Post-Citizens United, the SEC Should Protect Shareholders’ Right to Demand Transparency in Corporate Political Spending

A hand revealing a $20 bill

The Supreme Court opened the floodgates to corporate political spending with the 2010 decision Citizens United v. FEC. But Justice Anthony Kennedy, writing for the majority, promised that transparency of political spending would act as a check on corruption.

“With the advent of the Internet, prompt disclosure of expenditures can provide shareholders and citizens with the information needed to hold corporations and elected officials accountable for their positions and supporters,” Kennedy wrote.

Yet as even Justice Kennedy has since acknowledged, campaign finance transparency is “not working as it should.”

The deadlocked Federal Election Commission (FEC) has failed to update its transparency rules after Citizens United, and declined to enforce those rules that are on the books. And Congress has been unable to enact new transparency statutes.

But with policymakers mired in gridlock, corporate investors have used the levers of shareholder democracy to promote transparency in corporate political spending.

In the decade since Citizens United, investors have demanded that the companies they own disclose contributions to “dark money” groups that otherwise keep their donors hidden from the public. Shareholder resolutions regarding disclosure of corporate political spending are some of the most frequently filed proposals each year.

Yet the Securities and Exchange Commission (SEC) has proposed new rules would make it harder for shareholders to introduce and advance such resolutions. On February 3, 2020, Campaign Legal Center (CLC) filed comments with the SEC opposing the proposed rules.

Citizens United Endorsed Shareholder Disclosure

Citizens United anticipated shareholder activism.

Corporations, Justice Kennedy wrote for the majority, are just associations of citizens who individually have free speech rights. If that’s true, corporate funds belong to shareholders—and there is a risk that CEOs will use shareholder money to fund political speech that some shareholders disagree with. 

Although the Supreme Court has sometimes been very concerned about protecting the free speech rights of dissenters within an association, Justice Kennedy dismissed those concerns in Citizens United by promising that shareholders could use the “procedures of corporate democracy” to ensure that their “corporation’s political speech advances the corporation’s interest in making profits.”  

Disclosure of political spending, Justice Kennedy wrote, “can provide shareholders…with the information needed to hold corporations…accountable,” and “to react to the speech of corporate entities in a proper way.”

Yet the reality is that shareholders often do not know how corporations are spending corporate funds on politics, because the sources of a sizable portion of political spending are not publicly disclosed.

Nonprofit corporations and trade associations that keep their donors hidden from the public—so-called “dark money” groups—have reported $1 billion in political expenditures to the FEC since Citizens United, according to the Center for Responsive Politics. Dark money groups have spent untold millions more to influence judicial confirmations, policy issues, and state elections.

CEOs Secretly Use Shareholder Funds for Personal Political Agenda

When publicly traded corporations launder their political spending through dark money groups, shareholders cannot know whether executives are using corporate resources to advance shareholder interests, or to advance the executives’ own personal ideological interests.

For example, leaked documents show that the publicly traded company Devon Energy secretly gave $50,000 in 2012 to a dark money group supporting Wisconsin Governor Scott Walker’s reelection campaign. Emails show that the donation was made shortly after Walker was advised to solicit a donation from Devon Energy CEO Larry Nichols.

It is difficult to see how Devon Energy’s $50,000 donation advanced shareholder interests, since the company does not have business in Wisconsin. Because the donation was kept secret—and only became public years later as the result of an investigation into the dark money group—shareholders never knew or approved of the donation, and could not assess whether the donation advanced investors’ interests, or Nichols’ personal political preferences.

Devon Energy also gave $3,000,000 in 2012 to Americans for Job Security (AJS), a dark money group that supported federal candidates. Shareholders also never knew about that contribution at the time, and it only became public in October of 2019, after years of litigation and an FEC investigation forced AJS to acknowledge that it had a major purpose of influencing elections and to publicly disclose its contributors.

AJS’ delayed disclosure revealed that at least 12 publicly traded companies had given at least $5,887,000 to the politically active dark money group, according to CLC’s analysis of AJS’ report. The evidence indicates that shareholders in those companies neither knew about nor approved of corporate funds being spent in this way.

AJS is just one dark money entity; the hundreds of millions more spent by other dark money groups over the past decade disguises massive political spending by publicly traded corporations without shareholder approval or knowledge.

The SEC Should Not Block Shareholder Voices

Absent disclosure of the corporate contributions that backed that dark money spending, shareholders cannot, as Justice Kennedy promised, “hold corporations…accountable.”

The full and robust expression of shareholder democracy is an important means of protecting both shareholder interests and U.S. democracy. The SEC’s proposed rules would shrink the pool of eligible shareholders who could offer transparency resolutions, unnecessarily hindering investors from accessing the levers of shareholder democracy.

Read CLC’s comment.

Brendan directs CLC’s work before federal regulatory agencies, such as the Federal Election Commission (FEC).