Securities and Exchange Commission and that door seemed to have been open reasonably wide.  Now it’s closed a little bit, and it’s very disappointing because there’s so much resistance to disclosure in general that is coming from a small number of donors.”

 – Lisa Rosenberg, government affairs consultant to the Sunlight Foundation, a non-profit organization favoring transparency on public policy issues, in a comment quoted December 6 by the Al Jazeera news network in a story about the SEC taking off of its 2014 agenda a proposal to force publicly-owned corporations to disclose to stockholders what the companies spend on political campaigns.

“It was obvious that the proponents of this proposal were seeking to infringe upon significant First Amendment interests by trying to convince the SEC to pursue the narrow, partisan political goal of singling out for special requirements the entities that they perceive as opponents in political and policy debates….Campaign finance is not, has never been, and should never be a function of the SEC.”

 – Blair Latoff Holmes, executive director of media relations for the U.S. Chamber of Commerce, in a comment quoted in the same Al Jazeera story.


The Supreme Court’s new-found willingness, in 2010, to permit business corporations to spend company money freely on political campaigns has been paired with a willingness to have that activity brought out into the open through disclosure requirements.  That was the two-sided constitutional bargain that the court struck in its decision in Citizens United v. Federal Election Commission, and, since then, it has repeatedly turned aside challenges to disclosure laws.

An important element of this bargain, the court made clear, was the existence of “corporate democracy” – that is, the role that the owners of a company’s stock can play in monitoring how it uses its money and its influence.

In the Citizens United decision, the Court said this: “With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters.  Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are in the pocket of so-called moneyed interests.”

That decision also made it clear that compelled disclosure did not have to be limited only to spending that directly supported or opposed a candidate – that is, it need not be confined to a disclosure of explicit “vote for” or “vote against” messaging.  Any spending of corporate money that sought to influence election outcomes, in short, could be made subject to mandatory disclosure without running afoul of the First Amendment.

It was not necessary for the Court to spell out what mechanisms there might be to make this ideal of “corporate democracy” work in the real world.   One method, of course, would be to give stockholders some guaranteed access to corporate spending information, either in a periodic report or as part of the annual report that would be laid before the owners when they gather for yearly meetings.  In fact, a significant number of corporations already do that by their own choice.

But there may be a price to pay in the commercial marketplace from disclosure of the kinds of candidates or causes that a corporation seeks to promote at campaign time.  There is always the risk that consumers or others doing business with the corporations may resent the political initiatives they take, and retaliate, perhaps with boycotts or withdrawal of business.

There is that pragmatic reason for a corporation to resist mandatory disclosure.  And there is, of course, the First Amendment argument – that is, that disclosure is a form of burden that can inhibit the exercise of the corporation’s free-speech rights, and is therefore an impermissible restraint on political expression.  The Court did not accept that constitutional argument in 2010, but that has not inhibited corporate spokespersons from continuing to make it.

Those are the kind of arguments that the Securities and Exchange Commission has been hearing for a good many months, as it pondered whether and how it should react to a formal request that it adopt some means of mandatory disclosure of corporate political spending.  That proposal was submitted to the agency in August 2011 by a group of 10 law professors, and the idea had been gaining both support and opposition in reactions sent to the agency.

It was on the SEC’s agenda throughout much of this year, but the idea did not move into study of a specific approach; there apparently was no draft of an actual rule even on the table.  And then, without saying why, the agency announced this month that it had drawn up its action agenda priorities for 2014, and the “corporate democracy” proposal did not make the list.

Speculation about why this happened has ranged from a suggestion that the agency already had too much to do in continuing to implement financial industry reforms, to an accusation that it was yielding to political pressure.   In addition, the agency might have doubted that it could finish writing a rule in time for the 2014 political campaigns, or did not want to be stepping into the middle of that campaign with a new rule as controversial as this one almost certainly would be.

The agency, it seems, has not totally ruled out the possibility that, at some point, it would take up the issue once more.  In the meantime, stockholders will be able to obtain some measure of veto power through disclosure only on a company by company, voluntary basis.  That at least can provide experience on how it works, and what its marketplace impact might be.

Lyle Denniston is the National Constitution Center’s adviser on constitutional literacy. He has reported on the Supreme Court for 55 years, currently covering it for SCOTUSblog, an online clearinghouse of information about the Supreme Court’s work.

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