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SOME AMBIGUITIES IN “AMBIGUITY ABOUT AMBIGUITY” – Part II By Einer Elhauge

You know you are dealing with great productive scholars when you point out there is an ambiguity in their study that merits a follow up article, and they are have already  written it.  I gather from Professor Farnsworth’s post that their follow up article will resolve my first ambiguity, finding that interpreters who see less ambiguity are more likely to make decisions that reflect  their own political views.  This brings me back to my point that this study does seem to undercut the argument that textualist methodologies that are designed to avoid conclusions of ambiguity will reduce the influence of the judge’s own politics.

Now for the second ambiguity I saw in the original paper.  The authors write as if the key distinction is between the internal versus external perspective: that is, whether  the question is whether the interpreter finds the meaning ambiguous or whether the interpreter believes that ordinary readers would find the meaning ambiguous.  But that is only one of two dimensions varied by the questions.  The “internal” questions ask a linguistic question about the logical parsing of text: that is, they ask whether the statute is ambiguous or whether another reading is plausible.  The “external” questions ask a predictive question of which reading most readers would find better.  The linguistic/logical question is not really the same as the predictive question.

Suppose, for example, my wife asks me to “draw the drapes.”  If you ask me whether the meaning is ambiguous, I would take it as a linguistic/logical question and have to admit the answer is yes: it could mean either that I should pull the drapes to the side to let the light in or that I should draw a nice picture of the drapes.  If you ask me to predict which interpretation most people would find better, then I would say the pretty clear answer is to pull the drapes to the side.  So I would answer the two questions differently.  But is it because of how they vary the internal/external perspective?  I think not, because if you asked me to predict which interpretation I would find better, I would say the pretty clear answer is to pull the drapes aside.  On the other hand, if you asked me whether most readers would conclude the phrase was ambiguous (in a case where both possible interpretations were pointed out to them), I would say the answer is yes.  So at least in this example, the linguistic/logical nature of the question is what does the work rather than the internal/external element.  To sort these possibilities out, it would be better to have questions that varied only one element at a time.

The issue is related to the fact that the questions ask respondents which reading is “better.”  The authors acknowledge some ambiguity in whether respondents would take this word to mean better as a matter of pure interpretation or as a matter of policy, but they argue this issue cannot explain their findings because all the questions had the same “better” phrasing.  However, there is a crucial difference.  The ambiguity/plausibility questions began by asking whether the statute was ambiguous or had another plausible interpretation and thus in context clearly indicated that “better” meant better along the dimensions of ambiguity or plausibility rather than of policy.  The ordinary readers question had no such antecedent, it just asked about the extent to which ordinary readers would disagree about which reading is “better.”  One might well answer this question assuming that “better” means better as a matter of policy, and thus that the question asks about the extent to which most readers would agree about which reading is better as a matter of policy.

But perhaps this will also be addressed in the follow-up paper that I eagerly anticipate.

Ambiguity in Legal Interpretation: Some thoughts in reply to Judge Williams

Judges often have to decide whether statutes are ambiguous, because that determines, e.g., how the Chevron doctrine applies, or whether some canon of construction applies, or (depending on the judge) whether certain sorts of evidence of the statute's meaning should be considered.  Of course the lawyers' briefs will point out alternative possible meanings, and the good judge will take them seriously.  But that doesn't mean the judge inevitably will find ambiguity.  Sometimes the judge just decides that despite what the lawyers say (and maybe despite what other judges say), one interpretation is so much better than the other that the text really isn't ambiguous.  And that decision can be influenced to a greater or lesser degree by the preferences of whoever makes it.

That's where our study comes in.  It shows that for at least some populations, asking "is the statute ambiguous?" isn't the same as asking "would ordinary speakers of English agree probably about the meaning of the statute?"  Judicial opinions often argue about ambiguity without making clear which of those two questions they mean to be answering.  Perhaps judges assume that they really are the same question.  But they needn't be.  To say a text is "unambiguous" could be a statement that the judge (or whoever is talking) is very sure how best to read the text.  Or it could be sort-of empirical claim that most people would agree about what the text means.  Sometimes judges seem to argue with each because some of them are coming at the question the first way and others are coming at it the second way.  (This is one of the "ambiguities about ambiguity" we refer to in the title of our paper.)

Our study suggests that there is an important difference between these two ways of thinking about ambiguity.  The point isn't quite that people sometimes think a text is unambiguous when in fact there is lots of disagreement about its meaning—though of course that's true.  The point, rather, is that thinking about those two questions produces different likelihoods that the answers will be entwined with (probably "influenced by") the policy preferences of the reader.  Those who consider whether ordinary readers would agree about the meaning of a text—which is a question some judges fuss about more than others—are more likely to be able to give answers that are independent of their own policy judgments.  This may not achieve true "neutrality" (which for these purposes might just mean an answer uninfected by policy preferences), but it does better than other questions we have researched.

Of course some might say that they want policy judgments to play a part in interpretation.  That's fine, but we still think that most judges like the idea of being able to think separately about questions of ambiguity and meaning on the one hand and about their own policy preferences on the other, even if they go on to weigh those considerations differently when they decide who wins the case.  (Another objection is that we didn't experiment with judges; we experimented with law students.  Fair enough.)

Ambiguity in Legal Interpretation: Reply to Einer Elhauge

Einer is right to point out an ambiguity in our paper:  okay, so people with strong policy preferences are more likely to find statutes unambiguous – but do they then read the statutes to mean what they want them to mean? The answer, as it turns out, is yes.  Perhaps we didn’t make that as clear as we should have in the paper we recently published, because we wanted to save those second findings for the next article (which will be released soon).  But in short, and as Anup said in his first post, people with strong policy preferences tend to read statutes to conform with those policy preferences – or at least they do that when they are asked which reading is most consistent with the ordinary meaning of the text.  But when they are asked what reading they would expected ordinary readers to think most consistent with the ordinary meaning of the text, they are able to let go of their preferences and give answers independent of them.

