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How Corporate Law Can Help Democracy Post–Citizens United

Are shareholders the last safeguard against dark money from private companies?

January 21, 2020

A few months ago, I was giving a book talk at the Kennedy School of Government at Harvard University when someone in the audience asked what I meant by the phrase “dark money.”  I took a deep breath and explained for what felt like the 100th time the impact of Citizens United v. FEC and the $1 billion in political funding that groups that do not disclose their donors have spent in the decade since that decision, also known as “dark money.”

I was saddened that many people still don’t know about the pernicious effects on democracy from this tool used by wealthy interests to manipulate politics in secret. The good news is that there are ways to fight back, including by changing corporate and securities laws.

The Supreme Court case

When the justices took Citizens United in 2008, I was an attorney at the Brennan Center. I helped write friend-of-the court briefs the case, which was argued twice because the first oral argument in Citizens United was tanked by the acting solicitor general.

The case was pending before the Supreme Court for two years. During that time, I wrote about the worst-case scenario if the Court killed the ban on corporate expenditures in American elections. I spent the summer of 2009 trying to line up friend-of-the-court briefs boosting the argument that the Court should not scrap corporate expenditure limits. I was in the Supreme Court gallery when then-Solicitor General Elena Kagan re-argued the case. In January 2010, the worst-case scenario came to pass.

Turning to Corporate Law to Address Citizens United

Citizens United allows corporations to spend an unlimited amount of money on political ads in elections. This raises legal problems for investors. Before I was an election lawyer, I was a corporate lawyer. After Citizens United, I dusted off my corporate law skills and wrote a report and testified before Congress about reforms that would help shareholders with two corporate law problems Citizens United presents. The first is a lack of transparency, meaning corporations would be a big source of dark money. The second is a lack of consent, meaning shareholders have no say on whether corporations spend money in politics.

But after working with Congress to try to pass the Disclose Act and the Shareholder Protection Act in 2010, Congress flipped to Republican control in 2011, ending hopes of passage. Reform efforts stalled until 2019, when the House changed back to Democratic control.

In the 10 years since the ruling, I have also joined advocates in encouraging the Securities and Exchange Commission to adopt a new rule against publicly traded companies spending corporate money secretly in politics using its powers under the financial laws enacted during the Great Depression. This effort garnered over 1 million public comments in favor such a transparency rule. But this effort also gained the attention of Senate Majority Leader Mitch McConnell, who put a stop to it by placing a rider into the federal budget banning the SEC from issuing a rule on dark money.

I also worked with shareholders to use their rights as company owners to push for greater transparency. As a result of shareholders efforts, hundreds of corporations are more transparent today than they were in 2010.

The Battle for Transparency Continues

If things went poorly for corporate political spending transparency during the Obama administration, things went from bad to worse under the Trump administration. Late in 2019, as part of budget negotiations to keep the federal government open, McConnell reinserted the rider that prevents the SEC from issuing a rule on corporate dark money. The SEC also put forth two proposals to make shareholder resolutions harder to file. These rules will likely inhibit the ability of shareholders to ask for more transparency of corporate money in politics. (The public can submit comments to SEC on these changes until February 3.) Simultaneously, the Senate has so far refused to consider the political reform bill H.R. 1, which includes improved transparency rules for money in politics.

Looking to the Future

The Supreme Court has continued to deregulate campaign finance in the years since Citizens United. What’s more, the Supreme Court is just one case away from getting rid of the corporate contribution ban that has been on the books since 1907.

The 2020 election is likely to be flooded with an enormous amount of dark money, more attempts at foreign influence on social media, and boatloads of lies. On the other hand, Congress may be in the mood for reform after 2020 to address these problems.

If Congress continues to stand idly by while dark money pours into elections, shareholders will continue to play a key role as watchdogs over the influence of dark money in our democracy. But that will only hold if they still have the ability under securities regulations — and the SEC is currently rewriting the rules.