The Unfinished Work of Citizens United

January 21, 2011

“I have promises to keep, And miles to go before I sleep,” so wrote poet Robert Frost in 1923. These are words that should be ringing in the ears of elected officials one year after Citizens United.  The by now infamous decision allows corporations and unions to spend unlimited amounts on political ads about candidates. One year later, corporate, securities and election laws across America remain largely unchanged. These laws must be fixed to catch up to the new reality of money in politics after Citizens United.

What is that reality?  The mid-term election showed the perils of running tens of millions of new money through a disclosure system that is utterly broken. As the NYC Public Advocate noted in a post-election break down of the congressional elections, over 1/3 of the money spent in the federal election was anonymous. The reason a City official such as the Public Advocate cares about the vast spending on congressional races is he oversees the multi-billion dollar New York City pension system as a trustee. Part of his job requires him to be concerned that the interests of the pension as an investor are not being compromised by this political spending.  He may be left wondering if some of that new money in politics is money from publicly traded companies traceable to pensioners’ investments, and whether that money should properly be going to retired New York City Fire Fighters and their widows, for example, instead of lining the pockets of a political consultant or enriching broadcasters who make a small fortune every election cycle on ad buys.

Shareholders large and small need to keep an eye on corporate political spending. As the Supreme Court said, such information is vital to the shareholders’ ability to check the actions of mangers and to determine whether the political spending is likely to lead to profitability. Unfortunately, most publicly-traded companies are not transparent when it comes to their political spending. This robs shareholders of their ability to exit an investment either because they fundamentally disagree with political choices of managers on deeply held ideological grounds or they think that corporate managers are foolishly wasting corporate assets which could be better spent on research and development or hiring a new employee.

Congress tried and failed to pass legislation in 2010 to bring transparency and shareholder consent into corporate political spending. There is slim hope that the new Congress will pick up the pieces and try again – federal solutions seem unlikely. In the states, Iowa was first to recognize that political spending needed some internals oversight from companies. In Iowa, they improved their law by requiring board approval of corporate political spending. Lawmakers across the nation should focus on the fact that 92% of Americans (according to polling by the New York Times) want more transparency in their elections.

Yet not every reform requires a change in the law. Rather, some of these changes could be accomplished by administrative rule makings. First, federal campaign finance regulations need to be tightened. Much could be gained if merely the directions on FEC Forms 5 and 9 were modified to require those who purchase political ads in federal elections to divulge their underlying donors. The SEC should also change companies’ annual and quarterly public reporting (Forms 10-K and 10-Q) to require periodic disclosure of political spending by publicly-traded companies. Furthermore, if political spending is going to be funneled through nonprofits, then the IRS needs the resources to track which nonprofits have abused their tax status and which are complying with the rules.    

Meanwhile, back in the states, disclosure laws in both the campaign finance context and the corporate governance context need improvement. All states should require reporting of who is funding political ads. Interested legislators can refer to the Brennan Center’s Writing Reform to see how to structure these laws.  And states also have nearly plenary power to change corporate laws to give shareholders a means to consent to political spending through a vote or they could adopt Iowa’s approach of board approval which is a step in the right direction. 

Given how much remains to be done to respond to Citizens United after a full calendar year and a dark election, citizens must insist that our political leaders repair our broken systems – starting with providing more transparency. With the 2011 legislative sessions revving up around the country, the time to act is now.