 

SOME AMBIGUITIES IN “AMBIGUITY ABOUT AMBIGUITY” – Part I By Einer Elhauge

Farnsworth, Guzior and Malani have written a fascinating article that makes an important contribution to the literature.  Interpretive debates often turn on empirical assumptions for which there is little empirical evidence, so it is especially wonderful to have such an illuminating empirical study of the effect of how the ambiguity question is framed.  I was particularly struck by the finding that interpreters with strong policy views were likely to find statutes less ambiguous.  The old textualist argument stressed that we should avoid nontextualist methodologies on the grounds that they allowed judges with strong policy views to read more ambiguity into statutes and then interpret the statutes according to the judge’s own policy views.  This article’s findings cut in the opposite direction by finding that interpreters with strong policy views find less ambiguity.  I suspect this finding reflects the triumph of statutory default rules like Chevron, the rule of lenity, or the canon of constitutional avoidance – now the best way to impose a judge’s own policy views may be to read statutes as unambiguously meaning what the judge likes, in order to avoid triggering a default rule that may run contrary to the judge’s views.

But there are some ambiguities in the study that raise questions about the import of its findings.  We’re supposed to keep these post short, so let me just raise the first one in this post and save the others for later. 

The first ambiguity is that it isn’t clear from the reported findings that those who find statutes unambiguous are interpreting statutes in the direction that furthers their own policy views.  The authors seem to assume they do because the authors conclude that “asking people whether a statute is ambiguous, or whether two different readings of it are plausible, evidently causes them to consult their own views of how they would like the statute to be read.”  But their actual reported finding is simply that those who find the statute less ambiguous are more likely to have strong pro-defendant or pro-government views.  That finding is equally consistent with the possibility that those who have strong pro-defendant views are more likely to read a statute as unambiguously favoring the government in order to suppress the effect of their own policy views, and that those with strong pro-government views are more likely to read the statute as unambiguously favoring the defendant.

Perhaps it is more likely that their unambiguous interpretations correlated positively with their policy preferences, but because the study did not ask which interpretation the respondents would adopt, the opposite is also possible.  If their unambiguous interpretations correlated negatively with their policy preferences, then asking people whether a statute is ambiguous makes them less likely to consult their own views.  If so, then the old textualist argument may be right after all, and favor framing the question as whether the statute is ambiguous.

Ambiguity in Legal Interpretation: Steve Williams' Response

I found Anup's article very interesting--surprising that what seems like a relatively modest change of reference point should produce such strong changes in result. But I'm skeptical that it can help judges reach more neutral interpretations, because competent briefs in a case that is at all close alert the judge to the likelihood that non-lunatics can honestly find conflicting meanings in the statute, thus putting the judge in a frame of mind to take competing interpretations seriously. And we've all seen cases in which one set of judges declare that a statute unambiguously means A, and another set declares that it unambiguously means not-A; yet findings of judicial non-neutrality persist.

I've just finished Donald Kagan's "Thucydides: The Reinvention of History," arguing that many of Thucydides's interpretations are unsound and contradicted by the facts he presents. It too suggests to me that non-neutrality will always be with us. Kagan points out that Thucydides provides almost all the information that he (Kagan) uses to claim error in Thucydides's interpretations. That seems a good basic standard for judges; meeting it should help achieve neutrality.

Ambiguity in Legal Interpretation: Opening remarks

When confronted with a dispute about a statute, people will have policy preferences about how the case should come out.  They also will have opinions about what the statute means just as a matter of English and whether it’s ambiguous.  The questions that interest me and my co-authors (Ward Farnsworth and Dustin Guzior) involve the relationships between those issues.  Do policy preferences affect peoples’ judgments about what a statute means and how clear it is?  If so, is there any way to reduce that influence?

We examined these issues by surveying over 1,000 law students at various schools.  We showed them statutes and facts that the statutes might apply to; the problems were based on real Supreme Court cases.  We asked our respondents what outcome they preferred as a matter of policy preference.  Then we asked them to say whether they thought the statute was ambiguous, or what reading of the statute’s text they thought was best. 

The first result is that peoples’ judgments about ambiguity and meaning are closely entwined with their policy preferences.  People with strong preferences about how a case should come out tend to find that the statute at issue is unambiguous, and that it means what they want it to mean.  This is true even when we instruct them to put the statute’s text aside when stating their preferences, and to put their preferences aside when stating their views about the text.  They generally can’t do it.

But something interesting happens when we change the questions.  Instead of asking our respondents whether they thought the statute was ambiguous, sometimes we asked them whether they thought ordinary readers would likely agree about the statute’s meaning.  Or instead of asking them what they thought the statute meant as a matter of ordinary English, we asked them what they thought ordinary readers would think it meant.  The answers were then remarkably different.  They weren’t biased.  When saying what ordinary readers would think, the respondents, as a group, were able to give answers that were independent of their preferences about how the case should come out.

Here’s an example.  In Chapman v. United States, a statute applied a harsh sentence to anyone who distributed more than one gram of a "mixture or substance containing a detectable amount” of LSD.  The question was whether, in sentencing the defendant, the court should weigh the blotter paper onto which his LSD had been sprayed, or just the LSD itself.  We asked our respondents whether the statute was ambiguous, but we put the question to them in different ways.  The results are shown in this graph:

 


The vertical axis measures judgments about ambiguity.  The horizontal axis measures policy preferences.  The green and orange lines show the results when we ask people whether they think the statute is “ambiguous” or whether multiple readings of it are “plausible”.  The black line shows the results when we ask whether ordinary readers would likely agree about the statute’s meaning.  Notice that the black line does not vary with policy preferences nearly as much as the other lines do.
 
