Outside Shot

It's Time to Stand Up to the Supreme Court


In January the U.S. Supreme Court ruled that laws limiting corporate political contributions were a violation of constitutional free speech principles. "The First Amendment confirms the freedom to think for ourselves," wrote Justice Anthony M. Kennedy in his 5-4 majority opinion, which is sure to unleash a flood of corporate spending on ads for and against political candidates.

But public companies aren't people. As Justice John Paul Stevens, writing for the minority, observed, the court committed a grave error in treating corporate speech the same as that of human beings. The notion that the same freedoms should apply when a public company, often with tens of thousands of owners, speaks in matters beyond the scope of its business affairs offends common sense.

We can justifiably suppose that the individuals holding shares in these giant corporations hold a broad spectrum of opinions, and corporate political contributors can hardly honor them all. Past experience also suggests that corporate managers are likely to try to shape government policy in a way that serves their own interests over that of their shareholders. (For example, managers have opposed most attempts to limit executive compensation.)

Common sense and experience also suggest that, given the enormous revenues of today's giant corporations, these companies will make their political contributions generously. (Disclosure might help allay this generosity somewhat.) The tenet that "nothing seems expensive when you can pay for it with other people's money" comes to mind.

Those investors who share my concerns aren't powerless against the Supreme Court's decision. Their first order of business is the submission of a resolution such as this for inclusion in the next proxy statement for each corporation in which they've invested:

RESOLVED: that the corporation shall make no political contributions without the approval of the holders of at least 75% of its shares outstanding.

I recommend a supermajority requirement because of the inevitably wide range of views in any shareholder base. As it happens, 75% is halfway between a simple majority and the standard (under Delaware corporate law) requiring a unanimous shareholder vote to ratify a gift of corporate assets.

Such a check on unfettered political contributions is essential now that our corporations are no longer controlled by "persons" (i.e., individual shareholders). Some 70% of the shares of big publicly held corporations are held by "agents"—the institutional investors who manage our mutual funds, pension funds, insurance and trust companies, and endowment funds.

These agents—who together hold working control of Corporate America—have all too often failed to honor their responsibilities of corporate stewardship, and they actively vote their proxies far too rarely. The record, as far as I know, is bereft of a single proxy proposal submitted by a mutual fund or pension fund investor in opposition to a corporation's management. The temptation for agents to take advantage of their agency position for their own benefit is too great. Large institutional investors, for instance, routinely manage the retirement plans and thrift plan portfolios of the very corporations whose shares they own. As the saying goes: "There are only two types of clients we do not want to offend: actual and potential."

Most institutional money managers today are owned by giant U.S. and global financial conglomerates with their own shareholders. Of America's 40 largest, 23 are owned by conglomerates, 8 are publicly held, and only 9 remain privately owned. Money managers who share my fears about unlimited corporate contributions to politicians must enter the arena with clean hands. Before they stand up against political contributions by the companies whose shares are held in their portfolios, they must publicly pledge a no-political-contribution policy of their own. This may sound like a tall order, but it's the only avenue that presents itself for, in effect, overriding the Supreme Court's unwise decision.


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