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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.