Here is another example.  In Smith v. United States, the defendant was arrested after trying to trade his machine gun for a bag of cocaine.  A statute imposed a long sentence on anyone who “uses” a firearm in relation to a drug trafficking crime.  The question was whether the defendant “used” the gun by trying to trade it.  We asked our respondents what they thought the statute meant.  But again we put the question in different ways.  The results have not yet been published, but they are illustrated here:




Subjects who wanted the government to win were much more likely than others to say that the government’s reading of the text was best as a matter of ordinary meaning.  They also were likely to say that the government’s position was most consistent with the intent of the statute’s drafters.  But when they are asked what ordinary readers would think the statute means, the result is the nearly flat line:  their preferences and their judgments become two different things.

These findings raise many interesting questions.  Why do these questions produce such different answers, and with such different relationships to policy preferences?  What, if anything, might they suggest about how a judge or lawyer should think about a statute’s meaning?  Of course we can’t generalize too aggressively from student survey takers to lawyers and judges who have more experience, more time to think, and more resources to bring to bear on their interpretive problems.  But the basic cognitive issue we find here may well extend to those other populations.  Everyone knows that some judges tend to read criminal statutes in the government’s favor more often than others do; yet the judges speak and often claim to feel as though they are just arguing about law.  These studies suggest how it is that this happens.  But of course it would be better to survey practicing lawyers and judges (it’s just harder to get access to those populations). 

And the surveys have other limitations, and produce other findings, and raise other questions.  But I can get to that later, since this post is long enough.  Let me invite initial thoughts, questions, suggestions, criticisms, etc., from our other participants.

Ambiguity in Legal Interpretation: A Debate

Here at Chicago, we love nothing more than a good debate, and this extends to the Faculty Blog as well. Next week we'll be featuring a conversation about Professor of Law and Aaron Director Research Scholar Anup Malani's paper "Ambiguity about Ambiguity: An Empirical Inquiry into Legal Interpretation." Along with Prof. Malani, the debate will feature Professor Einer Elhauge (Harvard), Professor William Eskridge (Yale), Chicago's own Judge Richard Posner, and Judge Stephen Williams (D.C. Circuit).

The abstract of Anup's paper is below, and you can download the complete paper here. Tune in Monday for what is sure to be a fascinating debate.

Most scholarship on statutory interpretation discusses what courts should do with ambiguous statutes. This paper investigates the crucial and analytically prior question of what ambiguity in law is. Does a claim that a text is ambiguous mean the reader is uncertain about its meaning? Or is it a claim that readers, as a group, would disagree about what the text means (however certain each of them may be individually)? This distinction is of considerable theoretical interest. It also turns out to be highly consequential as a practical matter.

To demonstrate, we developed a survey instrument for exploring determinations of ambiguity and administered it to nearly 1,000 law students. We find that different ways of asking whether a statute is ambiguous produce very different answers. Simply asking respondents whether a statute is “ambiguous” as applied to a set of facts produces answers that are strongly biased by the policy preferences of those giving the answers. But asking respondents whether they would expect others to agree about the meaning of the statute does not produce answers biased in this way. This discrepancy leads to important questions about which of those two ways of thinking about ambiguity is more legally relevant. It also has potential implications for how cases are decided and for how law is taught.

Update: Prof. Malani's co-author on the paper, Ward Farnsworth of Boston University, and Judge Frank Easterbrook will also be joining the debate.

Citizens United: A defense

I’m delighted to respond to Nell Minow’s thoughtful and interesting testimony on the Citizens United case. Ms. Minow, an alumna of the Law School, is one of the nation’s leading authorities on matters of corporate governance. We at the Law School are proud of her work and to call her one of our own. But, in the spirit of the Law School, I won’t let this admiration get in the way of what I hope will be a fierce argument of ideas.

Let me say at the outset, some of my prior beliefs. First, I believe in the marketplace of ideas and think that more speech is generally better than less speech. I believe the Founders shared this belief and enshrined it in the “no law” component of the First Amendment. I believe this is especially true for speech about politics. Why else would we allow the Nazis to march in Skokie? Other countries don’t let Nazi’s march because they (rightfully) view their ideas as repugnant. But we let them march. We do so because we are more confident in our citizens’ ability to know right from wrong, to look beyond rhetoric for substance, and to be able to weigh competing claims of truth. If we didn’t trust the people to make decisions based on all available information, if we didn’t trust the people to be able to filter speech according to its source and content, if we didn’t trust the people to know what is good for them, we wouldn’t let the Nazi’s march. But we let them march.

Second, I believe that we should view extensions of government activity under a presumption of error, especially where there is no evidence of a market failure or where the case for government regulation is suspect, say because of the potential for an incumbency bias or the possibility of abuse by the forces of totalitarianism. The control we have over our government, which, after all, has a monopoly on legal physical violence, is tenuous and something that requires constant vigilance. Giving incumbent politicians the ability to write rules that will make it more likely they will be reelected is something that should be done only, if at all, in the face of overwhelming evidence of the inability of citizens to make sensible political decisions in the absence of these rules.

Third, I believe that people generally want to restrict “corporations” in the abstract from influencing politics, a belief that is born out by recent polling data showing about 70% of people disagree with the result in Citizens United. In other words, if we voted on Citizens United, I think we would have voted the other way. As I describe below, I do not think this should matter. Based on the first two priors, I think the Court got the case right, and that its countermajoritarian instincts here are a sign of strength in the decision, not weakness.

