Citizens United ruling can enhance a corporation’s lobbying efforts

Commentators either view it as a victory for the First Amendment or the lowest moment for democracy (and the Supreme Court). Its detractors are so concerned that they are calling for an amendment to the Constitution.

ADVERTISEMENT
In Citizens United, the court eliminated the distinction between individual and corporate political speech and opened the door for corporations to spend unlimited funds to expressly advocate the election or defeat of federal candidates. The court left unchanged the prohibition on contributions to federal candidates, which also includes in-kind contributions. Thus, corporations may not coordinate their activities with a candidate. Finally, the court found that disclosure of the newly permitted activities is required.

Many in Congress have vowed to limit the ruling’s reach. Proposals to do so include restricting the ability of corporations with foreign ownership to make expenditures, requiring approval by a corporation’s shareholders before an expenditure can be made, applying the antitrust laws to corporate political action committees (PACs) and increasing reporting requirements.

In the end, many of these ideas — with the exception of increased reporting and disclaimers — will fail to pass scrutiny by the Supreme Court. To address that, though, some want to amend the Constitution.

Several of these proposals have received the most attention.

One is a ban on political spending by foreign interests. It is already a crime for anyone other than a U.S. citizen or green-card holder to directly or indirectly make an independent expenditure in any American election. As for U.S. subsidiaries of foreign corporations, there are rules that control their political activities. For example, like other corporations, they may establish and administer a PAC or make expenditures in state elections where that is permissible. But all related decisions may only be made by U.S. citizens and green-card holders. Furthermore, all funds for these activities must be derived in the U.S. by the U.S. corporation and cannot be subsidized by the foreign parent.

Nevertheless, some propose an outright ban on political spending by foreign-owned corporations. To what corporations would it apply — wholly owned subsidiaries, those with over 50 percent ownership, or those with any foreign ownership at all? In today’s global economy, a rule based on percentage of foreign ownership would be very difficult to draft and enforce, as the FEC well knows. Moreover, banning political speech by U.S. corporations with foreign ownership silences the voices of Americans who work for them. Applying and enforcing the current rules will effectively ban the participation of foreigners and the spending of foreign money after Citizens United.

Another popular proposal is a requirement that corporations obtain approval from shareholders before engaging in any political activity.

Shareholder votes can take months to be completed. This form of prior restraint would deny a corporation and labor union the right to speak when it is most relevant. Thus it is likely to be held unconstitutional.

Rather than trying to reinstate the prohibition, Congress should enact more stringent disclosure and disclaimer requirements. To its credit, corporate America is moving in this direction. As part of a growing trend, over 60 of the nation’s largest corporations require the annual disclosure of political expenditures to their shareholders. If shareholders are unhappy with the expenditures approved by corporate officers, they can remove them.

There is a concern that the ruling will favor Republicans. If PACs are any indication, that may not be the case. According to Open Secrets, a public-interest website, of the top 20 PACs in the last election cycle, corporate PACS contributed almost 60 percent of their funds — more than $10 million — to Democrats. (Labor unions and trial lawyers contributed 95 percent of their funds — approximately $11 million — to Democrats.)

Corporate PAC money tends to favor incumbents and not one party and there is no reason to believe that expanded corporate spending would not follow the same pattern. Twenty-six states allow corporations to engage in political speech. There is no evidence that democracy or Democrats in those states are suffering as a result of corporate speech.

It is unlikely that many corporations will advocate the election or defeat of candidates; rather, they will try to influence their position on issues of importance to the corporation. Much of this will be done through advocacy groups, such as 501(c)(4) and Section 527 organizations. Some are concerned about corporations hiding behind these third-party groups. Congress already requires 527 groups to disclose their donors; it can bring in a new era of transparency by requiring 501(c)(4) organizations to disclose donors who support political efforts.

The authority granted in Citizens United can be used to enhance a corporation’s lobbying efforts. In doing so, a corporation must comply with all disclosure laws, avoid the appearance of coordination with candidates, and, for those that have not, consider adopting shareholder disclosure policies.


Spulak is a King & Spalding partner in the Government Advocacy and Public Policy Practice Group. He served as Democratic staff director and general counsel of the House Committee on Rules, and as general counsel to the House.