"Shareholder Protection Act" is about silencing speech

Apparently the campaign finance “reform” lobby can’t take a hint. After repeated U.S. Supreme Court rulings affirming the vital importance of free speech in elections and striking down their efforts to regulate the funding of political speech, they continue to promote legislation designed to silence disfavored speakers. Their latest effort, introduced on July 13, is the so-called “Shareholder Protection Act” (H.R. 2517, S. 1360). But despite its anodyne name, the Shareholder Protection Act has little to do with protecting shareholders and everything to do with silencing corporate speech.

The brainchild of Rep. Michael Capuano (D-Mass.) and Sen. Robert Menendez (D-N.J.), the Shareholder Protection Act would require corporations to get approval from a majority of their shareholders every year in which they wish to speak out in a federal election. The Act even requires corporations to get shareholder approval before making contributions to industry trade associations that might eventually make political expenditures. Corporations that fail to get separate permission each year they spend money on their own electoral speech or donate to trade associations that might someday engage in electoral speech could be sued by shareholders for damages of three times the amount of their expenditures.

Perhaps not surprisingly, the Act does not apply to unions, which would remain free to spend unlimited sums on political advertising without seeking approval from dues-paying members. Nor would the Act require corporations to get preapproval for speech on any other subject—the Act targets only electoral speech.

Already the Shareholder Protection Act has garnered praise from longtime proponents of campaign finance restrictions. And no, these groups haven’t taken up a sudden interest in the law of corporate governance. Corporations routinely fund charities, educational institutions, and civic causes of all sorts, but the “reformers” don’t care at all about ensuring shareholder approval for this spending. Indeed, under the Act, a corporation could spend an unlimited amount of money on all sorts of speech that its shareholders might hate, as long as none of that speech concerned federal candidates. 

The goal of the Shareholder Protection Act is obvious. By singling out electoral speech—and only electoral speech—for more burdensome treatment, the Act attempts to do indirectly what the U.S. Supreme Court said in Citizens United v. FEC that Congress may not do directly: prevent corporations from speaking to voters about political candidates. And just like direct attempts to limit corporate speech, this indirect attempt violates the First Amendment. 

The First Amendment commands that “Congress shall make no law . . . abridging the freedom of speech.” That command—written in terms of “speech,” not speakers—prohibits Congress from burdening speech from any source, including corporations. By requiring corporations to seek permission before they may speak about candidates, the Shareholder Protection Act functions as what courts call a “content-based prior restraint” on speech. In other words, it turns the First Amendment on its head by imposing special burdens on speech about a particular subject: the election or defeat of political candidates.

The Supreme Court has long taken a dim view of prior restraints, but it is particularly hostile to them in the political arena, where they are most dangerous. Calling shareholder meetings and tallying votes takes time—time that often isn’t available in the heat of an electoral race. Political elections are dynamic and unpredictable. As Justice John Marshall Harlan II once noted, “Timing is of the essence in politics. It is almost impossible to predict the political future; and when an event occurs, it is often necessary to have one’s voice heard promptly, if it is to be considered at all.” 

Of course, ensuring that corporate speech doesn’t get considered is precisely the goal behind the Shareholder Protection Act. It is no coincidence that the bills’ 49 co-sponsors are all Democrats, or that the proposed restrictions do not apply to labor unions. Campaign finance laws have long been used as partisan tools to protect incumbent politicians from speech that threatens their reelection. The Shareholder Protection Act is just the latest example of this sort of political self-dealing.

Thankfully, the Supreme Court has caught on to this game, and its recent decisions in a series of campaign finance cases—most notably Citizens United—spell doom for the Shareholder Protection Act. The Court has slapped down the “reform” lobby five times in a row now. If the unconstitutional Shareholder Protection Act becomes law, you can bet that it will be number six.

Paul Sherman is an attorney at the Institute for Justice, which litigates First Amendment cases nationwide.

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