Here are some thoughts about the case and its aftermath.

First, I think it is amusing how the case is perceived on both sides of the political aisle. Political commentators on the Left have said the case has “more dire implications than Dred Scott” and that “within 10 years every politician in this country will be a prostitute.” Or take this zinger from Justice Stevens’s opinion: “The Court’s ruling threatens to undermine the integrity of elected institutions across the Nation” and “do damage to this institution” as well.

The law that was struck down was passed in 2002: The Bipartisan Campaign Reform Act. It was upheld against a facial challenge in a 2003 case called McConnell, which was based on a precedent from 1990, called Austin. So pick your time period, pre 2002, pre 1990, whichever. Were all politicians prostitutes of corporate interests, whatever that is, in 1989?

Or, looking at the issue another way, does the fact that the conduct permitted by Citizens United was legal in 26 states prior to Citizens United, suggest that politicians are hopelessly corrupt in over half our states? What about the fact that prior to the case, companies, unions, and advocacy groups and other agglomerations of individual interests that chose the corporate form could do exactly what Citizens United allows them to do if the speech was funneled through “separate segregated funds,” commonly known as Political Action Committees? The belief in disaster must be based on a claim that when corporations or unions can fund political speech directly, from so-called treasury funds, instead of indirectly, the flood gates will open and companies will spend much, much more on politics. This is a claim about how corporations act that is highly suspect, a point I will return to in a moment.

Moreover, what about all the money the so-called special interests spend on lobbying members of our legislatures? The campaign finance laws say nothing about this, and which is more likely to influence public policy creation, a drug company running an ad in New Jersey 30 days before the election telling citizens that Senator Henderson is a Marxist who wants to nationalize drug development or that same company spending millions on lobbyists to jawbone existing legislators about the virtues of our current system?

A final point about the hysteria: Do critics of more political speech have such little faith in the people to make decisions that the inevitable consequence of more information about politics will be to bias it in a socially negative direction? Was it really the case that 2 U.S.C section 441(b), the law at issue in the case, is all that was preserving our democracy? I for one have more faith in the strength of our Union and the wisdom of the people than to think that the byzantine structure of federal election law is all that distinguishes American politics from that of the Ukraine or Nigeria. Even if you believe, as many do, that the average corporation is analogous to the National Socialist party, this does not mean we must necessarily regulate their speech. Remember, we let the Nazis speak.

On the Right the fans are just as simple minded. An op-ed in the Wall Street Journal after the decision argued (lamely) that Citizens United is a key victory for business in the battle to reduce the influence of trial lawyers. The unstated suggestion is that companies will give more money and this is a good thing. This is highly suspect, and I suspect that businesses are not in favor of the decision. Every penny spent to influence law is a penny not spent to pay managers, hire workers, innovate, or make shareholders wealthy.

Campaign finance laws can be thought of as a solution to a simple collective action problem: every firm would prefer not to pay politicians not to treat them badly, but none individually have an incentive to refrain from doing so absent collective agreement of the same. An obvious solution to the collective action problem is an agreement among firms to refrain from spending on politics. But this agreement would be illegal under our antitrust laws. Campaign finance laws may be a rough substitute. (Note the irony that laws restricting speech are necessary because of other laws prohibiting firms from acting rationally in their self interest.)

The zero-sum game aspect of corporate giving can be seen by looking at the donations by businesses in the 2008-2009 election cycle. Business corporations gave $1.96 billion to political campaigns, 50.6% to Republicans, 49.4% to Democrats. They play both sides, making claims of Citizens United meaning more corporate influence or better for Republicans somewhat fanciful.

While we are on the subject of partisanship, it is interesting to compare business giving with that by the other major corporate contributors – labor unions, specifically public-employee unions. Unions donated $674 million in 2008-2009 (about 1/3rd of what businesses gave), but they gave overwhelmingly to Democrats (92% to 8%). The net contributions from “corporations” were $1.6 billion for Democrats and $1.0 billion for Republicans. The conservative majority of the Court hardly gave Republicans a gift, assuming these ratios continue when the rules are liberalized across the board, and we have no reason to believe they won’t be. (For reference, one candidate, our president, raised nearly $1 billion in donations from individuals in that year.)

So it is not at all clear that this case will make things worse or that it favors one political party or the other. It is not even clear that it favors things corporate or business over things uncorporate. After all, there are corporations on the side of almost all issues, especially when we remember that the ACLU, NRA, Sierra Club, AARP, Citizens United, and others are corporations too. Are those anti-corporate readers out there afraid of all of them or just some of them? If you like the ACLU and the Sierra Club, but not the NRA and the AARP, and as a consequence want to ban the speech of the former and not the latter, this is the road to totalitarianism. The Supreme Court is adamant that restrictions on speech cannot be based on content. Tolerating the speech of those we disagree with is one of our most sacred core values.

This case is about just this kind of toleration and the threat of unchecked political power. To see this, consider this passage from the Court in Citizens United:

“The law before us is an outright ban, backed by criminal sanctions. Section 441b makes it a felony for all corporations—including nonprofit advocacy corporations—either to expressly advocate the election or defeat of candidates or to broadcast electioneering communications within 30 days of a primary election and 60 days of a general election. Thus, the following acts would all be felonies under §441b: The Sierra Club runs an ad, within the crucial phase of 60 days before the general election, that exhorts the public to disapprove of a Congressman who favors logging in national forests; the National Rifle Association publishes a book urging the public to vote for the challenger because the incumbent U. S. Senator supports a handgun ban; and the American Civil Liberties Union creates a Web site telling the public to vote for a Presidential candidate in light of that candidate’s defense of free speech.  These prohibitions are classic examples of censorship.”

