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Friday, November 20, 2009

Campaign Finance, Shareholders' Rights and the Chamber of Commerce

It's an interesting coincidence that the Supreme Court is considering what to do about corporations' rights to engage in political speech just as one of the main justifications for such regulation is getting at least a limited empirical test.  As most people here probably know, the Court heard oral argument last September in Citizens United v. Federal Election Comm'n.  That case may -- in fact, probably will -- yield a major decision on corporations' rights to engage in political speech.  In particular, it may lead to the overruling of Austin v. Michigan Chamber of Commerce (1990), where a six-Justice majority upheld a state law requiring corporations to engage in explicit electoral advocacy only through a segregated fund -- i.e., not via its general treasury funds.  Austin relied, at least in part, on a rationale that stakeholders in a corporation -- in Austin, the members of the Michigan Chamber of Commerce -- might feel compelled for economic reasons to remain members even though they opposed the speech in which the corporation was engaging.  Thus, the Court reasoned, the state had an interest in protecting those stakeholders' interests in not being essentially compelled to subsidize speech with which they disagreed.

At the Citizens United oral argument, Chief Justice Roberts pressed Solicitor General Kagan hard on this point (at around page 58 of the transcript, if you're curious).  He derided the paternalism implicit in the shareholder-protection rationale.  It was clear that at least he wasn't buying it (as, presumably, were not Justices Scalia and Kennedy, who dissented in Austin).

What's interesting is that, right now, the U.S. Chamber of Commerce is embroiled in controversy over its position on global warming, with -- you guessed it -- members quitting in protest over the Chamber's speech.   On the face of it, this example is pretty extraordinary; these are not small companies that are quitting, but major firms like Apple and Levi Strauss.  Thus, it's not at all clear that this example says much about the ability of smaller chamber members to protect themselves from unwillingly funding speech.  And of course it says nothing about the power of individual stockholders in companies, many of whom own shares via mutual funds, thus making exit even harder. (Solicitor General Kagan made this latter point as well, though again she was rebuffed by Chief Justice Roberts.)  I'm sure the Justices are aware of this controversy, and how it fits in to the strength of the government's shareholder protection interest. 

If the Citizens United opinion does in fact overrule Austin, it will be interesting to see what, if any, use the Court will make of this example.  If I had to guess I'd say they wouldn't mention it; still, it would be awfully tempting to note, in the course of overruling Austin, that the national affiliate of the very organization to which the stakeholder protection rationale was applied in Austin is apparently experiencing the very exit that Austin thought was sufficiently problematic as to justify an infringement on corporations' political speech rights.

Posted by Bill Araiza on November 20, 2009 at 05:25 PM | Permalink


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