Corporate Shareholders Deserve Equal Rights on Campaign Finance
As the 2012 election season rolls forward, campaign cash is taking center stage. And when it comes to money in politics, the debate seems inevitably to end in a fight over the Supreme Court’s Citizens United decision. Many believe Citizens United unleashed new torrents of spending. Others think the decision merely nudged along an escalation that was occurring anyway. But we’re all missing a central feature of Citizens United that will have a major impact on the balance of political power in the country, in 2012 and beyond.
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Here’s the issue. The conventional wisdom is that Citizens United treats political spending by corporations and labor unions equally. And, as a formal matter, the case does free both groups to spend their general treasuries on politics. But the freedom that the Court’s Citizens United decision gives to corporations and unions alike, other cases take away from unions alone. The result? A legally constructed advantage for corporations over unions when it comes to politics.
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This asymmetry arises out of a Supreme Court rule prohibiting unions from spending even one dime of their general treasury money on politics when individual employees object to such use. (The Court’s recent Knox decision [PDF] emphatically reaffirmed and expanded this prohibition in the public sector, but the general rule applies to private sector unions as well.) In contrast to the union rule, the law permits corporations to spend their assets on politics even in the face of individual shareholder objections. To put it simply, the law gives employees the right to opt out of funding union political speech, but shareholders get no right to opt out of funding corporate political speech.
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Unless there’s a valid reason for treating these two political actors differently, moreover, imposing stricter rules on unions than corporations violates core American ideals of equal treatment. And, despite their differences, unions and corporations are actually analogous in the way that matters most.
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Think about it this way. A union’s general treasury is made up of dues paid by employees. Under current law, a union can require employees to pay these dues in order to work at a unionized firm. But, labor law mandates that any employee who pays dues to the union gets the right to insist that the union not use any of her dues for politics. Why? Because we think it is unjust for a union to withhold access to an economic opportunity — a job — unless employees provide support for the union’s political agenda.
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Although we might not be used to thinking about it this way, the corporate context presents a similar kind of problem. Just as employment in a unionized firm can be conditioned on an employee’s willingness to pay union dues, investment in corporate stock is conditioned on the shareholder’s willingness to give a company’s management the authority to decide how to spend corporate assets. Under current corporate law rules, this means if you want to take advantage of the economic opportunity to invest in a corporation and reap the profits that come with that opportunity, you have to surrender your share of the corporate assets to the firm’s political agenda.
The most common objection to treating unions and corporations as equivalents is that workers are “forced” or “compelled” to pay union dues, while investing is always voluntary. But, when you think about it, this turns out to be not quite right either. No one is actually “forced” to pay union dues because no one is actually ever forced to take a job with a unionized employer. In fact, in the U.S. today, only about 7 percent of the jobs in the private sector (and only around 12 percent of jobs if you include the public sector) are union. So, avoiding union dues requires you to work in any one of the (vast majority of) jobs that doesn’t have a union.
This is not to deny that avoiding union employment has very real costs. Indeed — and especially for workers already in a union job or for workers who’s occupation is heavily unionized — these costs can be significant. Working in the nonunion sector can mean lower wages and benefits, and changing jobs can also lead to losses in lifetime earnings (not to mention the stress and incumbent costs of changing careers). So, it’s fair to say that avoiding union dues can be very costly.
Now compare the shareholder context. Just like in the union context, no one is actually forced to buy stocks. But if, in order to avoid corporate politics, you choose not to invest in the stock market, you will bear some significant costs too. That’s because stocks are a critical investment vehicle that should be part of any well-advised investor’s portfolio. For example, although past performance is no guarantee of future results, over the last 80 years or so, the average returns on stocks was about 11 percent. For Treasury Bonds it was only 5 percent; T-bills brought in 3.7 percent. These figures vary depending on the period of time we pick – and at times stocks underperform other vehicles – but giving up stocks because you do not want to support corporate politics means giving up very real money. For, say, the middle class investor trying to put her kids through college, it can be a make-it or break-it difference.
If there were enough corporations willing to swear off politics, then we might see investment funds that could cater to investors who don’t like corporate politics. But those corporations and funds just don’t exist in significant enough numbers today. And there are good reasons to question whether they’ll ever constitute a viable option.
Given the significant costs involved in avoiding both union jobs and the stock market, its simply not right to say that employees are compelled to pay dues while investment is voluntary. If it’s wrong to let unions spend employee dues on politics, the current corporate set-up is wrong too: if we don’t want to make job opportunities available only to those employees willing to support the union’s politics, we shouldn’t make investment opportunities available only to those willing to support a corporation’s political activities.
What should be done? Many approaches are possible, but one promising strategy – and one that would have the virtue of treating these political spenders equally – would be to take the opt-out right currently available to employees and offer it to shareholders. It would work like this: When you invest in a corporation — either directly or through a mutual fund — you would be given the right to object to spending corporate assets on politics. The firm would then figure out what percentage of its overall expenditures go to politics, and return to you your pro-rata share of these expenditures (depending on how many shares you own) in the form of a dividend. Since unions have faced a similar obligation for decades now – they have to divide all of their expenditures into political and non-political, and then reduce the dues payment of objectors accordingly – we could look to the union example as a source of guidance when crafting and administering the corporate rule. (If the Supreme Court were ever to require private sector unions to secure employee opt in to union political spending — as an aggressive extension of the Knox decision might entail – then corporations should similarly be required to secure shareholder opt in to corporate political spending.)
The good news is that both Congress and the Supreme Court have expressed their commitment to treating unions and corporations equally when it comes to campaign finance regulation. There’s just a bit more work to be done to secure this important goal. By giving shareholders the kind of rights that employees currently enjoy, we can achieve the kind of equal treatment that our democracy demands.
Benjamin Sachs is a professor at the Harvard Law School and the author, most recently, of “Unions, Corporations, and Political Opt-Out Rights After Citizens United” in the Columbia Law Review. He formerly served as assistant general counsel of the Service Employees International Union.