Let me reframe the Court’s holding: the government may not ban political documentaries in the 60 days before an election. This is the end of democracy? The government tried to ban speech about government! Imagine a Palin Admistration banning the Michael Moore movie “Dumb as the Average Moose,” before the 2016 presidential election? How would those on the Left react to that decision?

The Solicitor General admitted during oral argument that the logical extreme of the law would allow the government to ban book publishers, who happen to have chosen to organize their economic affairs as corporations, from publishing political books before elections. Yes, you read that right. Book banning. This goes to the heart of the First Amendment. Imagine James Madison and Thomas Jefferson traveled to our era and asked about the Bill of Rights. If Citizens United came out the other way, we would have to tell them that virtual child pornography and pole dancing are protected by the First Amendment, but books or documentaries about politicians are not. I’m not suggesting that we limit our constitutional interpretation to a what-would-the-Founders-think analysis or even to the plain text (which, by the way, says Congress shall pass no law restricting the freedom of speech), but if the First Amendment means anything, it means protecting speech about politics.

Of course, one could argue that books or documentaries about politicians are OK, so long as the speaker was you or me or all of us acting together, so long as we didn’t organize as a corporation. But why should the value of political speech be determined by whether the entity doing the speaking or enabling the speaking is a corporation or person, partnership, or sole proprietorship? Or whether the corporation speaking was a “media corporation,” a class of corporations that were exempted from the regulation. So our First Amendment, as previously interpreted, said that the New York Times or Fox News could say whatever they want about politics whenever they wanted, but that the ACLU and Apple could not. I see no basis for this in the text of the Amendment or in common sense. What is the difference between a non-media company and a media company? What if Apple started a newspaper? Could it then speak?  How about a blog? Is that media? Why should Rupert Murdoch get to spend and say what he wants on politics, but not News Corp.? And what is the reason for encouraging businesses that want to speak to choose to organize as partnerships or individuals instead or corporations? Imagine a corporation with one owner – should the corporation not be allowed to speak the same as its sole owner?

One possibility is a concern that when News Corp. spends money on politics, it is spending shareholders’ money, or, depending on your point of view, employees’ money or other stakeholders’ money. This is as true as it is irrelevant. For one, investing is voluntary, and there is no demand for any individual firm’s stock. If you own shares in Exxon Mobil, and it decides to spend $1 million to fund ads supporting Sarah Palin for president, you can convert your shares to cash and buy shares of Apple Computer, which is running ads supporting President Obama’s reelection. The only time this voting with your feet argument doesn’t work is if the conduct causing you to sell also is the cause of a loss of firm value, thus making your shares worth less than they would have been. Given the trivial amounts firms spend or could possibly spend on politics, this is in the world of law-school hypotheticals. (ExxonMobil had political expenditures of about $500,000 in 2008, on profits of nearly $50 billion, or less than 0.001%. We will, of course, have to wait and see how much they spend next year, but, for the reasons I describe below, I’d be shocked if it was orders of magnitude more. Even if they spent 1000 times more, the expenditures would be only 1 percent of profits, something unlikely to move the stock price needle significantly.)

Business corporations exist to make money, and donations to candidates will be aimed in that direction. Insofar as they are, shareholders should be happy, and if they aren’t, they can exert influence by selling their shares. If instead, the claim is just corporate influence, as opposed to this agency costs story, then we are back to puzzles about individual contributions, donations by PACs, lobbyists, and so on. Corporations spend handsomely to lobby politicians, and shareholders don’t complain. Why? Because presumably the lobbying is about increasing firm value – that is, making money for shareholders. Why do we think other forms of political spending would be different?

Moreover, firms are very jealous and protective of their reputations. Do you think Nike is going to risk its brand by spending billions to elect politicians that may offend 49% of the population? And if they do, don’t we have faith in other constraints on such attempts at manipulation? Consumer boycotts, news reports, publicity by non-profits, and so on are likely to cause firms to be quite cautious in their attempts to buy politicians outright.

Finally there is the claim that business are creatures of the state and therefore the state should be able to tell them what to do. This certainly used to be the case, when state legislatures gave businesses permission to do only certain things in return for, well, political contributions and favors. But thankfully we’ve moved past this so-called concession theory. The concession theory is plainly inconsistent with the contractarian model of the firm, which treats corporate law as nothing more than a set of standard form contract terms provided by the state to facilitate private ordering. Limited liability can be created by contract as easily as it can by state diktat, and no matter what, if we have this view of government power, it has no end. Everything exists in some way because of government action or inaction, but that is not the basis of our government. We believe our rights exist not because of the government, but rather the other way around – the government exists to protect our preexisting rights.

Let me close with three final observations.

First, I think the case is interesting in how it reveals the schism on the Court (and in all of politics) between those with faith in experts and those with faith in markets. The campaign finance laws, and the dissenters’ views of elections law, are premised on a belief that we can design rules, no matter how layered and complex, that can be implemented by well-meaning bureaucrats with the result that we can take the money/corporate influence/corruption out of politics and finally create Democracy. These people are uncomfortable with uncertainty and unknown outcomes, and believe we should plan our way to some sort of utopia. The Citizens United majority, on the other hand, seems to have a distrust in experts and regulating natural things out of existence, preferring instead to rely on markets to work toward the optimal state of affairs. Of course, there is a tradeoff between a belief in centralized versus diffuse knowledge, and the question is how much of each. In short, I think the Citizens United majority looked at the elaborate regulatory regime, the relative ineptness of the Federal Election Commission bureaucrats charged with implementing it, and decided to err on the side of the marketplace of ideas.

