Citizens United invalidated limits on corporate political spending. It is one of the most controversial Supreme Court decisions of this generation and its impact on our political system has been enormous, if incalculable. And yet, one of the key findings in Justice Kennedy's majority decision, one of the key bases for the ruling, is factually wrong.
Justice Kennedy wrote that, if shareholders oppose political expenditures made by management, they will be able to correct the situation "through the procedures of corporate democracy." He said this would happen because all political spending will be thoroughly disclosed online: "With 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."
The problem is that the Supreme Court did not make corporate political contributions contingent on disclosure. That leaves us with the worst of both worlds. Executives can use unlimited corporate money to elect and influence politicians and shareholders have no ability to discover how and how much. Even if they did, the conflicts of interest and lack of disclosure within the financial services industry impose so many layers between investors and their money and so many restrictions on investor oversight that shareholder oversight is all but vestigial.
No one has thought more deeply and meaningfully about this problem than the man who created the modern mutual fund system, Vanguard founder John Bogle. He supports "proxy access," giving investors the right to propose alternate candidates for the board of directors. He supports transparency, disclosure of the process, amount, and recipients of corporate political contributions.
And Bogle supports a proposal for an SEC rule that would require companies to disclose their spending in politics. That proposal has received a staggering and unprecedented number of comments in support from more than 1.2 million Americans. But it is stalled now because Congress cut off funding to move it forward -- apparently due to exactly the kind of undisclosed corporate political contributions the rule would make public.
For all its faults, the Citizens United ruling upheld the disclosure requirements of the campaign financing law, and I had hoped full disclosure might limit corporate contributions. But in fact, corporations are able to exploit provisions in the law governing nonprofit groups to make lavish political contributions without disclosure, making it easier than ever for cash to subvert our political system. Action to limit contributions at the corporate level is therefore urgent.
Indeed, the Supreme Court itself put the onus on shareholders to control corporate political giving. In his opinion for the majority in Citizens United, Justice Anthony M. Kennedy predicated the First Amendment right of free speech on the ability of shareholders to ensure that the speech reflects their views rather than diverting corporate assets for the benefit of executives. He suggested that any abuse could be corrected by shareholders "through the procedures of corporate democracy."
Bogle calls on institutional shareholders to insist on better disclosure. "America's institutional investors must stand up to the Supreme Court's misguided decision and bring democracy to corporate governance, recognize conflicts that arise from the interlocking interests of our corporate and financial systems, and take that first step along the road to reducing the dominant role that big money plays in our political system."
Bogle spoke with members of the Corporate Reform Coalition this month, reiterating his belief that shareholders, as owners, are entitled to the information about how corporate money is used to influence elections and politicians.