Ciara Torres-Spelliscy is counsel at the Brennan Center for Justice at NYU School of Law and the author of Corporate Campaign Spending: Giving Shareholders a Voice.
Last month, I testified before Congress about the Supreme Court decision in Citizens United v. FEC, urging new protections for American shareholders. My plea was simple: copy the British.
What does the U.K. have that the U.S. lacks, but sorely needs? Not a queen, a parliament, or a home secretary, but a law passed in 2000 that requires British companies to seek authorization from their shareholders for corporate political spending.
Americans need these same protections afforded to British shareholders. Using the Citizens United case as a vehicle, the Supreme Court decided to allow managers at publicly traded American companies to use investor money to pay for all corporate political expenditures. If you have a 401(k) invested in stocks or mutual funds, then that "corporate" money being spent to support or oppose a candidate is actually from your nest egg. And it can be spent by corporate managers without notice or consent by shareholders.
For decades, U.S. campaign finance laws have kept investors' money out of federal politics. Under these laws, corporate managers could use only separate segregated funds, known as corporate PACs, for federal political expenditures. In the Citizens United case, these restrictions have been eliminated, making investor money up for grabs in federal elections.
An earlier Supreme Court grasped the issue instinctively. As the court wrote in 1948, "corporate officials [have] no moral right to use corporate funds for contribution to political parties without the consent of the stockholders." But the current Supreme Court, under the leadership of Chief Justice Roberts, has turned the law on its head. The case involved a conservative nonprofit group called Citizens United that wanted to use corporate funds to pay for the distribution of 90-minute movie vilifying Hillary Clinton days before the presidential primaries. The 2002 McCain-Feingold law prohibits corporations from spending treasury funds in this manner, and this prohibition was upheld by the Supreme Court in 2003. However, in the opinion, the Supreme Court indicated that it looked past the individual facts of this case and instead issued a broad ruling that would struck down a section of McCain-Feingold as well as laws in 22 states that prevent corporations from using investor funds to support or oppose candidates for office.
In dealing with the difficult problem of safeguarding both shareholder and voter interests, we might look across the Pond at the British approach for regulating corporate political activity. British companies must seek permission from shareholders to make political expenditures and must report such spending to U.K. shareholders on an annual basis.
Here's how the British system works: Unlike American directors who can hide their political spending from their investors, British directors report all political expenditures and donations to shareholders on an annual basis. In fact, Anglo-American companies report their American political expenditures to their British shareholders.
Disclosure is not the only tool used under the British system to safeguard shareholders' interests. Directors in British companies must seek authorization of political spending from British shareholders. In the U.K., shareholders do not authorize each individual contribution; but they do authorize an annual political budget for the corporation.
For example, at the company's annual meeting, the directors will seek authorization from their shareholders for the ability to spend 100,000 pounds in politics the coming years. If British shareholders want to stop such spending, they can deny the managers the authority to make political expenditures. This authorization system has worked in Britain over the past decade without incident.
The U.S. should consider adopting a similar approach to corporate political expenditures. These reforms will give shareholders the ability to decide how they want their money spent. Without these reforms, corporate managers may waste your hard-earned investments on political causes and candidates you have never heard of, or don't want to endorse.
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