Second, we should not forget the history of our regulation of corporate speech, which, by the way, survives Citizens United. The first law banning corporate contributions in federal political elections was based in part about the content of corporate speech. The Tillman Act, passed in 1907 is named for Senator Benjamin Ryan "Pitchfork Ben" Tillman from South Carolina, one of the most reprehensible public servants in our history. Tillman argued that, "The negro must remain subordinated or be exterminated," and openly called for the murder of blacks in order to, "keep the white race at the top of the heap." Tillman wanted to restrict corporate speech to reduce the influence of Northern corporations, which were opposed to segregation. We should not condemn restrictions of corporate speech for this reason, but we should remember that the motives behind allegedly idealistic legislation are not always what they seem. Sometimes corporations have good things to say; sometimes they have bad things to say. Telling them they cannot speak prevents us from hearing both during a crucial period before our elections.

Finally, some critics deride the case as “activist” and inconsistent with claims about the proper judicial role made by some of the justices in the majority. Of course the claim of activism is as silly as the claim of courts as simply calling balls and strikes, as the Chief Justice has argued. Some of the Court’s job is calling balls and strikes, but most is about policy. And, some of the best court decisions are countermajoritarian. Consider Meyer v. Nebraska (1923), which dealt with a state law banning foreign language instruction for young children, passed during the anti-German hysteria of World War I. The Nebraska Supreme Court had upheld the ban, writing, “The legislature had seen the baneful effects of permitting foreigners, who had taken residence in this country, to rear and educate their children in the language of their native land.” Oliver Wendell Holmes followed his views about judicial restraint and dissented. But the Court got it right. Activism was essential to preserve our liberty.

In Citizens United, the Court decided that we cannot trust the government to tell us what we should be hearing about our political system. In the view of this corporate law professor, this is a victory for our democracy.

Nell Minow '77 on the Citizens United decision

Yesterday Nell Minow '77 gave the following testimony before Congress.  Prof. M. Todd Henderson has posted a response here.

Hearing on Corporate Governance after the Citizens United Decision
Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises
House Committee on Financial Services

Nell Minow
Editor, The Corporate Library

March 11, 2010

Mr. Chairman, Ranking Member Garrett, and members of the subcommittee, it is an honor to be invited to appear before you to discuss this critically important topic.  Indeed, most Americans would agree that the bedrock of our country’s identity and the core element of its strength and vitality over more than two centuries has been its commitment to the marketplace of ideas, the free, unabashed, unfettered conversation that encourages the expression of all points of view, no matter how outrageous, offensive, crackpot, or subversive.  We recognize that it is exactly these challenges to our notions of received wisdom that force us to be responsive to changing times and better understandings.  The best ideas flourish only when the worst ideas must be separated from them not by censorship but by argument.  The cure for bad speech is not repression but better speech.  If we let all ideas in, ultimately the best ones will survive by being more persuasive.  That can only happen if they must match themselves against the positions advocated by their opponents.

But freedom of speech does not mean that any expression of ideas is permitted.  We do not allow libel, slander, or fraud.  And we all know that, as Justice Oliver Wendell Holmes wrote in Schenk v. US almost 100 years ago, the First Amendment does not protect the right to falsely shout “Fire!” in a crowded theater.  It does not protect the right to incite violence.  We have successfully limited hate speech and pornography.  And we have been very clear that the greatest level of protections apply to political speech because it is there we most need a robust and unfettered conversation.  Commercial speech is not as protected and may be limited, as long as the limits are minimal and justified. 

Increasingly, however, political and commercial speech have been more difficult to distinguish and in the Citizens United decision the Supreme Court treated political speech by commercial enterprises as though it was political speech from people.  The court ruled that corporations and labor unions have the same First Amendment rights as individuals. Thus, any restriction of their freedom to spend unlimited amounts in support of their favored candidates violates the Constitution.  The reasoning is that corporations and non-profits and other groups are merely assemblages of individuals with First Amendment rights.  So, those rights exist whether exercised as individuals or groups. 

In his dissent, however, Justice Stevens noted that corporations "are not human beings" and "corporations have no consciences, no beliefs, no feelings, no thoughts, no desires…they are not themselves members of 'We the People' by whom and for whom our Constitution was established."[1]  He added, “Not only has the distinctive potential of corporations to corrupt the electoral process long been recognized, but within the area of campaign finance, corporate spending is also “furthest from the core of political expression, since corporations’ First Amendment speech and association interests are derived largely from those of their members and of the public in receiving information,” Beaumont , 539 U. S., at 161, n. 8 (citation omitted).”  Dalia Lithwick noted in Slate, “Even former Chief Justice William H. Rehnquist once warned that treating corporate spending as the First Amendment equivalent of individual free speech is ‘to confuse metaphor with reality.’”[2]

If our goal is to preserve the marketplace of ideas, we must make sure it is not tainted by that other marketplace, the marketplace of money. 

And if we are going to give a corporation the First Amendment right of freedom of speech, we had better make sure we understand who it speaks for.

I do not need to remind Members of Congress how virulent corporate spending has made the political process.   You all know that far better than anyone else.  But I can say that the $600 million spent by the financial services industry on lobbying in the decade before the financial meltdown led to the loosening and elimination of regulatory protections that could have mitigated that damage or prevented it entirely.  And I can also say that there is not a single shareholder in that “assemblage” of citizens that make up the corporations who spent that money who supported that result. 

The problem, as always under a capitalist system, is agency costs.  How do we give corporate managers enough authority to create sustainable, long-term returns to investors without giving them so much that they appropriate corporate funds for their own ends?  When a corporation uses general treasury funds to influence a political election, it is the shareholders who are footing the bill. However, real control of corporations rests not with shareholders, but with those who manage them. Therefore, the use of corporate treasury funds will ultimately benefit management rather than the interests of shareholders.

