In its Citizens United decision, the US Supreme Court opened the door to unlimited spending on independent political broadcasts by corporations, trusting citizens and shareholders to provide the control formerly furnished by the Federal Election Commission:
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. Shareholders can determine whether their corporation’s political speech advances the corporation’s interest in making profits, and citizens can see whether elected officials are “ ‘in the pocket’ of so-called moneyed interests.”
The Court failed to specify any means of ensuring the “prompt disclosure of expenditures” on which citizens’ and shareholders’ control would depend, apparently relying on “the Internet” to work its magic all by itself.
Now comes an article in The Atlantic by James Kwak, familiar to Coffee Party Austin Book Club members as co-author of 13 Bankers, bringing news of “One Thing [which] Can Stop Corporations From Buying the 2012 Election: Transparency.”
Transparency is the goal of a petition filed by “an all-star committee of corporate law professors” asking the Securities and Exchange Commission to require corporations to disclose their political activities. As Kwak explains,
The Securities Exchange Act of 1934 authorizes the SEC to write regulations that are “necessary or appropriate in the public interest or for the protection of investors.” There is a strong argument that mandatory disclosure is in the public interest, since it helps voters know who is paying for the attack ads they see on TV. In addition, disclosure also helps investors make ordinary investing decisions. The more money a company spends on politics, the lower the profits available for shareholders—unless it is earning a positive rate of return on its political spending.
Kwak recognizes limits on what corporations must disclose:
… public companies don’t have to disclose how they spend every single dollar. To a large extent, what they do is left up to the judgment of executive managers, who are periodically evaluated by the board of directors, who are nominally elected by shareholders. This is to protect companies from having to disclose huge amounts of information and from being micromanaged by their shareholders.
Disclosure requirements are appropriate in situations where interests are in conflict:
The most obvious is compensation of directors and officers. Here, the fear is that the directors and officers have a conflict of interest—their bank accounts versus the shareholders’ bank accounts—and that therefore the usual mechanisms of corporate governance may not work.
This reasoning applies equally well to political spending:
… if their political spending is left solely up to executives and maybe directors, those people also have personal interests that they can advance by directing money to their preferred political organizations. For example, corporate executives often own a lot of stock, so they have an incentive to support politicians who will be friendly to their companies. But they are also rich people, so they have an incentive to support politicians who will reduce taxes on the rich (and especially taxes on gains from stock)—even though lower taxes mean less money for the infrastructure spending that many businesses want ….
Kwak’s article concludes
But democracy requires information, and our corporate democracy, such as it is, has no equivalent to the Freedom of Information Act. If shareholders are supposed to prevent corporate political power from being abused, at a minimum they need information. And if Congress won’t give it to them, then the SEC is the only thing standing between a real democracy and government by the incorporated and for the incorporated.