A change in the rules means US companies can spend as much as they like on political advertising. But will corporate influence on elections increase?

In a landmark 5-4 decision in January, the US Supreme Court rejected corporate political spending limits on campaign ads, known as “corporate electioneering”. The case, Citizens United v Federal Election Commission, overturned a century of law, which had banned corporations – including non-profit groups and unions – from using money from their general funds to advocate for or against candidates, or to broadcast electioneering communications in the immediate run-up to an election.

Under the new ruling, companies are still prohibited from directly contributing to candidates and parties in federal elections. What has changed is that corporations can now spend unlimited amounts independently of candidates – through campaign advertising.

The case began in 2008 with a lawsuit filed by the conservative non-profit corporation Citizens United against the Federal Election Commission (FEC) to determine whether its 90-minute film critical of Hillary Clinton was in fact a campaign advertisement under the law, and therefore subject to the corporate spending ban.

Citizens United sought to advertise its programme on television and air it around the 2008 Democratic presidential primaries through an on-demand cable service. Citizens United lost the case, which was appealed all the way to the Supreme Court.

First amendment rights

The final decision, authored by Supreme Court Justice Anthony Kennedy, rested on the conclusion that campaign finance restriction violates the right to free speech, guaranteed by the first amendment to the US constitution. In other words, money provides for speech, and speech cannot not be restricted under the first amendment.

“While some means of communication may be less effective than others at influencing the public in different contexts, any effort by the judiciary to decide which means of communications are to be preferred for the particular type of message and speaker would raise questions as to the courts’ own lawful authority,” Kennedy says.

The decision has set off a firestorm of reactions. Supporters say it enables voters to hear more voices.

Eugene Volokh, professor of law at the University of California, says the court decision means that voters will have more messages from more sources – including wealthy unions and wealthy corporations. These will “supplement the messages they already get from wealthy media corporations, wealthy political parties, wealthy advocacy groups, and wealthy individuals, as well as from not-so-wealthy neighbours, bloggers, and others,” he argues.

Supporters hope that the Citizens United ruling will help empower “mom and pop” establishments, as well as unions and environmental groups that will not need to hire pricy lawyers or get approval from the FEC to support political campaigns.

Bradley Smith, professor of law at Capital University law school believes that overall the ruling will be equalising and to the benefit of small companies over large ones. It will help companies that have tried to avoid politics, he says, rather than corporations that are already political players with large action committees and lobbying operations. Smith is chairman of the Centre for Competitive Politics and a former chairman of the FEC.

Diversity and transparency

Some say the ruling will not only increase the diversity of voices but enhance, not reduce, transparency from corporations.

Michael Stauffer is a lecturer at the Zicklin school of management at Baruch College in New York, and a former director of corporate social responsibility at telecoms giant Verizon. He says corporations have been given greater voice to express political opinions by the Citizens United decision. He asks: “Why not hold them accountable to their stakeholders, not just their shareowners on whose behalf they nominally operate, in recognition of the principle that with great power comes great responsibility?”

As for those who say wealthy corporations will use their deep pockets to drown out the voices of the less wealthy, for many the prediction seems too apocalyptic.

What would be worse, Volokh argues, is if the government were to choose who has the right to speak. He says that if companies, unions or newspapers want to comment, or even rich advocacy groups or individuals, the public should be able “to listen and decide who they think is right”.

“This business of the ‘general public’ being muffled is also a myth,” says Cleta Mitchell, a campaign finance lawyer and partner at Foley & Lardner, who filed a friend-of-the-court brief in support of Citizens United. “When the labour unions spent $400m in the 2008 election alone, did anyone raise hell about their ‘muffling the general public’?”

Mitchell asks: “And who is the ‘general public’?” This, she says, presupposes that big business has interests that are at odds with the public. “Big business is big because it represents the general public in terms of capital, resources, employees, products and services.”

Supporters are united in their belief that corporations will forgo jumping into divisive election campaigns for fear of alienating their shareholders. In the 26 states that did not have restrictions on corporate political spending, there had not been a flood of corporate money into election campaigns.