While the decision in Citizens United decision granted corporations a right under the First Amendment to use unlimited resources to influence political elections, it effectively silenced the voice of shareholders. For purposes of political speech, management decides what positions to take on behalf of corporations through their use of treasury funds, and the shareholders are neither informed nor consulted nor given a chance to respond.  The use of secondary entities like trade associations is even more removed from any transparency or oversight. Not only do corporations secretly funnel money for political purposes into these trade associations, they too often use them to oppose the very policies their public statements endorse.

For example, health insurance corporations publicly stated that they supported health care reform while at the same time donating millions of dollars to attack health care reform through the powerful trade group America’s Health Insurance Plans (AHIP). The AHIP then funneled those donations into the U.S. Chamber of Commerce, which used the money for negative attack ads on health care reform. Between $10 million and $20 million was donated to the AHIP by Aetna, Humana, Cigna, UnitedHealth Group and Wellpoint. The AHIP publicly stated that they “continue to strongly support reform” but meanwhile were underwriting tens of millions of dollars of television ads attacking reform. This is a clear example of the divergent interests between principal and agent.  And the fact that we do not know exactly how much money they spent or who it came from is just further proof that there is no transparency or accountability to ensure that the expenditures reflect the views and interests of the investors, those individuals who are supposed to be the ones communicating. 

So problem number one is the lack of disclosure to the current and potential investors in the company. Corporations are currently not required to disclose their political spending in a comprehensive manner. Even the political expenditures that are disclosed are not available to shareholders in any central, accessible location. The majority opinion in Citizens United states that “[w]ith 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.” But it is not.  Indeed, often directors of the company do not know how this money is allocated.  That should be this committee’s first area of focus.  We need clear, accessible, comprehensive disclosure without loopholes and we need every member of the board to sign their names to show that they have been fully informed and have approved the expenditures.  I note that the SEC's Investor Advisory Committee, through the Investor as Owner Subcommittee chaired by Dr. Stephen Davis, will be seeking investor feedback on a formal recommendation to the SEC as to its potential response to the Citizens United decision. The subcommittee will discuss this at its meeting on March 30, and I hope that the committee staff will coordinate with them.  My top priority for this project is that they find a way to take the greatest possible advantage of current technology to make sure that all of the information about what and how much money is spent on which issues and candidates available with total drill-down and tagging.  If the cure for bad speech is better speech, this is where we make sure that better speech will happen.

Problem number two is that even if shareholders did know how their money is being spent and what positions it is being used to support, there would be no way for them to respond effectively to provide necessary direction.  Under certain limited circumstances, shareholders can be allowed to submit non-binding proposals to ask for information about political expenditures, and some of these proposals have received substantial support, especially considering that even a majority vote is precatory only.  We need clear authority for shareholders to be able to submit binding resolutions on the disclosure and direction of corporate funds used for political purposes, whether lobbying or support of – or opposition to – candidates or issues, so that a majority vote is controlling.

It is also important to emphasize that under current law, it is close to impossible for shareholders to oppose director candidates nominated by the company.  Under current law, director candidates need not receive a majority of votes cast to serve on the board.  Indeed, at this moment more than 80 directors are serving on public company boards despite election results that showed a majority of votes cast were opposed.  We need clear Congressional authority for the “proxy access” rule to permit candidates nominated by shareholders to be included on the company’s proxy – the one paid for by shareholders.  If shareholders cannot replace directors, they cannot be truly represented and cannot delegate legitimate authority for political spending.

The third problem, perhaps the knottiest, is the problem of intermediaries and the way they make it possible for corporate executives to evade even the limited disclosure requirements that currently exist.  We must make sure that corporations do not hide their political spending by use of second- and third-party entities like trade associations and “astro-turf” fake grassroots organizations with populist-sounding names like “Citizens for a Better Tomorrow.”  And non-US sources can also allocate funds to these intermediaries. 

The Chamber of Commerce, which was recently found to have overstated its membership by 900%, has been particularly susceptible to this kind of manipulation.  Now claiming only 300,000 members rather than the 3 million it had previously trumpeted, tax filings show that just 19 donors contributed one-third of its 2008 income.  But the Chamber does not disclose any of the contributors’ names.  How can corporations speak for the assembled individuals if we do not know where the money goes.  We do know, because Chamber of Commerce CEO Tom Donahue has said so publicly, that they are spending $100 million “free enterprise” campaign to defeat any meaningful financial reform.[3]

Where is that money coming from? Who does it benefit?  Just as corporate executives quietly fund positions contrary to those they publicly endorse, the Chamber adopts policy positions without consulting its own board, much less its membership.  It had several defections last year over its climate change policy, which was essentially a “climate is not affected by anything we do” policy.  The Chamber of Commerce has hijacked a once-respected organization on behalf of executives, not business.  It is the worst enabler for abuse of shareholder assets.  But it is not the only one.  In order to make the majority decision work, the assumptions that crucially underlie it must be made true.  Every penny that is spent on “speech” must be documented and disclosed, whether it is spent directly or through intermediaries.  Just as in other transactions where there is an opportunity for moral hazard and a potential for conflicts of interest, the executives should also have to disclose any potential conflicts and any possible adverse consequences so that investors can properly evaluate their decisions. 

