Spider-Man, Stephen Colbert and the Shareholder Protection Act
There are a few corporate law problems that need fixing. One is that corporate political spending isn’t transparent from the point of view of the investing public. Comedian Stephen Colbert laid bare this problem with corporate political spending in the following joke which he delivered outside of the FEC.
“Knock knock?” Colbert said.
“Who’s there?” asked the crowd.
“Unlimited union and corporate campaign contributions,” Colbert said.
“Unlimited union and corporate campaign contributions who?” the crowd replied.
“That’s the thing, I don’t think I should have to tell you,” Colbert quipped.
As Colbert’s joke alluded to, business corporations have just enough legal loopholes to obscure their role in politics. A favorite way to hide is by spending through a trade association like the U.S. Chamber of Commerce. From the shareholders’ point of view, such spending is an utter mystery. And this lack of transparency has the added problem of robbing voters of knowing who bankrolled the election.
The second problem is created by the structure of modern corporations which splits ownership from management. Usually this design creates efficiency for both shareholders and those who run companies on their behalf. But there are times when the interests of investors and managers diverge – and political spending is likely to be one of these examples. Consider, for instance, the heterogeneous political beliefs of a million shareholders compared with the political beliefs of a handful of managers. Some misalignment is inevitable and yet there is no mechanism for shareholders to consent to this spending before the fact.
American law doesn’t give shareholders the right to vote corporate political spending up or down. But it could. Congress has just introduced bills in both chambers called the Shareholder Protection Act, which would give shareholders in publicly traded corporations this power to vote. This bill would also solve the transparency problem by requiring companies to report their political spending on a quarterly basis to their investors.
Even though it offers a common-sense solution to the twin corporate law issues raised by Citizens United, because of the partisan rancor stalemating Congress, this bill may have a long journey to passage. In the meantime, the Securities and Exchange Commission (SEC) could use its independence to fix the disclosure problem far quicker by making a rule requiring political spending to be reported to the investing public.
Either way, we need corporate laws and regulations that recognize that the overwhelming power of corporations to act on the political stage should be accompanied with some basic responsibilities like (1) fessing up to the spending in public and (2) using what the Supreme Court has called “the mechanisms of corporate democracy” to touch base with the investors underwriting the spending through a binding vote.
Ciara Torres-Spelliscy is an assistant professor of law at Stetson University and the co-author of Lisa Gilbert is the deputy director of Public Citizen’s Congress Watch division.