Before the ruling, corporations had a host of methods for participating in elections at their disposal. They could spend money on issue advertising and bundle individual donations from corporate executives with those of political action committees. And they could donate through third party groups like chambers of commerce – yet many felt they showed restraint.

“Corporations don’t like spending money any more than anyone else does,” Volokh says. Companies also worry, she argues, that they will alienate some customers and shareholders. And they are concerned that the advertising may not end up being that effective as the source of the funding for them has to be disclosed to a suspicious public.

Then there is the camp of clear dissenters, who think the ruling encourages corporations to thwart the democratic process through their abundant bank accounts, upsetting the power balance in favour of corporate interest.

President Barack Obama is one among them. He describes the decision as “a major victory for big oil, Wall Street banks, health insurance companies and the other powerful interests that marshal their power every day in Washington to drown out the voices of everyday Americans”.

Writing in a recent issue of the New York Review of Books, Ronald Dworkin questions the position of legislators tempted to vote for healthcare reform, or the president’s banking proposals. He wonders if they would be indifferent to the prospect that their re-election campaigns could “be swamped in a tsunami of expensive negative advertising”.

Dworkin, professor of law at New York University and of law and philosophy at University College, London, also asks: “How many corporations fearful of environmental or product liability litigation would pass up the chance to tip the balance in a state judicial election?”

Norm Ornstein, a resident scholar at the American Enterprise Institute, believes that most companies will actually be unhappy about the ruling. He says: “It hurts in two ways. First, there will be an increase in the shakedown of companies by politicians of both parties, trying to squeeze money out of them. And that in turn will put companies in an uncomfortable position: give in to one party and you create a serious enemy on the other side. Don’t give in, and you face retaliation from the first party.”

Another fear is that corporations will try to protect themselves from a public outcry against their involvement in political campaigns by supporting intermediaries with more appealing (and less discernible) names. “People are likely to be more sceptical of ads coming from large corporations with vested interests in the subject than they are from pleasingly named shell groups,” says Heather Gerken, a professor at Yale law school.

Foreign cash

Then there is the issue of foreign involvement in US politics. While overseas companies are still prohibited from contributing directly to campaigns or political parties, they could potentially funnel money into US election campaigns through their US subsidiaries.

And even if corporate spending does not increase one iota, the threat of corporate financing might be the real game-changer in Washington. Ornstein says: “It can occur without any money being spent – just by the threat to spend on a slew of negative ads.” These can be designed to shape the image of a lawmaker at a vulnerable time. And this will greatly increase the pressure on lawmakers to raise more money – and to shake down companies, Ornstein argues.

It’s still early days to gauge whether corporate responsibility and sustainability professionals will have to change their tactics and increase spending to keep their agendas at the fore.

Thomas Mann, senior fellow of governance studies at the Brookings Institute, says: “They have long been in the position of needing to increase funding. This decision doesn’t change that basic reality but opens the possibility of even greater imbalance.”

Still, Mann and others recommend that corporate responsibility professionals counsel companies against independent spending in election campaigns, on the grounds that it could damage their standing with customers, shareholders, the media and politicians.

Another pre-emptive tactic is to push hard for corporate disclosure and disclaimer rules. “Surely it would more powerfully promote shareholder democracy to require managerial accountability for political expenditures than to try to muzzle them,” Stauffer says. He suggests this could be done by requiring preauthorisation from shareholders before making political expenditures, and requiring business executives to report political spending to all stakeholders.

“Corporate spending loses much of its force if corporations can’t hide behind shell organisations,” Heather Gerken says. “People are more sceptical of corporate messages when they know who is paying for them.”

Overall, the question boils down to whether corporations will, in fact, use their wealth to influence campaigns and focus the political agenda on their self-interests, or if the ruling will open the political arena to a more inclusive and robust political debate.

Either way, it will take time to see the real impact of Citizens United. The key approach for corporate responsibility professionals is to be aware of potential issues and monitor the political struggles that may now rise to the surface.