The fourth problem is making sure that once shareholders have the information and the rights necessary to reduce possible abuses from agency costs, we also remove the obstacles to exercising those rights.  The largest category of shareholders, of course, is within the corporations themselves.  Pension funds covered by ERISA manage more than $6.3 trillion in assets, much of it invested in equities.  But they have their own conflicts of interest and no clear statement of fiduciary obligation to vote – plus the collective choice problem that they each must spend 100% of the costs of voting while receiving only a pro rata share of any benefits.  If shareholders are going to evaluate the political expenditures from Company X, we had better make sure that all of the shares held in company X, including those held by its own pension fund and other ERISA funds and their service providers, have the authority and the obligation to evaluate it appropriately.  I hope this committee will invite institutional investors and the regulatory authorities with jurisdiction over them to help create a solution to this problem. 

In his most recent letter to Berkshire Hathaway shareholders, Warren Buffett wrote:

It has not been shareholders who have botched the operations of some of our country’s largest financial institutions. Yet they have borne the burden, with 90% or more of the value of their holdings wiped out in most cases of failure. Collectively, they have lost more than $500 billion in just the four largest financial fiascos of the last two years. To say these owners have been “bailed-out” is to make a mockery of the term.

The CEOs and directors of the failed companies, however, have largely gone unscathed. Their fortunes may have been diminished by the disasters they oversaw, but they still live in grand style. It is the behavior of these CEOs and directors that needs to be changed: If their institutions and the country are harmed by their recklessness, they should pay a heavy price – one not reimbursable by the companies they’ve damaged nor by insurance. CEOs and, in many cases, directors have long benefitted from oversized financial carrots; some meaningful sticks now need to be part of their employment picture as well.

If corporations have the rights of people, shareholders must be the mind and conscience of that “person” and the ones to decide how those rights are exercised.  They cannot do that without information and the ability to replace the board. 

Finally, there is the fifth problem. The challenge of protecting the free expression of ideas without allowing it to be skewed by diversion of corporate assets would not be so difficult or so important if running for office was not so expensive.  As you know, in the UK Members of Parliament raise as little as a few thousand pounds for their campaigns.  They have public financing and it is a different system.  But we can do better.  I urge the Members of this committee to give careful consideration to the Fair Elections Now Act (S. 752 and H.R. 1826). This measure would enact a voluntary alternative system for financing federal elections, giving candidates the option to run for office on a mixture of small contributions and limited public funds.  I also urge your attention to the other side of the equation.  The reason elections are so expensive is primarily the purchase of television time.  There are some very worthy proposals for free access to television time for political candidates as a requirement for being licensed by the FCC.  There is no way to address the problems of money in politics, even with optimal corporate governance, without looking at the reason that money is so important. 

Almost 100 years ago, Justice Louis Brandeis famously wrote in Harper’s, “Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”[4] He was writing about corporate abuse.  These days, he might say that the best police officer is the Internet and tagging.  We count on you to make sure that this cop is on the beat.

Thank you again for allowing me to comment and I look forward to your questions.

Notes:

[1] From Justice Stevens’ dissent:
 
The basic premise underlying the Court’s ruling is its iteration, and constant reiteration, of the proposition that the First Amendment bars regulatory distinctions based on a speaker’s identity, including its “identity” as a corporation. While that glittering generality has rhetorical appeal, it is not a correct statement of the law. Nor does it tell us when a corporation may engage in electioneering that some of its shareholders oppose. It does not even resolve the specific question whether Citizens United may be required to finance some of its messages with the money in its PAC. The conceit that corporations must be treated identically to natural persons in the political sphere is not only inaccurate but also inadequate to justify the Court’s disposition of this case. 
 
In the context of election to public office, the distinction between corporate and human speakers is significant. Although they make enormous contributions to our society, corporations are not actually members of it. They cannot vote or run for office. Because they may be managed and controlled by nonresidents, their interests may conflict in fundamental respects with the interests of eligible voters. The financial resources, legal structure, and instrumental orientation of corporations raise legitimate concerns about their role in the electoral process. Our lawmakers have a compelling constitutional basis, if not also a democratic duty, to take measures designed to guard against the potentially deleterious effects of corporate spending in local and national races.
 
…As we have unanimously observed, legislatures are entitled to decide “that the special characteristics of the corporate structure require particularly careful regulation” in an electoral context. NRWC , 459 U. S., at 209–210….Campaign finance distinctions based on corporate identity tend to be less worrisome, in other words, because the “speakers” are not natural persons, much less members of our political community, and the governmental interests are of the highest order. Furthermore, when corporations, as a class, are distinguished from noncorporations, as a class, there is a lesser risk that regulatory distinctions will reflect invidious discrimination or political favoritism. (footnote omitted)

[2] http://www.slate.com/id/2242208/

[3] They had to change the original focus from “capitalism” after focus groups reacted negatively.  You might think they would respond by asking their members to demonstrate why “capitalism” was a good thing instead of just changing the vocabulary.

[4] http://www.law.louisville.edu/library/collections/brandeis/node/196

Civil Unions: Making Religious Exemptions Work

Geoff says he mistook my exemption proposal for Rick Garnett's, and that it was a reasonable mistake because either proposal leads to an endless slippery slope of unreasonable exemptions for bigots who claim to be religious.  If that really happened, the legislature might have to amend otherwise appropriate exemptions.  But there is little reason to expect it to happen.

Again, I don't want to speak for Rick, but our proposals are not that different.  I have endorsed Rick's proposed statutory language, which is confined to cases in which providing services would violate the objector's sincerely held religious beliefs, and in its more recent versions, includes an express exception for cases where no one else is available to provide the service.  We can make up hypothetical religious beliefs at will, and truth is sometimes stranger than fiction, but in actual experience in the United States, the objections come from people who believe they are being asked to celebrate or facilitate a sinful relationship to such an extent that they personally share in the responsibility for that relationship.  My blog post simply elaborated what I understand Rick's statutory language to mean in practice.