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.

Comments

[Michael F. Martin]

This analysis seems to gloss over the most difficult and interesting questions raised.

For example, you ask "Do you think Nike is going to risk its brand by spending billions to elect politicians that may offend 49% of the population?"

This is not the relevant question. Managers are supposed to agents not of their customers, not of the population in general; managers are supposed to be agents of the owners of the corporation. The governance system implemented by the current law of corporations in the various states does not (at least in my view) always provide adequate protections for the diffuse plurality of retail shareholders that constitute the owners of many corporations. Institutional shareholders ought to shoulder some of the burden here. But states compete for manager-friendly corporation law; not for corporate law friendly to retail shareholders.

In this vein, you poo-poo the claim "that business are creatures of the state and therefore the state should be able to tell them what to do"

What state? Or you mean the United States? The issues of federalism here are complex and there are reasonable arguments that federal authority is needed to sort out these kinds of messes. See Farrell and Ribstein on the insurance industry, for example.

For the record, I like the Citizens United decision. Opponents seem taken with some romantic ideal of Vermont town hall meetings as democracy. That is not how our democracy has worked in the U.S. for a long time. Per Judge Posner, we have a Schumpeterean democracy, and we need vehicles for organizing and representing aggregates in politics. Town halls work for Dunbar-number sized democracies; we simply don't know what will work best for ours. This experiment is worthwhile.

[Tragger]

That's one way to look at Citizens United and is certainly more in line with the SCOTUS point of view. But I can't get over that it's essentially a justification for corporations to influence the election process more than they are do. There's an interesting discussion going on about it on this blog: http://lawblog.legalmatch.com/

[Nell Minow]

While your essay raises a number of interesting issues, it does not engage directly with my testimony. I am going to assume, therefore, that you concede all of my points.

I do not concede all of yours, but will focus here on just one, your argument that if shareholders do not agree with the political expenditures made by corporate managers, they can influence these decisions or at least provide some market response by selling their shares. I would dispute this Panglossian assertion, but even if we assume arguendo that it is correct, you should explicitly endorse the recommendation in my testimony that information about these expenditures, whether direct or indirect, should be made available to investors so that they can make that evaluation. In addition, you should support my other market-based recommendations, like requiring that director candidates not be allowed to serve unless they receive majority support from shareholders. That is a far more effective way for the market to respond to failures by corporate directors than selling the stock – presumably already depressed in value as a result of these bad decisions. For an institutional investor with a significant stake, possibly an index holder who does not have the option of selling, it makes far better micro- and macro-economic sense to replace the board and realize the value of the holding.

I am a strong supporter of marketplaces for ideas and for money. But sometimes the government has to ensure that the information required for optimal efficiency is made available or address conflicts of interest – or sometimes just remove market impediments previously imposed by government as a result of corporate-sponsored lobbying efforts.

[Maggie1954]

I am just an interested observer in this whole issue. I do happen to think that the outrage over the decision was over the top and phony.

What I see that is wrong is the existence of the PACs because it is much easier to launder money and campaign donations through them. It is much easier to create an elaborate system by which people can donate to multiple PACs in order to favour one candidate.

It was Justice Thomas who raised some very interesting points regarding some of the impacts of the BCRA that were raised but not necessarily relevant to Citizens United. The issue that he raised, which I understand was part of the challenge relates to the disclosure of donor names, a disclosure which led to harassment and in some cases the loss of a job (in California this occurred with regard to the campaign over Prop 8).

Considering that unions spend funds without the permission of members I am at a loss to understand why unions are not considered to be corporations e.g. the expenditure by the SEIU during the MA Senate campaign, where they released a leaflet that twisted the position of Scott Brown, as a part of the Coakley campaign. How is that expenditure by the SEIU different from the expenditure by Citizens United.

I am currently reading through the Stevens opinion. From the beginning of the opinion it seems to be written by a party hack, rather than by a justice with a reasonable argument.

The position of the majority in this decision seems to hang on to the fact that there was a punishment attached if Citizens United did not obey the FEC. I think this is what led them to overturn Austin in the first place.

Also, I think the expenditure by corporations is vastly overrated since it is individuals such as Soros through a number of different organizations that he has been funding e.g. MoveOn.org that has been wielding influence and has been a corrupt power broker. I would suspect that there are others on the other side of the political spectrum that could be accused of the same thing. However, with Soros it is the vast tentacles that stretch out even into countries such as Australia that is cause for concern.

I doubt that this would be the case for say Nike or even Microsoft.

[Kris]

maybe I've completely missed the point - but when did corporations acquire natural law rights?

The corporations as "merely groups of people" argument is a bit odd when everyone knows corporations are separate legal entities. Does SCOTUS's ruling mean nobody needs to pierce the corporate veil in future - because we all know it's merely a group of people?

[Sherman]

Regarding corporations are “people”, I have no trouble with this analysis except I insist that corporations should be recognized as fully human and not just partly so. Therefore, all corporations are to be pronounced dead and buried by the age of 70-80, legally sanctioned to marry (merge) with only one partner at a time, eligible for the draft when duty calls, required to register as individuals in order to vote, expected to pay taxes and follow the local laws where they actually work and not where they domicile, and endowed with other human traits and limitations that make us truly human/people.